UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended August 31, 2017
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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)
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Delaware |
95-1797918 |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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9715 Businesspark Avenue, San Diego, California |
92131 |
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(Address of principal executive offices) |
(Zip code) |
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Registrant’s telephone number, including area code: (619) 275-1400
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Name of each exchange on which registered |
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Common Stock, $0.001 par value |
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The NASDAQ Stock Market, LLC |
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☑
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the 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 Act).
Yes ☐ No ☑
The aggregate market value (closing price) of the voting stock held by non-affiliates of the registrant as of February 28, 2017 was approximately $1,490,334,448.
As of October 18, 2017, there were 13,964,343 shares of the registrant’s common stock outstanding.
Documents Incorporated by Reference:
The Proxy Statement for the annual meeting of stockholders on December 12, 2017 is incorporated by reference into Part III, Items 10 through 14 of this Annual Report on Form 10-K.
WD-40 COMPANY
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended August 31, 2017
TABLE OF CONTENTS
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Item 1. |
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Item 1A. |
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Item 1B. |
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Item 2. |
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Item 3. |
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Item 5. |
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Item 6. |
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Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 7A. |
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Item 8. |
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Item 9. |
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
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Item 9B. |
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Item 10. |
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Item 11. |
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Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Item 13. |
Certain Relationships and Related Transactions, and Director Independence |
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Item 14. |
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Item 15. |
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Item 16. |
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Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements other than those that are purely historical are 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 Item 1A of this report. 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 percentages in tables and discussions may not total due to rounding.
Overview
WD-40 Company 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 was founded in 1953 and is headquartered in San Diego, California.
For more than four decades, the Company sold only one product, WD-40® Multi-Use Product, a maintenance product which acts as a lubricant, rust preventative, penetrant, cleaner and moisture displacer. Over the last two decades, the Company has evolved and expanded its product offerings through both research and development activities and through the acquisition of several brands worldwide. As a result, the Company has built a family of brands and product lines that deliver high quality performance at an extremely good value to its end users.
The Company currently markets and sells its products in more than 176 countries and territories worldwide 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.
The Company’s sales come from its two product groups – maintenance products and homecare and cleaning products. 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 strategic initiatives and the areas where it will continue to focus its 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.
The principal driver of the Company’s growth continues to be taking the Company’s flagship product, WD-40 Multi-Use Product, to new users in global markets. The Company is focused on and committed to innovation and renovation of its products. The Company sees innovation and renovation as important factors to the long-term growth of its brands and product lines, and it intends to continue to work on future products, product lines, product packaging, product delivery systems and promotional innovations and renovations. The Company is also focused on expanding its current brands in existing markets with new product development. The Company’s product development teams support new product development and current product improvement for the Company’s brands. Over the years, the Company’s research and development team has made an innovation impact on most of the Company’s brands. Key innovations for the Company’s products include, but are not limited to, WD-40 EZ Reach Flexible Straw, WD-40 Smart Straw®, WD-40 Trigger Pro®, WD-40 Specialist®, WD-40 Bike™, and 3-IN-ONE Professional Garage Door Lube™.
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Financial Information about Operating Segments
The Company’s operating segments are determined consistent with the way management organizes and evaluates financial information internally for making operating decisions and assessing performance. The Company is organized on the basis of geographical area into the following three segments:
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Americas segment consists of the United States (“U.S.”), Canada and Latin America; |
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Europe, Middle East and Africa (“EMEA”) segment consists of countries in Europe, the Middle East, Africa and India; and |
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Asia-Pacific segment consists of Australia, China and other countries in the Asia region. |
The Company’s management reviews product performance on the basis of sales, which come from its two product groups –maintenance products and homecare and cleaning products. The financial information required by operating segment is included in Note 15 – Business Segments and Foreign Operations of the Company’s consolidated financial statements, included in Item 15 of this report, and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in Item 7 of this report.
Products
Maintenance Products
Included in the Company’s maintenance products are both multi-purpose maintenance products and specialty maintenance products. These maintenance products are sold worldwide and they provide end users with a variety of product and delivery system options.
The Company’s signature product is the WD-40 Multi-Use Product in the blue and yellow can with the red top, which is included within the maintenance product category and it accounts for a significant majority of the Company’s sales. The Company has various products and product lines which it currently sells under the WD-40 brand and they are as follows:
WD-40 Multi-Use Product - The WD-40 Multi-Use Product is a market leader in many countries among multi-purpose maintenance products and is sold as an aerosol spray with various unique delivery systems, a non-aerosol trigger spray and in liquid-bulk form through mass retail stores, hardware stores, warehouse club stores, automotive parts outlets, online retailers and industrial distributors and suppliers. The WD-40 Multi-Use Product is sold worldwide in North, Central and South America, Asia, Australia, Europe, the Middle East and Africa. The WD-40 Multi-Use Product has a wide variety of consumer uses in, for example, household, marine, automotive, construction, repair, sporting goods and gardening applications, in addition to numerous industrial applications.
WD-40 Specialist product line – WD-40 Specialist consists of a line of professional-grade specialty maintenance products that include penetrants, degreasers, corrosion inhibitors, greases, lubricants and rust removers that are aimed at professionals as well as end users that currently use the WD-40 Multi-Use Product. The WD-40 Specialist product line is sold primarily in the U.S., Canada, Latin America, Europe, Australia and Asia. Within the WD-40 Specialist product line, the Company also sells WD-40 Specialist Motorbike in the United States and Europe, WD-40 Specialist Lawn and Garden in Australia, and WD-40 Specialist Automotive in Asia.
WD-40 Bike product line - The WD-40 Bike product line consists of a comprehensive line of bicycle maintenance products that include wet and dry chain drip lubricants, chain cleaners and degreasers, and foaming wash that are designed for avid and recreational cyclists, bike enthusiasts and mechanics. The Company launched this product line in the U.S. in fiscal year 2013 in Australia and Europe in fiscal year 2014, and in Latin America and select countries in Asia in early fiscal year 2016. Although the initial focus for such sales was on smaller independent bike dealers, distribution of WD-40 Bike products has been expanded to include select distributors and retailers in countries where the Company sells this product.
The Company also has the following additional brands which are included within its maintenance products group:
3-IN-ONE - The 3-IN-ONE brand consists of multi-purpose drip oil, specialty drip oils, and spray lubricant products, as well as other specialty maintenance products. The multi-purpose drip oil is a lubricant with unique spout options that allow for precise applications to small mechanisms and assemblies, tool maintenance and threads on screws and bolts. 3-IN-ONE Oil is the market share leader among drip oils for household consumers. It also has wide industrial applications in such areas as locksmithing, HVAC, marine, farming and construction. In addition to the drip oil line of products, the 3-IN-ONE brand also includes a professional line of products known as 3-IN-ONE Professional, which is a line of professional-grade maintenance products, as well as 3-IN-ONE RVcare products and 3-IN-ONE Garage Door Lubricant. The high quality of the 3-IN-ONE brand and its
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established distribution network have enabled these products to gain international acceptance. 3-IN-ONE products are sold primarily in the U.S., Europe, Canada, Latin America, Australia and Asia.
GT85® - The GT85 brand is a multi-purpose bike maintenance product that consists of professional spray maintenance products and lubricants which are sold primarily in the bike market through the automotive and industrial channels in the U.K., with additional sales in foreign markets including those in Spain and other European countries. This brand was acquired by the Company’s U.K. subsidiary in September 2014 and it has helped build upon the Company’s strategy to develop new product categories for WD-40 Specialist and WD-40 BIKE.
Homecare and Cleaning Products
The Company sells its homecare and cleaning products in certain locations worldwide and they include a portfolio of well-known brands as follows:
2000 Flushes - The 2000 Flushes brand is a line of long-lasting automatic toilet bowl cleaners which includes a variety of formulas. 2000 Flushes is sold primarily in the U.S. and Canada through grocery and mass retail channels as well as through online retailers.
Spot Shot - The Spot Shot brand is sold as an aerosol carpet stain remover and a liquid trigger carpet stain and odor eliminator. The brand also includes environmentally friendly products such as Spot Shot Instant Carpet Stain & Odor Eliminator™ and Spot Shot Pet Clean, which are non-toxic and biodegradable. Spot Shot products are sold primarily through grocery and mass retail channels, online retailers, warehouse club stores and hardware and home center stores in the U.S. and Canada. Spot Shot products are also sold in the U.K. under the 1001 brand name.
Carpet Fresh - The Carpet Fresh brand is a line of room and rug deodorizers sold as powder, aerosol quick-dry foam and trigger spray products. Carpet Fresh is sold primarily through grocery, mass, and value retail channels as well as through online retailers in the U.S., the U.K. and Australia. In the U.K., these products are sold under the 1001 brand name and in Australia, they are sold under the No Vac brand name.
1001 - The 1001 brand includes carpet and household cleaners and rug and room deodorizers which are sold primarily through mass retail, grocery and home center stores in the U.K. The brand was acquired in order to introduce the Company’s other homecare and cleaning product formulations under the 1001 brand and to expand the Company’s homecare and cleaning products business into the U.K. market.
Lava - The Lava and Solvol brands consist of heavy-duty hand cleaner products which are sold in bar soap and liquid form through hardware, grocery, industrial, automotive and mass retail channels as well as through online retailers. Lava is sold primarily in the U.S., while Solvol is sold exclusively in Australia.
X-14 - The X-14 brand is a line of quality products designed for unique cleaning needs. X-14 is sold as a liquid mildew stain remover and as an automatic toilet bowl cleaner. X-14 is sold primarily in the U.S. through grocery and mass retail channels as well as through online retailers.
The Company’s homecare and cleaning products, particularly those in the U.S., are considered harvest brands which continue to provide positive returns to the Company but are becoming a smaller part of the business as sales of the maintenance products grow with the execution of the Company’s strategic initiatives. Although the Company has evaluated strategic alternatives for certain of its homecare and cleaning products in prior fiscal years, particularly those in the U.S., it has continued to sell these brands but has done so with a reduced level of investment.
Financial information about operating segments and product lines is included in Note 15 – Business Segments and Foreign Operations of the consolidated financial statements, included in Item 15 of this report.
Sales and Marketing
The Company’s sales do not reflect any significant degree of seasonality. However, it is common for the Company’s sales to fluctuate from period to period or year to year due to various factors including, but not limited to, new or lost distribution, the number of product offerings carried by a customer and the level of promotional activities and programs being run at customer locations. New or lost distribution occurs when the Company gains or loses customers, when it gains or loses store count for a customer or when its products are added to new locations within a store or removed from existing locations. From time to time, as part of new product offering launches, the Company may gain access to entirely new distribution channels. The number of product offerings refers to the number of brands and/or the number of products within each of those brands that the Company’s customers offer for sale to end user customers. The level of promotional activities and programs relates to the number of events
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or volumes of purchases by customers in support of off-shelf or promotional display activities. Changes in any one of these three factors or a combination of them can cause the Company’s sales levels to increase or decrease from period to period. It is also common and/or possible that the Company could lose distribution or product offerings and experience a decrease in promotional activities and programs in one period and subsequently regain this business in a future period. The Company is accustomed to such fluctuations and manages this as part of its normal business activities.
Manufacturing
The Company outsources directly or through its marketing distributors the manufacturing of its finished products to various third-party contract manufacturers. The Company or its marketing distributors use contract manufacturers in the U.S., Canada, Mexico, Brazil, Argentina, Columbia, the U.K., Italy, Australia, Japan, China, South Korea and India. Although the Company does not typically have definitive minimum purchase obligations included in the contract terms with its contract manufacturers, when such obligations have been included, they have been immaterial to date. Supply needs are communicated by the Company to its contract manufacturers, and the Company is committed to purchase the products manufactured based on orders and short-term projections, ranging from two to five months, provided to the contract manufacturers. The Company also formulates and manufactures concentrate used in its WD-40 products at its own facilities and at third-party contract manufacturers.
In addition to the commitments to purchase products from contract manufacturers described above, the Company may also enter into commitments with other manufacturers from time to time to purchase finished goods and components to support innovation and renovation initiatives and/or supply chain initiatives.
Sources and Availability of Components and Raw Materials
The Company and its third-party contract manufacturers rely on a limited number of suppliers, including single or sole suppliers, for certain of its raw materials, packaging, product components and other necessary supplies. The primary components and raw materials for the Company’s products include petroleum-based specialty chemicals and aerosol cans, which are manufactured from commodities that are subject to volatile price changes. The availability of these components and raw materials is affected by a variety of supply and demand factors, including global market trends, plant capacity decisions and natural disasters. The Company expects these components and raw materials to continue to be readily available in the future, although the Company will continue to be exposed to volatile price changes.
Research and Development
The Company recognizes the importance of innovation and renovation to its long-term success and is focused on and committed to research and new product development activities, primarily in its maintenance product group. The Company’s product development team engages in consumer research, product development, current product improvement and testing activities. The product development team also leverages its development capabilities by partnering with a network of outside resources including the Company’s current and prospective outsource suppliers. In addition, the research and development team engages in activities and product development efforts which are necessary to ensure that the Company meets all regulatory requirements for the formulation of its products. The Company incurred research and development expenses of $8.4 million, $7.7 million, and $9.0 million in fiscal years 2017, 2016 and 2015, respectively. None of this research and development activity was customer-sponsored.
Order Backlog
Order backlog is not a significant factor in the Company’s business.
Competition
The markets for the Company’s products, particularly those related to its homecare and cleaning products, are highly competitive. The Company’s products compete both within their own product classes as well as within product distribution channels, competing with many other products for store placement and shelf space. Competition in international markets varies by country. The Company is aware of many competing products, some of which sell for lower prices or are produced and marketed by companies with greater financial resources than those of the Company. The Company relies on the awareness of its brands among consumers, the value offered by those brands as perceived by consumers, product innovation and renovation and its multiple channel distributions as its primary strategies. New products typically encounter intense competition, which may require advertising and promotional support and activities. When or if a new product achieves consumer acceptance, ongoing advertising and promotional support may be required in order to maintain its relative market position.
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Trademarks and Patents
The Company owns a number of patents, but relies primarily upon its established trademarks, brand names and marketing efforts, including advertising and sales promotions, to compete effectively. The WD-40 brand, 3-IN-ONE, Lava, Solvol, X-14, 2000 Flushes, Carpet Fresh and No Vac, Spot Shot, GT85, and 1001 trademarks are registered or have pending registrations in various countries throughout the world.
Employees
At August 31, 2017, the Company employed 448 people worldwide: 172 by the U.S. parent corporation; 7 by the Malaysia subsidiary; 12 by the Canada subsidiary; 183 by the U.K. subsidiary; 20 by the Australia subsidiary; 52 by the China subsidiary; and 2 by WD-40 Manufacturing Company, the Company’s manufacturing subsidiary.
Financial Information about Foreign and Domestic Operations
For detailed information about the Company’s foreign and domestic operations, including net sales by reportable segment and long-lived assets by geography, refer to Note 15 - Business Segments and Foreign Operations of the consolidated financial statements, included in Item 15 of this report.
Access to SEC Filings
The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available through the Investors section of the Company’s website at www.wd40company.com. These reports can be accessed free of charge from the Company’s website as soon as reasonably practicable after the Company electronically files such materials with, or furnishes them to, the Securities and Exchange Commission (“SEC”). Information contained on the Company’s website is not included as a part of, or incorporated by reference into, this report.
Interested readers may also read and copy any materials that the Company files at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Readers may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site (www.sec.gov) that contains the Company’s reports.
The following risks and uncertainties, as well as other factors described elsewhere in this report or in other SEC filings by the Company, could adversely affect the Company’s business, financial condition and results of operations.
The Company’s financial results could suffer if the Company is unable to implement and successfully manage its strategic initiatives or if the Company’s strategic initiatives do not achieve the intended results.
There is no assurance that the Company will be able to implement and successfully manage its strategic initiatives, including its five major strategic initiatives, or that the strategic initiatives will achieve the intended results, which include sales volume growth. The Company’s five core strategic initiatives 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 a broadened product and revenue base; (iv) attracting, developing and retaining talented people; and (v) operating with excellence. An important part of the Company’s success depends on its continuing ability to attract, retain and develop highly qualified people. The Company’s future performance depends in significant part on maintaining high levels of employee engagement and nurturing the Company’s values and culture. In addition, it depends on the continued service of its executive officers, key employees and other talented people, as well as effective succession planning. The loss of the services of key employees could have a material adverse effect on the Company’s business and prospects. Competition for such talent is intense, and there can be no assurance that the Company can retain its key employees or attract, assimilate and retain employees who are fully engaged in the future. If the Company is unable to implement and successfully manage its strategic initiatives in accordance with its business plans, the Company’s business and financial results could be adversely affected. Moreover, the Company cannot be certain that the implementation of its strategic initiatives will necessarily advance its business or financial results as intended.
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Global operations outside the U.S. expose the Company to uncertain conditions, foreign currency exchange rate risk and other risks in international markets.
The Company’s sales outside of the U.S. were approximately 61% of consolidated net sales in fiscal year 2017 and one of its strategic initiatives includes maximizing the WD-40 Multi-Use Product through geographic expansion and market penetration. As a result, the Company currently faces, and will continue to face, substantial risks associated with having increased global operations outside the U.S., including:
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economic or political instability in the Company’s global markets, including Canada, Latin America, the Middle East, parts of Asia, Russia, Eastern Europe and the Eurozone countries; |
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restrictions on or costs relating to the repatriation of foreign profits to the U.S., including possible taxes or withholding obligations on any repatriations; |
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challenges associated with conducting business in foreign jurisdictions, including those related to the Company’s understanding of and compliance with business laws and regulations in such foreign jurisdictions; |
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increasing tax complexity associated with operating in multiple tax jurisdictions; |
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dispersed employee base and compliance with employment regulations and other labor issues, such as labor laws and minimum wages, in countries outside the U.S.; and |
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the imposition of tariffs or trade restrictions and costs, burdens and restrictions associated with other governmental actions. |
These risks could have a significant impact on the Company’s ability to sell its products on a competitive basis in global markets outside the U.S. and could have a material adverse effect on the Company’s business, financial condition and results of operations.
Approximately 39% of the Company’s revenues in fiscal year 2017 were generated in currencies other than the U.S. dollar, which is the reporting currency of the Company. In addition, all of the Company’s foreign subsidiaries have functional currencies other than the U.S. Dollar and the Company’s largest subsidiary is located in the U.K. and generates significant sales in Pound Sterling and Euro. As a result, the Company is also exposed to foreign currency exchange rate risk with respect to its sales, expenses, profits, cash and cash equivalents, other assets and liabilities denominated in currencies other than the U.S. Dollar. In particular, the Company’s financial results are negatively impacted when the foreign currencies in which its subsidiary offices operate weaken relative to the U.S. Dollar. Although the Company uses instruments to hedge certain foreign currency risks, primarily those associated with its U.K. subsidiary and net assets denominated in non-functional currencies, it is not fully protected against foreign currency fluctuations and, therefore, the Company’s reported earnings may be affected by changes in foreign currency exchange rates. Moreover, any favorable impacts to profit margins or financial results from fluctuations in foreign currency exchange rates are likely to be unsustainable over time.
As a result of the June 2016 referendum by British voters to exit the European Union (“Brexit”), global markets and foreign currencies were adversely impacted in the months following the vote. In particular, the value of the Pound Sterling sharply declined as compared to the U.S. Dollar and other currencies in late fiscal year 2016 and early fiscal year 2017. Subsequently, on March 29, 2017, the U.K. invoked Article 50 of the Lisbon Treaty, which provides a two-year time period through March 2019 for the U.K. and the remaining EU countries to negotiate a withdrawal agreement. The volatility in foreign currencies may continue as the U.K. negotiates and executes its impending exit from the European Union, but it is uncertain over what time period the volatility in foreign currencies as a result of this event will occur. A significantly weaker Pound Sterling compared to the U.S. Dollar over a sustained period of time may have a significant negative effect on the Company’s results of operations. In addition, the legal and regulatory framework that will apply to the U.K. and its future relationship with the European Union after the exit is completed may change the manner in which businesses operate in Europe, including how products and services are imported and exported between countries in Europe, and this could adversely impact the Company’s financial condition and results of operations. The outcomes of the negotiations between the U.K. and the European Union are currently unknown and due to the lack of comparable precedent, the extent of any adverse consequences to the Company’s business is uncertain.
Additionally, the Company’s global operations outside the U.S. are subject to risks relating to appropriate compliance with legal and regulatory requirements in local jurisdictions, potential difficulties in staffing and managing local operations, potentially higher incidence of fraud or corruption, credit risk of local customers and distributors and potentially adverse tax consequences. As the Company further develops and grows its business operations outside the U.S., the Company is exposed to additional complexities and risks, particularly in China, Russia and emerging markets. In many foreign countries, particularly in those with developing economies, business practices that are prohibited by the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act or other applicable anti-corruption laws and regulations may be prevalent. Any failure to comply with these laws, even if inadvertent, could result in significant penalties or otherwise harm the Company’s reputation and business. Although the Company has adopted policies and contract terms to mandate compliance with these laws, there can be no assurance that all of its employees, contractors and agents will comply with the Company’s requirements. Violations of these laws could be costly and disrupt the Company’s business, which could have a material adverse effect on its business, financial condition and results of operations.
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If the success and reputation of one or more of the Company’s leading brands erodes, its business, financial condition and results of operations could be negatively impacted.
The financial success of the Company is directly dependent on the success and reputation of its brands, particularly its WD-40 brand. The success and reputation of the Company’s brands can suffer if marketing plans or product development and improvement initiatives, including the release of new products or innovative packaging, do not have the desired impact on the brands’ image or do not attract customers as intended. The Company’s brands can also be adversely impacted due to the activities and pressures placed on them by the Company’s competitors. Further, the Company’s business, financial condition and results of operations could be negatively impacted if one of its leading brands suffers damage to its reputation due to real or perceived quality or safety issues. Quality issues, which can lead to large scale recalls of the Company’s products, can be due to items such as product contamination, regulatory non-compliance, packaging errors, incorrect ingredients or components in the Company’s product or low quality ingredients in the Company’s products due to suppliers delivering items that do not meet the Company’s specifications. Product quality issues, which could include lower product efficacy due to formulation changes attributable to regulatory requirements, could also result in decreased customer confidence in the Company’s brands and a decline in product quality could result in product liability claims. Although the Company makes every effort to prevent brand erosion and preserve its reputation and the reputation of its brands, there can be no assurance that such efforts will be successful.
Sales unit volume growth may be difficult to achieve.
The Company’s ability to achieve sales volume growth will depend on its ability to (i) execute its strategic initiatives, (ii) drive growth in new markets by making targeted end users aware of the Company’s products and making them easier to buy, (iii) drive growth within its existing markets through innovation, renovation and enhanced merchandising and marketing of its established brands, and (iv) capture market share from its competitors. It is more difficult for the Company to achieve sales volume growth in developed markets where the Company’s products are widely used as compared to in developing or emerging markets where the Company’s products have been newly introduced or are not as well known by consumers. In order to protect the Company’s existing market share or capture additional market share from its competitors, the Company may need to increase its expenditures related to promotions and advertising or introduce and establish new products or product lines. In past periods, the Company has also increased sales prices on certain of its products in response to increased costs for components and raw materials. Sales price increases may slow sales volume growth or create declines in volume in the short term as customers adjust to sales price increases. In addition, the continued prominence and growth of the online retail sales channel has presented both the Company and its customers that sell the Company’s products online with the challenge of balancing online and physical store retailing methods. A change in the strategies of the Company’s existing customers, including shelf simplification, the discontinuation of certain product offerings or the shift in shelf space to competitors’ products could reduce the Company’s sales and potentially offset sales volume increases achieved as a result of other sales growth initiatives. If the Company is unable to increase market share in its existing product lines by developing product improvements, investing adequately in its existing brands, building usage among new customers, developing, acquiring or successfully launching new products or product line extensions, or successfully penetrating emerging and developing markets and sales channels globally, the Company may not achieve its sales volume growth objectives.
Cost increases or cost volatility in finished goods, components, raw materials, transportation and other necessary supplies or services could harm or impact the Company’s financial condition and results of operations.
Increases in the cost of finished goods, components and raw materials and increases in the cost of transportation and other necessary supplies or services may harm the Company’s financial condition and results of operations. Petroleum-based specialty chemicals and aerosol cans, which constitute a significant portion of the costs for many of the Company’s maintenance products, have experienced significant price volatility in the past, and may continue to do so in the future. In particular, volatility in the price of oil directly impacts the cost of petroleum-based specialty chemicals which are indexed to the price of crude oil. Additionally, fluctuations in oil and diesel fuel prices have also historically impacted the Company’s cost of transporting its products among other input costs. If there are significant increases in the costs of components, raw materials and other expenses, and the Company is not able to increase the prices of its products or achieve cost savings to offset such cost increases, the Company’s gross margins and operating results will be negatively impacted. In addition, if the Company increases product sales prices in response to increases in the cost of such raw materials, and those raw material costs later decline significantly, the Company may not be able to sustain its sales prices at these higher levels. As component and raw material costs are the principal contributors to the cost of goods sold for all of the Company’s products, any significant fluctuation in the costs of components and raw materials could have a material impact on the gross margins realized on the Company’s products. Sustained increases in the cost of raw materials, components, transportation and other necessary supplies or services, or significant volatility in such costs, could have a material adverse effect on the Company’s financial condition and results of operations.
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Global economic conditions may negatively impact the Company’s financial condition and results of operations.
A general weakening or decline in the global economy or a reduction in industrial outputs, business or consumer spending or confidence could delay or significantly decrease purchases of the Company’s products by its customers and end users. Consumer purchases of discretionary items, which could include the Company’s maintenance products and homecare and cleaning products, may decline during periods where disposable income is reduced or there is economic uncertainty, and this may negatively impact the Company’s financial condition and results of operations. During unfavorable or uncertain economic times, end users may also increase purchases of lower-priced or non-branded products and the Company’s competitors may increase their level of promotional activities to maintain sales volumes, both of which may negatively impact the Company’s financial condition and results of operations. In addition, the Company’s sales and operating results may be affected by uncertain or changing economic and market conditions, including inflation, deflation, prolonged weak consumer demand, political instability or other changes which may affect the principal markets, trade channels, and industrial segments in which the Company conducts its business. If economic or market conditions in key global markets deteriorate, the Company may experience material adverse effects on its business, financial condition and results of operations.
Adverse economic and market conditions could also harm the Company’s business by negatively affecting the parties with whom it does business, including its customers, retailers, distributors and wholesalers, and third-party contract manufacturers and suppliers. These conditions could impair the ability of the Company’s customers to pay for products they have purchased from the Company. As a result, allowances for doubtful accounts and write-offs of accounts receivable from the Company’s customers may increase. In addition, the Company’s third-party contract manufacturers and its suppliers may experience financial difficulties that could negatively affect their operations and their ability to supply the Company with finished goods and the raw materials, packaging, and components required for the Company’s products.
Government laws and regulations, including environmental laws and regulations, could result in material costs or otherwise adversely affect the Company’s financial condition and results of operations.
The manufacturing, chemical composition, packaging, storage, distribution and labeling of the Company’s products and the manner in which the Company’s business operations are conducted must comply with an extensive array of federal, state and foreign laws and regulations. If the Company is not successful in complying with the requirements of all such regulations, it could be fined or other actions could be taken against the Company by the applicable governing body, including the possibility of a required product recall. Any such regulatory action could adversely affect the Company’s financial condition and results of operations. It is also possible that governments and regulatory agencies will increase regulation, including the adoption of further regulations relating to the transportation, storage or use of certain chemicals, to enhance homeland security or protect the environment and such increased regulation could negatively impact the Company’s ability to obtain raw materials, components and/or finished goods or could result in increased costs. In the event that such regulations result in increased product costs, the Company may not be in a position to raise selling prices, and therefore an increase in costs could have a material adverse effect on the Company’s business, financial condition and results of operations.
Some of the Company’s products have chemical compositions that are controlled by various state, federal and international laws and regulations, such as regulations issued by the California Air Resources Board relating to permitted levels of volatile organic compounds. The Company is required to comply with these laws and regulations and it seeks to anticipate regulatory developments that could impact the Company’s ability to continue to produce and market its products. The Company invests in research and development to maintain product formulations that comply with such laws and regulations. There can be no assurance that the Company will not be required to alter the chemical composition of one or more of the Company’s products in a way that will have an adverse effect upon the product’s efficacy or marketability. A delay or other inability of the Company to complete product research and development and successfully reformulate its products in response to any such regulatory requirements could have a material adverse effect on the Company’s business, financial condition and results of operations.
The Company is subject to an SEC rule mandated by Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that requires management to conduct annual due diligence to determine whether certain minerals and metals, known as “conflict minerals”, are contained in the Company’s products and, if so, whether they originate from the Democratic Republic of Congo (“DRC”) or adjoining countries. Although the Company’s current products do not contain such conflict minerals and the Company has concluded this in its annual evaluations to date, the Company’s supply chain structure is complex. As a result, management may have difficulty determining whether these materials exist within the Company’s products in future periods, and if the Company were to conclude that these materials exist within the Company’s products in future periods, the Company may have difficulty verifying the origin of such materials for purposes of disclosures required by the SEC rules.
The Company is also subject to numerous environmental laws and regulations that impose various environmental controls on its business operations, including, among other things, the discharge of pollutants into the air and water, the handling, use, treatment, storage and clean-up of solid and hazardous wastes and the investigation and remediation of soil and groundwater affected by hazardous substances. Such laws and regulations may otherwise relate to various health and safety matters that impose burdens
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upon the Company’s operations. These laws and regulations also impose strict, retroactive and joint and several liability for the costs of, and damages resulting from, cleaning up current sites, past spills, disposals and other releases of hazardous substances. The Company believes that its expenditures related to environmental matters have not had, and are not currently expected to have, a material adverse effect on its financial condition, results of operations or cash flows. However, the environmental laws under which the Company operates are complicated, often become increasingly more stringent and may be applied retroactively. Accordingly, there can be no assurance that the Company will not be required to incur additional expenditures to remain in or to achieve compliance with environmental laws in the future or that any such additional expenditures will not have a material adverse effect on the Company’s business, financial condition or results of operations.
Additional laws and regulations require that the Company carefully manage its supply chain for the production, distribution and sale of goods. For instance, regulations under the California Transparency in Supply Chains Act and the U.K. Modern Slavery Act require attention to the employment practices of the Company’s suppliers. Various regulations affect the packaging, labelling and shipment of the Company’s products, including the Globally Harmonized System of Classification and Labelling of Chemicals which is applicable in many countries worldwide, and regulations issued by the U.S. Consumer Product Safety Commission, the U.S. Environmental Protection Agency, the U.S. Federal Trade Commission, and similar foreign jurisdiction regulatory agencies. Failure by the Company to comply with any of these regulations or its inability to adequately predict the manner in which these regulations are interpreted and applied to the Company’s business by the applicable enforcement agencies could have a materially adverse effect on the Company’s business, financial condition and results of operations.
Failure to maximize or to successfully assert the Company’s intellectual property rights or infringement by the Company on the intellectual property rights of others could impact its competitiveness or otherwise adversely affect the Company’s financial condition and results of operations.
The Company relies on trademark, trade secret protection, patent and copyright laws to protect its intellectual property rights. Although the Company maintains a global enforcement program to protect its intellectual property rights, there can be no assurance that these intellectual property rights will be maximized or that they can be successfully asserted. Trade secret protection, particularly for the Company’s most valuable product formulation for the WD-40 Multi-Use Product, requires specific agreements, policies and procedures to assure the secrecy of information classified as a trade secret. If such agreements, policies and procedures are not effective to maintain the secrecy of the Company’s trade secrets, the loss of trade secret protection could have an adverse effect on the Company’s financial condition. There is a risk that the Company will not be able to obtain and perfect its own intellectual property rights or, where appropriate, license intellectual property rights necessary to support new product introductions or acquired product lines. The Company cannot be certain that these rights, if obtained, will not be invalidated, circumvented or challenged in the future, and the Company could incur significant costs in connection with legal actions to defend its intellectual property rights. In addition, even if such rights are obtained in the U.S., it may be that the laws of some of the other countries in which the Company’s products are or may be sold do not protect intellectual property rights to the same extent as the laws of the United States, or they may be difficult to enforce. If other companies infringe the Company’s intellectual property rights or take part in counterfeiting activities, they may dilute the value of the Company’s brands in the marketplace, which could diminish the value that consumers associate with the Company’s brands and harm its sales. The failure of the Company to protect or successfully assert its intellectual property rights or to protect its other proprietary information could make the Company less competitive and this could have a material adverse effect on its business, financial condition and results of operations.
If the Company is found to have violated the trademark, copyright, patent or other intellectual property rights of others, such a finding could result in the need to cease the use of a trademark, trade secret, copyrighted work or patented invention in the Company’s business and an obligation to pay a substantial amount for past infringement. It could also be necessary to pay a substantial amount in the future if the holders of such rights are willing to permit the Company to continue to use the intellectual property rights. Either having to cease use or pay such amounts could make the Company less competitive and could have a material adverse impact on its business, financial condition and results of operations.
Malfunctions of the critical information systems that the Company uses for the daily operations of its business, cyberattacks and privacy breaches could adversely affect the Company’s ability to conduct business.
To conduct its business, the Company relies extensively on information technology systems, networks and services, some of which are managed, hosted and provided by third-party service providers. System failure, malfunction or loss of data which is housed in the Company’s critical information systems could disrupt its ability to timely and accurately process transactions and produce key financial reports, including information on the Company’s operating results, financial position and cash flows. In addition, information technology security threats and more sophisticated computer crime pose a potential risk to the security of the Company’s information technology systems and networks, as well as to the confidentiality, availability and integrity of the Company’s data. The Company’s information systems could be damaged or cease to function properly due to a number of reasons, including catastrophic events, power outages and security breaches. A security breach resulting in the unauthorized release of sensitive data from the Company’s information systems could also materially increase the costs that the Company
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already incurs to protect against such risks. Although the Company has certain business continuity plans in place to address such service interruptions, there is no guarantee that these business continuity plans will provide alternative processes in a timely manner. As a result, the Company may experience interruptions in its ability to manage its daily operations and this could adversely affect the Company’s business, financial condition and results of operations.
The information system that the U.S. office uses for its business operations is a market specific application which is not widely used by other companies. This system supports two other regional offices outside the U.S. as well. The company that owns and supports this application may not be able to provide the same level of support as that of companies which own larger, more widely spread information systems. If the company that supports this application in the U.S. were to cease its operations or were unable to provide continued support for this application, it could adversely affect the Company’s daily operations or its business, financial condition and results of operations.
The Company faces competition in its markets which could lead to reduced sales and profitability.
The Company encounters competition from similar and alternative products, many of which are produced and marketed by major national or multinational companies. In addition, the Company frequently discovers products in certain markets that are counterfeit reproductions of the Company’s WD-40 products as well as products otherwise bearing an infringing trade dress. The availability of counterfeits and other infringing products, particularly in China, Russia and emerging markets, could adversely impact the Company’s sales and potentially damage the value and reputation of its brands.
The Company’s products generally compete on the basis of product performance, brand recognition, price, quality or other benefits to consumers and meeting end users’ needs. Advertising, promotions, merchandising and packaging also have a significant impact on consumer purchasing decisions. A newly introduced consumer product, whether improved or recently developed, usually encounters intense competition requiring substantial expenditures for advertising, sales and consumer promotion. If a product gains consumer acceptance, it normally requires continued advertising, promotional support and product improvements in order to maintain its relative market position.
Some of the competitors for the Company’s homecare and cleaning products are larger and have financial resources greater than those of the Company. These competitors may be able to spend more aggressively on advertising and promotional activities, introduce competing products more quickly and respond more effectively to changing business and economic conditions than the Company.
Competitive activity may require the Company to increase its investment in marketing or reduce its sales prices and this may lead to reduced profit margins, a loss of market share or loss of distribution, each of which could have a material adverse effect on the Company’s business, financial condition and results of operations. There can be no assurance that the Company will be able to compete successfully against current and future competitors or that competitive pressures faced by the Company or the infringement of its products and brands will not have a material adverse effect on its business, financial condition and results of operations.
Dependence on key customers could adversely affect the Company’s business, financial condition and results of operations.
The Company sells its products through a network of domestic and international mass retail, trade supply and consumer retailers as well as industrial distributors and suppliers. The retail industry has historically been the subject of consolidation, and as a result, the development of large chain stores has taken place. Today, the retail channel is comprised of several of these large chain stores that capture the bulk of the market share. Since many of the Company’s customers have been part of consolidations in the retail industry, these limited customers account for a large percentage of the Company’s net sales. Although the Company expects that a significant portion of its revenues will continue to be derived from this limited number of customers, there was no individual customer that contributed to more than 10% of the Company’s consolidated net sales in fiscal year 2017. However, changes in the strategies of the Company’s largest customers, including shelf simplification, a reduction in the number of brands they carry or a shift in shelf space to “private label” or competitors’ products, may harm the Company’s sales. The loss of, or reduction in, orders from any of the Company’s most significant customers could have a material adverse effect on the Company’s brand values, business, financial condition and results of operations. Large customers may seek price reductions, added support or promotional concessions. If the Company agrees to such customer demands and/or requests, it could negatively impact the Company’s ability to maintain existing profit margins.
In addition, the Company’s business is based primarily upon individual sales orders, and the Company typically does not enter into long-term contracts with its customers. Accordingly, these customers could reduce their purchasing levels or cease buying products from the Company at any time and for any reason. The Company is also subject to changes in customer purchasing patterns or the level of promotional activities. These types of changes may result from changes in the manner in which customers purchase and manage inventory levels, or display and promote products within their stores. Other potential factors such as customer disputes regarding shipments, fees, merchandise condition or related matters may also impact operating results. If the
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Company ceases doing business with a significant customer or if sales of its products to a significant customer materially decrease, the Company’s business, financial condition and results of operations may be harmed.
The Company may not successfully develop, introduce and /or establish new products and line extensions.
The Company’s future performance and growth depend, in part, on its ability to successfully develop, introduce and/or establish new products as both brand extensions and/or line extensions. The Company cannot be certain that it will successfully achieve those goals. The Company competes in several product categories where there are frequent introductions of new products and line extensions and such product introductions often require significant investment and support. The ability of the Company to understand end user needs and preferences is key to maintaining and improving the competitiveness of its product offerings. The development and introduction of new products, as well as the renovation of current products and product lines, require substantial and effective research, development and marketing expenditures, which the Company may be unable to recoup if the new or renovated products do not gain widespread market acceptance. There are inherent risks associated with new product development and marketing efforts, including product development or launch delays, product performance issues during development, changing regulatory frameworks that affect the new products in development and the availability of key raw materials included in such products. These inherent risks could result in the failure of new products and product line extensions to achieve anticipated levels of market acceptance, additional costs resulting from failed product introductions and the Company not being first to market. As the Company continues to focus on innovation and renovation of its products, the Company’s business, financial condition or results of operations could be adversely affected in the event that the Company is not able to effectively develop and introduce new or renovated products and line or brand extensions.
Goodwill and intangible assets are subject to impairment risk.
In accordance with the authoritative accounting guidance on goodwill and intangibles, the Company assesses the potential impairment of its existing goodwill during the second quarter of each fiscal year and otherwise when events or changes in circumstances indicate that an impairment condition may exist. The Company also assesses its definite-lived intangible assets for potential impairment when events and circumstances indicate that the carrying amount of the asset may not be recoverable or its estimated remaining useful life may no longer be appropriate. Indicators such as underperformance relative to historical or projected future operating results, changes in the Company’s strategy for its overall business or use of acquired assets, unexpected negative industry or economic trends, decline in the Company’s stock price for a sustained period, decreased market capitalization relative to net book values, unanticipated technological change or competitive activities, loss of key distribution, change in consumer demand, loss of key personnel and acts by governments and courts may signal that an asset has become impaired.
The assessment for possible impairment of the Company’s goodwill and intangible assets requires management to make judgments on a number of significant estimates and assumptions, including macroeconomic conditions, overall category growth rates, sales growth rates, cost containment and margin expansion and expense levels for advertising and promotions and general overhead, all of which must be developed from a market participant standpoint. The Company may be required to record a significant charge in its consolidated financial statements during the period in which any impairment of its goodwill or intangible assets is identified and this could negatively impact the Company’s financial condition and results of operations. Although the Company has recorded significant impairments to certain of its intangible assets in prior fiscal years, no such impairments have been identified or recorded to its goodwill. Changes in management estimates and assumptions as they relate to valuation of goodwill and intangible assets could affect the Company’s financial condition or results of operations in the future.
The Company may also divest of certain of its assets, businesses or brands that do not align with the Company’s strategic initiatives. Any divestiture could negatively impact the profitability of the Company as a result of losses that may result from such a sale, the loss of sales and operating income or a decrease in cash flows subsequent to the divestiture. The Company may also be required to recognize impairment charges as a result of a divesture.
Changes in marketing distributor relationships that are not managed successfully by the Company could result in a disruption in the affected markets.
The Company distributes its products throughout the world in one of two ways: the direct distribution model, in which products are sold directly by the Company to wholesalers and retailers in the U.S., Canada, Australia, China, the U.K. and a number of other countries throughout Europe; and the marketing distributor model, in which products are sold to marketing distributors who in turn sell to wholesalers and retailers. The marketing distributor model is generally used in certain countries where the Company does not have direct Company-owned operations. Instead, the Company partners with local companies who perform the sales, marketing and distribution functions. The Company invests time and resources into these relationships. Should the Company’s relationship with a marketing distributor change or terminate, the Company’s sales within such marketing distributor’s territory could be adversely impacted until such time as a suitable replacement could be found and the Company’s key marketing strategies are implemented. There is a risk that changes in such marketing distributor relationships, including
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changes in key marketing distributor personnel, that are not managed successfully, could result in a disruption in the affected markets and that such disruption could have a material adverse effect on the Company’s business, financial condition and results of operations. Additionally, in some countries, local laws may require substantial payments to terminate existing marketing distributor relationships, which could also have a material adverse effect on the Company’s business, financial condition and results of operations.
Reliance on a limited base of third-party contract manufacturers, logistics providers and suppliers of raw materials and components may result in disruption to the Company’s business and this could adversely affect the Company’s financial condition and results of operations.
The Company relies on a limited number of third-party contract manufacturers, logistics providers and suppliers, including single or sole source suppliers for certain of its raw materials, packaging, product components and other necessary supplies. The Company does not have direct control over the management or business of these third parties, except indirectly through terms negotiated in service or supply contracts. Should the terms of doing business with the Company’s primary third-party contract manufacturers, suppliers and/or logistics providers change or should the Company have a disagreement with or be unable to maintain relationships with such third parties or should such third parties experience financial difficulties, the Company’s business may be disrupted. In addition, if the Company is unable to contract with third-party manufacturers or suppliers for the quantity and quality levels needed for its business, the Company could experience disruptions in production and its financial results could be adversely affected.
Product liability claims and other litigation and/or regulatory action could adversely affect the Company’s sales and operating results.
While the Company makes every effort to ensure that the products it develops and markets are safe for consumers, the use of the Company’s products may expose the Company to liability claims resulting from such use. Claims could be based on allegations that, among other things, the Company’s products contain contaminants, provide inadequate instructions regarding their use or inadequate warnings concerning their use or interactions with other substances. Product liability claims could result in negative publicity that could harm the Company’s sales and operating results. The Company maintains product liability insurance that it believes will be adequate to protect the Company from material loss attributable to such claims but the extent of such loss could exceed available limits of insurance or could arise out of circumstances under which such insurance coverage would be unavailable. Other business activities of the Company may also expose the Company to litigation risks, including risks that may not be covered by insurance such as contract disputes. If successful claims are asserted by third parties against the Company for uninsured liabilities or liabilities in excess of applicable limits of insurance coverage, the Company’s business, financial condition and results of operations may be adversely affected. In addition, if one of the Company’s products was determined to be defective, the Company could be required to recall the product, which could result in adverse publicity, loss of revenues and significant expenses.
Additionally, the Company’s products may be associated with competitor products or other products in the same category, which may be alleged to have caused harm to consumers. As a result of this association, the Company may be named in unwarranted legal actions. The potential costs to defend such claims may materially affect the Company’s business, financial condition and results of operations.
The Company’s operating results and financial performance may not meet expectations which could adversely affect the Company’s stock price.
The Company cannot be sure that its operating results and financial performance, which include sales growth, net income, earnings per common share, gross margin and cash flows, will meet expectations. If the Company’s assumptions and estimates are incorrect or do not come to fruition, or if the Company does not achieve all of its key goals or strategic initiatives, then the Company’s actual performance could vary materially from its internal expectations and those of the market. Failure to meet or exceed these expectations could cause the market price of the Company’s stock to decline. The Company’s operating results and financial performance may be negatively influenced by a number of factors, many of which are discussed in this Item 1A “Risk Factors”.
In addition, sales volume growth, whether due to acquisitions or internal growth, can place burdens on management resources and financial controls that, in turn, can have a negative impact on operating results and financial condition of the Company. To some extent, the Company plans its expense levels in anticipation of future revenues. If actual revenues fall short of these expectations, operating results may be adversely affected by reduced operating margins due to actual expense levels that are higher than might otherwise have been appropriate.
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Resolution of income tax matters may impact the Company’s financial condition and results of operations.
Significant judgment is required in determining the Company’s effective income tax rate and in evaluating tax positions, particularly those related to uncertain tax positions. The Company provides for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement standards prescribed by the accounting standard for uncertain tax positions. Changes in uncertain tax positions or other adjustments resulting from tax audits and settlements with taxing authorities, including related interest and penalties, impact the Company’s effective tax rate. When particular tax matters arise, a number of years may elapse before such matters are audited and finally resolved. Favorable resolution of such matters could be recognized as a reduction to the Company’s effective tax rate in the year of resolution. Unfavorable resolution of any tax matter could increase the Company’s effective tax rate. Any resolution of a tax matter may require the adjustment of tax assets or tax liabilities or the use of cash in the year of resolution. For additional information, refer to the information set forth in Note 12 – Income Taxes, which is included in Item 15 of this report.
In addition, changes in tax rules may adversely affect the Company’s future financial results or the way management conducts its business. For example, the Company holds a significant amount of cash outside of the United States. As of August 31, 2017, the Company has not provided for U.S. federal and state income taxes and foreign withholding taxes on $137.5 million of undistributed earnings of certain foreign subsidiaries since these earnings are considered indefinitely reinvested outside of the United States. The Company’s future financial results and liquidity may be adversely affected if tax rules regarding un-repatriated earnings change, if management elects for any reason in the future to repatriate some or all of the foreign earnings that were previously deemed to be indefinitely reinvested outside of the U.S. such as the fiscal year 2016 repatriation of $8.2 million discussed in Note 12 – Income Taxes, or if the U.S. international tax rules change as part of comprehensive tax reform or other tax legislations.
The Company may not have sufficient cash to service its indebtedness or to pay cash dividends.
The Company’s debt consists of a revolving credit facility and management has used the proceeds of this revolving credit facility primarily for stock repurchases. In addition, the Company utilized this revolving credit facility in fiscal year 2017 to fund the purchase of and improvements to its new San Diego office building, which houses both corporate employees and employees in the Company’s Americas segment. In order to service such debt, the Company is required to use its income from operations to make interest and principal payments required by the terms of the loan agreement. In addition, the Company’s loan agreement includes covenants to maintain certain financial ratios and to comply with other financial terms, conditions and covenants. Also, the Company has historically paid out a large part of its earnings to stockholders in the form of regular quarterly cash dividends. In December 2016, the Board of Directors declared a 17% increase in the regular quarterly cash dividend, increasing it from $0.42 per share to $0.49 per share.
The Company may incur substantial debt in the future for acquisitions or other general business or business development activities. In addition, the Company may continue to use available cash balances to execute share repurchases under approved share buy-back plans. To the extent that the Company is required to seek additional financing to support certain of these activities, such financing may not be available in sufficient amounts or on terms acceptable to the Company. If the Company is unable to obtain such financing or to service its existing or future debt with its operating income, or if available cash balances are affected by future business performance, liquidity, capital needs, alternative investment opportunities or debt covenants, the Company could be required to reduce, suspend or eliminate its dividend payments to its stockholders.
The Company’s business development activities may not be successful.
The Company may increase growth through business development activities such as acquisitions, joint ventures, licensing and/or other strategic partnerships in the U.S. and internationally. However, if the Company is not able to identify, acquire and successfully integrate acquired products or companies or successfully manage joint ventures or other strategic partnerships, the Company may not be able to maximize these opportunities. The failure to properly manage business development activities because of difficulties in the assimilation of operations and products, the diversion of management’s attention from other business concerns, the loss of key employees or other factors could materially adversely affect the Company’s business, financial condition and results of operations. In addition, there can be no assurance that the Company’s business development activities will be profitable at their inception or that they will achieve sales levels and profitability that justify the investments made.
Future acquisitions, joint ventures or strategic partnerships could also result in the incurrence of debt, potentially dilutive issuances of equity securities, contingent liabilities, amortization expenses related to certain intangible assets, unanticipated regulatory complications and/or increased operating expenses, all of which could adversely affect the Company’s results of operations and financial condition. In addition, to the extent that the economic benefits associated with any of the Company’s business development activities diminish in the future, the Company may be required to record impairments to goodwill, intangible assets or other assets associated with such activities, which could also adversely affect the Company’s business, financial condition and results of operations.
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Item 1B. Unresolved Staff Comments
None.
Americas
The Company owns and occupies an office located at 9715 Businesspark Avenue, San Diego, California 92131, which was purchased in September 2016. The buildout of this new office building and facilities was completed in late fiscal year 2017. Corporate employees and employees in the Company’s Americas segment transitioned to this location during August 2017 from the previous location at 1061 Cudahy Place, San Diego, California 92110, which the Company still owns and utilizes as a plant facility. The Company leases a regional sales office in Miami, Florida, a research and development office in Summit, New Jersey and office space in Toronto, Ontario, Canada.
EMEA
The Company owns and occupies an office and plant facility, consisting of office, plant and storage space, in Milton Keynes, United Kingdom. In addition, the Company also leases another office in United Kingdom and space for its branch offices in Germany, France, Italy, Spain, Portugal and the Netherlands.
Asia-Pacific
The Company leases office space in Epping, New South Wales, Australia; Shanghai, China; and Kuala Lumpur, Malaysia.
The information required by this item is incorporated by reference to the information set forth in Item 15 of Part IV, “Exhibits, Financial Statement Schedules” Note 11 — Commitments and Contingencies, in the accompanying notes to the consolidated financial statements included in this report.
Item 4. Mine Safety Disclosures
Not applicable.
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Executive Officers of the Registrant
The following table sets forth the names, ages, fiscal year elected to current position and current titles of the executive officers of the Company as of August 31, 2017:
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|
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|
|
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|
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Name, Age and Year Elected to Current Position |
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Title |
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Garry O. Ridge |
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61 |
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1997 |
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President and Chief Executive Officer |
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Jay W. Rembolt |
66 |
2008 |
Vice President, Finance, Treasurer and Chief Financial Officer |
|||
|
Stanley A. Sewitch |
64 |
2012 |
Vice President, Global Organization Development |
|||
|
Richard T. Clampitt |
|
62 |
|
2014 |
|
Vice President, General Counsel and Corporate Secretary |
|
Michael L. Freeman |
|
64 |
|
2016 |
|
Chief Strategy Officer |
|
Geoffrey J. Holdsworth |
55 |
1997 |
Managing Director, Asia-Pacific |
|||
|
William B. Noble |
|
59 |
|
1996 |
|
Managing Director, EMEA |
|
Steven A. Brass |
|
51 |
|
2016 |
|
Division President, The Americas |
Mr. Ridge joined the Company’s Australian subsidiary, WD-40 Company (Australia) Pty. Limited, in 1987 as Managing Director. He held several senior management positions prior to his election as Chief Executive Officer in 1997.
Mr. Rembolt joined the Company in 1997 as Manager of Financial Services. He was promoted to Controller in 1999 and to Vice President, Finance/Controller in 2001. He was then named Vice President, Finance and Chief Financial Officer in 2008.
Mr. Sewitch joined the Company in 2012 as Vice President, Global Organization Development. Prior to joining the Company, Mr. Sewitch was a founder of four businesses, including a human resources and organizational consulting firm (HRG Inc.) which he led from 1989 until joining the Company.
Mr. Clampitt joined the Company in 2014 as Vice President, General Counsel and Corporate Secretary. He was named as Corporate Secretary on October 15, 2013. He has been licensed to practice law in the State of California since 1981. Prior to joining the Company, Mr. Clampitt served as a partner at Gordon & Rees LLP from 2002 through 2013.
Mr. Freeman joined the Company in 1990 as Director of Marketing and was promoted to Director of Operations in 1994. He became Vice President, Administration and Chief Information Officer in 1996, and was named Senior Vice President, Operations in 2001. He then served as Division President, The Americas, from 2002 until 2016 when he was appointed to his current position as Chief Strategy Officer.
Mr. Holdsworth joined the Company’s Australia subsidiary, WD-40 Company (Australia) Pty. Limited, in 1996 as General Manager and was promoted to his current position of Managing Director, Asia-Pacific and as a Director of WD-40 Company (Australia) Pty. Limited in 1997.
Mr. Noble joined the Company’s Australia subsidiary, WD-40 Company (Australia) Pty. Limited, in 1993 as International Marketing Manager for the Asia Region. He was then promoted to his current position of Managing Director, EMEA and as a Director of the Company’s U.K. subsidiary, WD-40 Company Limited, in 1996.
Mr. Brass joined the Company in 1991 as International Area Manager at the Company’s U.K. subsidiary and has since held several management positions including Country Manager in Germany, Director of Continental Europe, European Sales Director, and most recently European Commercial Director prior to his promotion to Division President, The Americas, in 2016.
All executive officers hold office at the discretion of the Board of Directors.
15
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The Company’s common stock is traded on the NASDAQ Global Select Market. The following table sets forth the high and low sales prices per share of the Company’s common stock for each of the quarterly periods indicated as reported by the NASDAQ Global Select Market.
|
|
|||||||||||||||||
|
|
Fiscal Year 2017 |
Fiscal Year 2016 |
|||||||||||||||
|
|
High |
Low |
Dividend |
High |
Low |
Dividend |
|||||||||||
|
First Quarter |
$ |
121.10 |
$ |
101.35 |
$ |
0.42 |
$ |
101.00 |
$ |
81.68 |
$ |
0.38 | |||||
|
Second Quarter |
$ |
119.90 |
$ |
100.65 |
$ |
0.49 |
$ |
109.37 |
$ |
94.00 |
$ |
0.42 | |||||
|
Third Quarter |
$ |
113.25 |
$ |
100.60 |
$ |
0.49 |
$ |
111.99 |
$ |
99.32 |
$ |
0.42 | |||||
|
Fourth Quarter |
$ |
114.10 |
$ |
103.80 |
$ |
0.49 |
$ |
125.00 |
$ |
109.58 |
$ |
0.42 | |||||
|
|
|||||||||||||||||
On October 18, 2017, the last reported sales price of the Company’s common stock on the NASDAQ Global Select Market was $114.70 per share, and there were 13,964,343 shares of common stock outstanding held by approximately 680 holders of record.
Dividends
The Company has historically paid regular quarterly cash dividends on its common stock. In December 2016, the Board of Directors declared a 17% increase in the regular quarterly cash dividend, increasing it from $0.42 per share to $0.49 per share. On October 10, 2017, the Company’s Board of Directors declared a cash dividend of $0.49 per share payable on October 31, 2017 to shareholders of record on October 20, 2017.
The Board of Directors of the Company presently intends to continue the payment of regular quarterly cash dividends on the Company’s common stock. The Company’s ability to pay dividends could be affected by future business performance, liquidity, capital needs, alternative investment opportunities and debt covenants.
Purchases of Equity Securities By the Issuer and Affiliated Purchasers
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 August 31, 2017, the Company repurchased 290,573 shares at a total cost of $31.1 million under this $75.0 million plan.
The following table provides information with respect to all purchases made by the Company during the three months ended August 31, 2017. All purchases listed below were made in the open market at prevailing market prices. Purchase transactions between June 1, 2017 and July 13, 2017 were executed pursuant to trading plans adopted by the Company pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.
|
|
||||||||||||
|
|
Total Number |
Maximum |
||||||||||
|
|
of Shares |
Dollar Value of |
||||||||||
|
|
Total |
Purchased as Part |
Shares that May |
|||||||||
|
|
Number of |
Average |
of Publicly |
Yet Be Purchased |
||||||||
|
|
Shares |
Price Paid |
Announced Plans |
Under the Plans |
||||||||
|
|
Purchased |
Per Share |
or Programs |
or Programs |
||||||||
|
Period |
||||||||||||
|
June 1 - June 30 |
12,200 |
$ |
109.96 | 12,200 |
$ |
47,430,543 | ||||||
|
July 1 - July 31 |
9,500 |
$ |
107.58 | 9,500 |
$ |
46,408,333 | ||||||
|
August 1 - August 31 |
23,900 |
$ |
105.32 | 23,900 |
$ |
43,890,766 | ||||||
|
Total |
45,600 |
$ |
107.03 | 45,600 | ||||||||
|
|
||||||||||||
16
Item 6. Selected Financial Data
The following data has been derived from the Company’s audited consolidated financial statements. The data should be read in conjunction with such consolidated financial statements and other financial information included elsewhere in this report (in thousands, except per share amounts):
|
|
||||||||||||||
|
|
As of and for the Fiscal Year Ended August 31, |
|||||||||||||
|
|
2017 |
2016 |
2015 |
2014 |
2013 |
|||||||||
|
Net sales |
$ |
380,506 |
$ |
380,670 |
$ |
378,150 |
$ |
382,997 |
$ |
368,548 | ||||
|
Cost of products sold |
166,621 | 166,301 | 177,972 | 184,144 | 179,385 | |||||||||
|
Gross profit |
213,885 | 214,369 | 200,178 | 198,853 | 189,163 | |||||||||
|
Operating expenses |
137,976 | 143,021 | 134,788 | 135,116 | 132,526 | |||||||||
|
Income from operations |
75,909 | 71,348 | 65,390 | 63,737 | 56,637 | |||||||||
|
Interest and other (expense) income, net |
(1,287) | 1,441 | (2,280) | (778) | 230 | |||||||||
|
Income before income taxes |
74,622 | 72,789 | 63,110 | 62,959 | 56,867 | |||||||||
|
Provision for income taxes |
21,692 | 20,161 | 18,303 | 19,213 | 17,054 | |||||||||
|
Net income |
$ |
52,930 |
$ |
52,628 |
$ |
44,807 |
$ |
43,746 |
$ |
39,813 | ||||
|
|
||||||||||||||
|
Earnings per common share: |
||||||||||||||
|
Basic |
$ |
3.73 |
$ |
3.65 |
$ |
3.05 |
$ |
2.89 |
$ |
2.55 | ||||
|
Diluted |
$ |
3.72 |
$ |
3.64 |
$ |
3.04 |
$ |
2.87 |
$ |
2.54 | ||||
|
Dividends per share |
$ |
1.89 |
$ |
1.64 |
$ |
1.48 |
$ |
1.33 |
$ |
1.22 | ||||
|
Weighted-average shares outstanding - |
||||||||||||||
|
diluted |
14,123 | 14,379 | 14,649 | 15,148 | 15,619 | |||||||||
|
Total assets |
$ |
369,717 |
$ |
339,668 |
$ |
339,257 |
$ |
347,680 |
$ |
323,064 | ||||
|
Long-term obligations (1) |
$ |
154,907 |
$ |
140,579 |
$ |
133,427 |
$ |
26,354 |
$ |
25,912 | ||||
|
|
||||||||||||||
(1) Long-term obligations include long-term debt, deferred tax liabilities, net and other long-term liabilities.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide the reader of the Company’s financial statements with a narrative from the perspective of management on the Company’s financial condition, results of operations, liquidity and certain other factors that may affect future results. This MD&A includes the following sections: Overview, Highlights, Results of Operations, Performance Measures and Non-GAAP Reconciliations, Liquidity and Capital Resources, Critical Accounting Policies, Recently Issued Accounting Standards and Related Parties. The MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s audited consolidated financial statements and the related notes included in Item 15 of this report.
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.
17
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 that 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, 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, online retailers and industrial distributors and suppliers.
Highlights
The following summarizes the financial and operational highlights for our business during the fiscal year ended August 31, 2017:
|
· |
Consolidated net sales decreased $0.2 million for fiscal year 2017 compared to the prior fiscal year. Changes in foreign currency exchange rates had an unfavorable impact of $19.1 million on consolidated net sales for fiscal year 2017. Thus, on a constant currency basis, net sales would have increased by $18.9 million, or 5%, for fiscal year 2017 compared to the prior fiscal year. This unfavorable impact from changes in foreign currency exchange rates mainly came from our EMEA segment, which accounted for 36% of our consolidated sales for the fiscal year ended August 31, 2017. |
|
· |
Consolidated net sales for the WD-40 Specialist product line were $25.8 million which is a 20% increase for fiscal year 2017 compared to 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 decreased to 56.2% for fiscal year 2017 compared to 56.3% for the prior fiscal year. |
|
· |
Consolidated net income increased $0.3 million, or 1%, for fiscal year 2017 compared to the prior fiscal year. Changes in foreign currency exchange rates had an unfavorable impact of $3.5 million on consolidated net income for fiscal year 2017. Thus, on a constant currency basis, net income would have increased by $3.8 million, or 7%, for fiscal year 2017 compared to the prior fiscal year. |
|
· |
Diluted earnings per common share for fiscal year 2017 were $3.72 versus $3.64 in the prior fiscal year. |
|
· |
Share repurchases were executed under our current $75.0 million share buy-back plan, which was approved by the Company’s Board of Directors in June 2016 and became effective on September 1, 2016. During the period from September 1, 2016 through August 31, 2017, the Company repurchased 290,573 shares at an average price of $107.04 per share, for a total cost of $31.1 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.
18
Results of Operations
Fiscal Year Ended August 31, 2017 Compared to Fiscal Year Ended August 31, 2016
Operating Items
The following table summarizes operating data for our consolidated operations (in thousands, except percentages and per share amounts):
|
|
|||||||||||
|
|
Fiscal Year Ended August 31, |
||||||||||
|
|
Change from |
||||||||||
|
|
2017 |
2016 |
Dollars |
Percent |
|||||||
|
Net sales: |
|||||||||||
|
Maintenance products |
$ |
342,295 |
$ |
339,974 |
$ |
2,321 | 1% | ||||
|
Homecare and cleaning products |
38,211 | 40,696 | (2,485) |
(6)% |
|||||||
|
Total net sales |
380,506 | 380,670 | (164) |
- |
|||||||
|
Cost of products sold |
166,621 | 166,301 | 320 |
- |
|||||||
|
Gross profit |
213,885 | 214,369 | (484) |
- |
|||||||
|
Operating expenses |
137,976 | 143,021 | (5,045) |
(4)% |
|||||||
|
Income from operations |
$ |
75,909 |
$ |
71,348 |
$ |
4,561 | 6% | ||||
|
Net income |
$ |
52,930 |
$ |
52,628 |
$ |
302 | 1% | ||||
|
Earnings per common share - diluted |
$ |
3.72 |
$ |
3.64 |
$ |
0.08 | 2% | ||||
|
|
|||||||||||
Net Sales by Segment
The following table summarizes net sales by segment (in thousands, except percentages):
|
|
|||||||||||
|
|
Fiscal Year Ended August 31, |
||||||||||
|
|
Change from |
||||||||||
|
|
2017 |
2016 |
Dollars |
Percent |
|||||||
|
Americas |
$ |
184,929 |
$ |
191,397 |
$ |
(6,468) |
(3)% |
||||
|
EMEA |
136,771 | 135,235 | 1,536 | 1% | |||||||
|
Asia-Pacific |
58,806 | 54,038 | 4,768 | 9% | |||||||
|
Total |
$ |
380,506 |
$ |
380,670 |
$ |
(164) |
- |
||||
|
|
|||||||||||
19
Americas
The following table summarizes net sales by product line for the Americas segment (in thousands, except percentages):
|
|
|||||||||||
|
|
Fiscal Year Ended August 31, |
||||||||||
|
|
Change from |
||||||||||
|
|
2017 |
2016 |
Dollars |
Percent |
|||||||
|
Maintenance products |
$ |
159,167 |
$ |
163,655 |
$ |
(4,488) |
(3)% |
||||
|
Homecare and cleaning products |
25,762 | 27,742 | (1,980) |
(7)% |
|||||||
|
Total |
$ |
184,929 |
$ |
191,397 |
$ |
(6,468) |
(3)% |
||||
|
% of consolidated net sales |
49% | 50% | |||||||||
|
|
|||||||||||
Sales in the Americas segment, which includes the U.S., Canada and Latin America, decreased to $184.9 million, down $6.5 million, or 3%, for the fiscal year ended August 31, 2017 compared to the prior fiscal year. Changes in foreign currency exchange rates did not have a material impact on sales for the Americas segment from period to period.
Sales of maintenance products in the Americas segment decreased $4.5 million, or 3%, for the fiscal year ended August 31, 2017 compared to the prior fiscal year. This sales decrease was mainly driven by lower sales of maintenance products in the U.S., which declined 5% from period to period. This decline in sales from period to period was primarily due to decreased sales associated with a lower level of promotional activities and the timing of customer orders for the WD-40 Multi-Use Product. This lower level of sales in the U.S. was also attributable to efforts of certain of our customers in late fiscal year 2017 to more closely manage their inventory levels. The sales decrease of maintenance products in the U.S. was partially offset by increased sales of such products in Canada and Latin America, which increased 10% and 4%, respectively, from period to period. The sales increase in Canada was primarily due to added distribution of the WD-40 Bike product as well as higher sales due to successful promotional programs, which was partially driven by improving market and economic conditions, including those within the industrial channel in Western Canada as a result of increased activity levels in the oil industry. The sales increase in Latin America was primarily due to improved economic conditions in Puerto Rico in fiscal year 2017 compared to the prior fiscal year, as well as new distribution and successful promotional programs in several countries in South America. Although sales in Puerto Rico may decline in future periods during hurricane-related recovery efforts in response to Hurricane Maria, which made landfall in Puerto Rico in September 2017, sales in Puerto Rico are not material to the overall sales of the Company. The overall decrease in sales of WD-40 Multi-Use Product in the Americas segment was partially offset by higher sales of the WD-40 Specialist product line, which were up $1.5 million, or 13%, from period to period due to new distribution, particularly of certain new products within this product line during fiscal year 2017.
Sales of homecare and cleaning products in the Americas segment decreased $2.0 million, or 7%, for the fiscal year ended August 31, 2017 compared to the prior fiscal year. This sales decrease was driven primarily by a decrease in sales of the X-14, Spot Shot and Lava brand products in the U.S., which were down 13%, 9% and 9%, respectively, from period to period. While each of our homecare and cleaning products continue to generate positive cash flows, we have continued to experience decreased or flat sales for many of these products primarily due to lost distribution, reduced product offerings, competition, category declines and the volatility of orders from promotional programs with certain of our customers, particularly those in the warehouse club and mass retail channels.
For the Americas segment, 81% of sales came from the U.S., and 19% of sales came from Canada and Latin America combined for the fiscal year ended August 31, 2017 compared to the prior fiscal year when 83% of sales came from the U.S., and 17% of sales came from Canada and Latin America combined.
20
EMEA
The following table summarizes net sales by product line for the EMEA segment (in thousands, except percentages):
|
|
|||||||||||
|
|
Fiscal Year Ended August 31, |
||||||||||
|
|
Change from |
||||||||||
|
|
2017 |
2016 |
Dollars |
Percent |
|||||||
|
Maintenance products |
$ |
131,562 |
$ |
129,217 |
$ |
2,345 | 2% | ||||
|
Homecare and cleaning products |
5,209 | 6,018 | (809) |
(13)% |
|||||||
|
Total (1) |
$ |
136,771 |
$ |
135,235 |
$ |
1,536 | 1% | ||||
|
% of consolidated net sales |
36% | 36% | |||||||||
|
|
|||||||||||
|
(1) |
While the Company’s reporting currency is U.S. Dollar, the functional currency of our U.K. subsidiary, the entity in which the EMEA results are generated, is Pound Sterling. Although the functional currency of this subsidiary is Pound Sterling, approximately 45% of its sales are generated in Euro and 25% are generated in U.S. Dollar. As a result, the Pound Sterling sales and earnings for the EMEA segment can be negatively or positively impacted from period to period upon translation from these currencies depending on whether the Euro and U.S. Dollar are weakening or strengthening against the Pound Sterling. |
Sales in the EMEA segment, which includes Europe, the Middle East, Africa and India, increased to $136.8 million, up $1.5 million, or 1%, for the fiscal year ended August 31, 2017 compared to the prior fiscal year. Changes in foreign currency exchange rates had an unfavorable impact on sales for the EMEA segment from period to period. Sales for the fiscal year ended August 31, 2017 translated at the exchange rates in effect for the prior fiscal year would have been $155.9 million in the EMEA segment. Thus, on a constant currency basis, sales would have increased by $20.6 million, or 15%, for the fiscal year ended August 31, 2017 compared to the prior fiscal year.
The countries in Europe where we sell through a direct sales force include the U.K., Italy, France, Iberia (which includes Spain and Portugal) and the Germanics sales region (which includes Germany, Austria, Denmark, Switzerland, Belgium and the Netherlands). Overall, sales from the direct markets increased $1.3 million, or 1%, for the fiscal year ended August 31, 2017 compared to fiscal year 2016. Changes in foreign currency exchange rates had an unfavorable impact on sales in the direct markets in EMEA from period to period. On a constant currency basis, sales in the direct markets would have increased by 15% from fiscal year 2017 compared to the prior fiscal year.
We experienced sales increases throughout most of the EMEA direct markets for the fiscal year ended August 31, 2017 compared to the prior fiscal year primarily due to a sales increase of $3.5 million, or 6%, in the Euro-based direct markets as a result of continued growth of the base business and higher sales of WD-40 Specialist. Sales of WD-40 Specialist in the Euro-based direct markets increased $1.6 million, or 36%, from period to period as a result of expanded distribution in most markets, but particularly in France. Although sales in the Euro-based direct markets also benefited from the strengthening of the Euro against the Pound Sterling, the functional currency of our U.K. subsidiary, they were impacted in the opposite direction by approximately the same amount due the weakening of the Pound Sterling against the U.S. Dollar from period to period. The sales increase in the Euro-based direct markets was partially offset by a sales decrease in the U.K. of $2.2 million, or 8%, as a result of the unfavorable impacts of changes in foreign currency exchange rates, specifically the Pound Sterling against the U.S. Dollar. In functional currency, sales in the U.K. increased by 4% primarily due to a favorable shift in product mix within the WD-40 Multi-Use Product from period to period. Sales from direct markets accounted for 65% of the EMEA segment’s sales for the fiscal year ended August 31, 2017 compared to 66% of the EMEA segment’s sales for the prior fiscal year.
The regions in the EMEA segment where we sell through local distributors include the Middle East, Africa, India, Eastern and Northern Europe. Sales in the distributor markets increased $0.2 million, or 1%, for the fiscal year ended August 31, 2017 compared to the prior fiscal year primarily due increased sales of WD-40 Multi-Use Product in the Eastern Europe and India. Overall, sales in the distributor markets were increased from period to period primarily due to the continued growth of the base business in key markets. The distributor markets accounted for 35% of the EMEA segment’s total sales for the fiscal year ended August 31, 2017, compared to 34% for the prior fiscal year.
21
Asia-Pacific
The following table summarizes net sales by product line for the Asia-Pacific segment (in thousands, except percentages):
|
|
|||||||||||
|
|
Fiscal Year Ended August 31, |
||||||||||
|
|
Change from |
||||||||||
|
|
2017 |
2016 |
Dollars |
Percent |
|||||||
|
Maintenance products |
$ |
51,567 |
$ |
47,102 |
$ |
4,465 | 9% | ||||
|
Homecare and cleaning products |
7,239 | 6,936 | 303 | 4% | |||||||
|
Total |
$ |
58,806 |
$ |
54,038 |
$ |
4,768 | 9% | ||||
|
% of consolidated net sales |
15% | 14% | |||||||||
|
|
|||||||||||
Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region, increased to $58.8 million, up $4.8 million, or 9%, for the fiscal year ended August 31, 2017 compared to the prior fiscal year. Although changes in foreign currency exchange rates did not have a material impact on sales in the Asia-Pacific segment from period to period, fluctuations in foreign currency exchange rates impacted sales in both China and Australia.
Sales in Asia, which represented 70% of the total sales in the Asia-Pacific segment, increased $3.7 million, or 10%, for the fiscal year ended August 31, 2017 compared to the prior fiscal year. Sales in the Asia distributor markets increased $2.2 million, or 9%, primarily attributable to successful promotional programs and expanded distribution in the Asian distributor markets, particularly those in the Philippines, Bangladesh and Malaysia, from period to period. Sales in China increased $1.5 million, or 11%, for the fiscal year ended August 31, 2017 compared to the prior fiscal year. Changes in foreign currency exchange rates had an unfavorable impact on sales in China. On a constant currency basis, sales would have increased by 16% from period to period primarily due to new distribution and continued growth in sales to our largest customers throughout China.
Sales in Australia increased by $1.1 million, or 6%, for the fiscal year ended August 31, 2017 compared to the prior fiscal year. Changes in foreign currency exchange rates had a favorable impact on Australia sales. On a constant currency basis, sales would have increased by 2% for the fiscal year ended August 31, 2017 compared to the prior fiscal year primarily due to increased distribution and higher sales levels resulting from successful promotional programs as well as continued growth of our base business.
Gross Profit
Gross profit decreased to $213.9 million for the fiscal year ended August 31, 2017 compared to $214.4 million for the prior fiscal year. As a percentage of net sales, gross profit decreased to 56.2% for the fiscal year ended August 31, 2017 compared to 56.3% for the prior fiscal year.
Gross margin was negatively impacted by 1.0 percentage points from period to period due to unfavorable net changes in the costs of petroleum-based specialty chemicals and aerosol cans, primarily in our EMEA segment. The unfavorable impacts in our EMEA segment were primarily due to increased costs of petroleum-based specialty chemicals from period to period. While the costs of petroleum-based specialty chemicals for our EMEA segment are sourced in Pound Sterling, the underlying inputs are denominated in U.S. Dollars. As a result, the overall strengthening of the U.S. Dollar against the Pound Sterling from period to period resulted in a significant increase in cost of goods in Pound Sterling. There is often a delay of one quarter or more before changes in raw material costs impact cost of products sold due to production and inventory life cycles. Due to the volatility of the price of crude oil, it is uncertain the level to which gross margin will be impacted by such costs in future periods. In addition, the combined effects of unfavorable sales mix changes and other miscellaneous costs negatively impacted gross margin by 0.4 percentage points primarily due to an unfavorable shift in product mix as a result of a higher portion of sales in the Americas segment being made to lower margin maintenance products from period to period. Gross margin was also negatively impacted by 0.1 percentage points from period to period primarily due to higher warehousing and in-bound freight costs in the Americas segment.
These unfavorable impacts to gross margin were almost completely offset by changes in foreign currency exchange rates, which positively impacted gross margin by 1.3 percentage points due to the fluctuations in the exchange rates for both the Euro and U.S. Dollar against the Pound Sterling in our EMEA segment from period to period. In the EMEA segment, the majority of our cost of goods sold is denominated in Pound Sterling whereas sales are generated in Pound Sterling, Euro and the U.S. Dollar.
The combined effect of the strengthening of both the Euro and U.S. Dollar against the Pound Sterling from period to period caused an increase in our Pound Sterling sales, resulting in favorable impacts to the gross margin. In addition, sales price increases
22
in the EMEA segment over the last twelve months also positively impacted gross margin by 0.1 percentage points from period to period.
Note that our gross profit and gross margin may not be comparable to those of other consumer product companies, since some of these companies include all costs related to distribution of their products in cost of products sold, whereas we exclude the portion associated with amounts paid to third parties for shipment to our customers from our distribution centers and contract manufacturers and include these costs in selling, general and administrative expenses. These costs totaled $16.4 million and $16.1 million for the fiscal years ended August 31, 2017 and 2016, respectively.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses for the fiscal year ended August 31, 2017 decreased $3.2 million to $114.6 million from $117.8 million for the prior fiscal year. As a percentage of net sales, SG&A expenses decreased to 30.1% for the fiscal year ended August 31, 2017 from 30.9% for the prior fiscal year. The decrease in SG&A expenses was primarily attributable to favorable impacts due to changes in foreign currency exchange rates and lower employee-related costs from period to period. Changes in foreign currency exchange rates had a favorable impact of $5.4 million on SG&A expenses for the fiscal year ended August 31, 2017 compared to the prior fiscal year. Employee-related costs, which include salaries, incentive compensation, profit sharing, stock-based compensation and other fringe benefits, decreased by $2.7 million primarily due to lower earned incentive compensation, which was partially offset by increased headcount and higher stock-based compensation expense from period to period. The increase in stock-based compensation expense was due to the acceleration of expense of $0.8 million for certain equity awards granted during the first quarter of fiscal year 2017 under updated equity award agreements that include expanded accelerated vesting provisions in the event of retirement of the award recipients. These decreases were partially offset by increased costs associated with freight, professional services, travel and meetings, general office overhead and depreciation, and other miscellaneous expenses from period to period. Freight costs associated with shipping products to our customers increased $1.3 million primarily due to higher sales volumes in the EMEA segment from period to period as well as the unfavorable impact from changes in foreign currency exchange rates in our Euro-based direct markets from period to period. Professional services costs increased $1.1 million due to increased use of such services from period to period, primarily in the Americas and EMEA segments. Travel and meeting expenses increased $0.9 million due to a higher level of travel expenses associated with various sales meetings and activities in support of our strategic initiatives. In addition, general office overhead and depreciation expense increased $0.7 million primarily due to higher rent expense for certain offices that the Company leases as well as higher depreciation expense, primarily in the EMEA segment. Other miscellaneous expenses, the largest of which were related to sales commissions and research and development costs, increased by $0.9 million for the fiscal year ended August 31, 2017 compared to the prior fiscal year.
We continued our research and development investment, the majority of which is associated with our maintenance products, in support of our focus on innovation and renovation of our products. Research and development costs for the fiscal years ended August 31, 2017 and 2016 were $8.4 million and $7.7 million, respectively. Our research and development team engages in consumer research, product development, current product improvement and testing activities. This team leverages its development capabilities by partnering with a network of outside resources including our current and prospective suppliers. The level and types of expenses incurred within research and development can vary from period to period depending upon the types of activities being performed.
Advertising and Sales Promotion Expenses
Advertising and sales promotion expenses for the fiscal year ended August 31, 2017 decreased $1.8 million to $20.5 million from $22.3 million for the prior fiscal year. As a percentage of net sales, these expenses decreased to 5.4% for the fiscal year ended August 31, 2017 from 5.9% for the prior fiscal year. Changes in foreign currency exchange rates had a favorable impact on such expenses of $1.1 million from period to period. Thus, on a constant currency basis, advertising and sales promotion expenses for fiscal year 2017 would have decreased by $0.7 million, primarily due to a lower level of promotional programs and marketing support in the Americas segment from period to period. Investment in global advertising and sales promotion expenses for fiscal year 2018 is expected to be near 6.0% of net sales.
As a percentage of net sales, advertising and sales promotion expenses may fluctuate period to period based upon the type of marketing activities we employ and the period in which the costs are incurred. Total promotional costs recorded as a reduction to sales were $17.5 million and $16.1 million for the fiscal years ended August 31, 2017 and 2016, respectively. Therefore, our total investment in advertising and sales promotion activities totaled $38.0 million and $38.4 million for the fiscal years ended August 31, 2017 and 2016, respectively.
23
Amortization of Definite-lived Intangible Assets Expense
Amortization of our definite-lived intangible assets remained relatively constant at $2.9 million and $3.0 million for the fiscal years ended August 31, 2017 and 2016, respectively.
Income from Operations by Segment
The following table summarizes income from operations by segment (in thousands, except percentages):
|
|
|||||||||||
|
|
Fiscal Year Ended August 31, |
||||||||||
|
|
Change from |
||||||||||
|
|
2017 |
2016 |
Dollars |
Percent |
|||||||
|
Americas |
$ |
48,303 |
$ |
48,404 |
$ |
(101) |
- |
||||
|
EMEA |
35,389 | 31,702 | 3,687 | 12% | |||||||
|
Asia-Pacific |
16,765 | 15,162 | 1,603 | 11% | |||||||
|
Unallocated corporate (1) |
(24,548) | (23,920) | (628) | 3% | |||||||
|
|
$ |
75,909 |
$ |
71,348 |
$ |
4,561 | 6% | ||||
|
|
|||||||||||
|
(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 consolidated statements of operations. |
Americas
Income from operations for the Americas segment decreased to $48.3 million, down $0.1 million, for the fiscal year ended August 31, 2017 compared to the prior fiscal year, primarily due to a $6.5 million decrease in sales and a lower gross margin, which were almost completely offset by lower operating expenses. As a percentage of net sales, gross profit for the Americas segment decreased from 55.1% to 54.4% period over period. This decrease in the gross margin was primarily due to the negative impacts of unfavorable sales mix changes as well as higher warehousing and in-bound freight costs from period to period. These unfavorable impacts were partially offset by the combined positive impacts of decreased costs of petroleum-based specialty chemicals and aerosol cans as well as a lower level of advertising, promotional and other discounts that we gave to our customers from period to period. Operating expenses decreased $4.8 million period over period due to lower employee-related expenses, primarily those associated with earned incentive compensation, and decreased advertising and sales promotion expenses from period to period. Operating income as a percentage of net sales increased from 25.3% to 26.1% period over period.
EMEA
Income from operations for the EMEA segment increased to $35.4 million, up $3.7 million, or 12%, for the fiscal year ended August 31, 2017 compared to the prior fiscal year, primarily due to a higher gross margin, lower operating expenses and a $1.5 million increase in sales. As a percentage of net sales, gross profit for the EMEA segment increased from 58.7% to 59.6% period over period primarily due to the combined positive impacts of favorable fluctuations in foreign currency exchange rates and sales mix changes, which were partially offset by the negative impacts of increased costs of petroleum-based specialty chemicals and aerosol cans from period to period. Operating expenses decreased $1.6 million primarily due to the favorable impacts of fluctuations in foreign currency exchange rates and lower earned incentive compensation expense, which were partially offset by increased headcount and other employee-related expenses from period to period. Operating income as a percentage of net sales increased from 23.4% to 25.9% period over period.
Asia-Pacific
Income from operations for the Asia-Pacific segment increased to $16.8 million, up $1.6 million, or 11%, for the fiscal year ended August 31, 2017 compared to the prior fiscal year, primarily due to a $4.8 million increase in sales, which was partially offset by a lower gross margin and an increase in operating expenses. As a percentage of net sales, gross profit for the Asia-Pacific segment decreased from 54.8% to 54.2% period over period due to the combined negative impacts of increased costs of petroleum-based specialty chemicals and aerosol cans as well a higher level of advertising, promotional and other discounts that we gave to our customers from period to period. Operating expenses increased $0.7 million period over period primarily due to higher employee-related expenses and information systems support costs. Operating income as a percentage of net sales increased from 28.1% to 28.5% period over period.
24
Non-Operating Items
The following table summarizes non-operating income and expenses for our consolidated operations (in thousands):
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2017 |
2016 |
Change |
|||||
|
Interest income |
$ |
508 |
$ |
683 |
$ |
(175) | ||
|
Interest expense |
$ |
2,582 |
$ |
1,703 |
$ |
879 | ||
|
Other income |
$ |
787 |
$ |
2,461 |
$ |
(1,674) | ||
|
Provision for income taxes |
$ |
21,692 |
$ |
20,161 |
$ |
1,531 | ||
|
|
||||||||
Interest Income
Interest income remained relatively constant for the fiscal year ended August 31, 2017 compared to the prior fiscal year.
Interest Expense
Interest expense increased $0.9 million for the fiscal year ended August 31, 2017 compared to the prior fiscal year primarily due to higher interest rates and an increased outstanding balance on our revolving credit facility period over period.
Other Income
Other income decreased by $1.7 million for the fiscal year ended August 31, 2017 compared to the prior fiscal year primarily due to lower net foreign currency exchange gains from period to period. This significant decrease in foreign currency exchange gains was primarily due to the relative movement in foreign currency exchange rates and the fluctuation of non-functional currency balance sheet accounts, particularly those associated with our UK subsidiary, during the fiscal year ended August 31, 2017 compared to the prior fiscal year.
Provision for Income Taxes
The provision for income taxes was 29.1% of income before income taxes for the fiscal year ended August 31, 2017 compared to 27.7% for the prior fiscal year. The increase in the effective income tax rate from period to period was primarily driven by an immaterial out-of-period correction that we recorded in the second quarter of fiscal year 2017 associated with the tax impacts from certain unrealized foreign currency exchange losses.
Net Income
Net income was $52.9 million, or $3.72 per common share on a fully diluted basis, for fiscal year 2017 compared to $52.6 million, or $3.64 per common share on a fully diluted basis, for the prior fiscal year. Changes in foreign currency exchange rates year over year had an unfavorable impact of $3.5 million on net income for fiscal year 2017. Thus, on a constant currency basis, net income for fiscal year 2017 would have been $56.4 million.
25
Fiscal Year Ended August 31, 2016 Compared to Fiscal Year Ended August 31, 2015
Operating Items
The following table summarizes operating data for our consolidated operations (in thousands, except percentages and per share amounts):
|
|
|||||||||||
|
|
Fiscal Year Ended August 31, |
||||||||||
|
|
Change from |
||||||||||
|
|
2016 |
2015 |
Dollars |
Percent |
|||||||
|
Net sales: |
|||||||||||
|
Maintenance products |
$ |
339,974 |
$ |
333,306 |
$ |
6,668 | 2% | ||||
|
Homecare and cleaning products |
40,696 | 44,844 | (4,148) |
(9)% |
|||||||
|
Total net sales |
380,670 | 378,150 | 2,520 | 1% | |||||||
|
Cost of products sold |
166,301 | 177,972 | (11,671) |
(7)% |
|||||||
|
Gross profit |
214,369 | 200,178 | 14,191 | 7% | |||||||
|
Operating expenses |
143,021 | 134,788 | 8,233 | 6% | |||||||
|
Income from operations |
$ |
71,348 |
$ |
65,390 |
$ |
5,958 | 9% | ||||
|
Net income |
$ |
52,628 |
$ |
44,807 |
$ |
7,821 | 17% | ||||
|
Earnings per common share - diluted |
$ |
3.64 |
$ |
3.04 |
$ |
0.60 | 20% | ||||
|
|
|||||||||||
Net Sales by Segment
The following table summarizes net sales by segment (in thousands, except percentages):
|
|
|||||||||||
|
|
Fiscal Year Ended August 31, |
||||||||||
|
|
Change from |
||||||||||
|
|
2016 |
2015 |
Dollars |
Percent |
|||||||
|
Americas |
$ |
191,397 |
$ |
187,344 |
$ |
4,053 | 2% | ||||
|
EMEA |
135,235 | 136,847 | (1,612) |
(1)% |
|||||||
|
Asia-Pacific |
54,038 | 53,959 | 79 |
- |
|||||||
|
Total |
$ |
380,670 |
$ |
378,150 |
$ |
2,520 | 1% | ||||
|
|
|||||||||||
26
Americas
The following table summarizes net sales by product line for the Americas segment (in thousands, except percentages):
|
|
|||||||||||
|
|
Fiscal Year Ended August 31, |
||||||||||
|
|
Change from |
||||||||||
|
|
2016 |
2015 |
Dollars |
Percent |
|||||||
|
Maintenance products |
$ |
163,655 |
$ |
156,937 |
$ |
6,718 | 4% | ||||
|
Homecare and cleaning products |
27,742 | 30,407 | (2,665) |
(9)% |
|||||||
|
Total |
$ |
191,397 |
$ |
187,344 |
$ |
4,053 | 2% | ||||
|
% of consolidated net sales |
50% | 50% | |||||||||
|
|
|||||||||||
Sales in the Americas segment, which includes the U.S., Canada and Latin America, increased to $191.4 million, up $4.1 million, or 2%, for the fiscal year ended August 31, 2016 compared to fiscal year 2015. Changes in foreign currency exchange rates in Canada had an unfavorable impact on sales for the Americas segment from period to period. Sales for the fiscal year ended August 31, 2016 translated at the exchange rates in effect for fiscal year 2015 would have been $192.5 million in the Americas segment. Thus, on a constant currency basis, sales would have increased by $5.2 million, or 3%, for the fiscal year ended August 31, 2016 compared to fiscal year 2015.
Sales of maintenance products in the Americas segment increased $6.7 million, or 4%, for the fiscal year ended August 31, 2016 compared to fiscal year 2015. This sales increase was mainly driven by higher sales of maintenance products in the U.S. and Latin America, which increased 6% and 3%, respectively, from period to period. The sales increase in the U.S. was primarily due to a higher level of promotional activities for all maintenance products and the added distribution of WD-40 EZ Reach Flexible Straw product, which was launched in late fiscal year 2015. The sales increase in Latin America was primarily due to the success of certain promotional programs which were conducted in the second quarter of fiscal year 2016, primarily those in Mexico and Chile, as well as the continued growth of the WD-40 Multi-Use Product throughout the Latin America region. The sales increases in the U.S. and Latin America were partially offset by a sales decrease in Canada of 14%, from period to period. This decrease was primarily due to lower sales associated with promotional programs, most of which was driven by unstable market and economic conditions, particularly in the industrial channel in Western Canada as a result of reduced activity in the oil industry. In addition, sales in Canada were negatively impacted by unfavorable changes in foreign currency exchange rates form period to period. Also contributing to the overall sales increase of maintenance products in the Americas segment was higher sales of the WD-40 Specialist product line, which were up $1.1 million, or 10%, from period to period due to new distribution, particularly of certain new products within this product line during the fourth quarter of fiscal year 2016.
Sales of homecare and cleaning products in the Americas segment decreased $2.6 million, or 9%, for the fiscal year ended August 31, 2016 compared to fiscal year 2015. This sales decrease was driven primarily by a decrease in sales of Spot Shot carpet stain remover and 2000 Flushes automatic toilet bowl cleaners, most of which is related to the U.S., of 13% and 7%, respectively. While each of our homecare and cleaning products continue to generate positive cash flows, we have continued to experience decreased or flat sales for many of these products primarily due to lost distribution, reduced product offerings, competition, category declines and the volatility of orders from and promotional programs with certain of our customers, particularly those in the warehouse club and mass retail channels.
For the Americas segment, 83% of sales came from the U.S., and 17% of sales came from Canada and Latin America combined for the fiscal year ended August 31, 2016 compared to fiscal year 2015 when 82% of sales came from the U.S., and 18% of sales came from Canada and Latin America combined.
27
EMEA
The following table summarizes net sales by product line for the EMEA segment (in thousands, except percentages):
|
|
|||||||||||
|
|
Fiscal Year Ended August 31, |
||||||||||
|
|
Change from |
||||||||||
|
|
2016 |
2015 |
Dollars |
Percent |
|||||||
|
Maintenance products |
$ |
129,217 |
$ |
129,730 |
$ |
(513) |
- |
||||
|
Homecare and cleaning products |
6,018 | 7,117 | (1,099) |
(15)% |
|||||||
|
Total (1) |
$ |
135,235 |
$ |
136,847 |
$ |
(1,612) |
(1)% |
||||
|
% of consolidated net sales |
36% | 36% | |||||||||
|
|
|||||||||||
|
(1) |
While the Company’s reporting currency is U.S. Dollar, the functional currency of our U.K. subsidiary, the entity in which the EMEA results are generated, is Pound Sterling. Although the functional currency of this subsidiary is Pound Sterling, approximately 45% of its sales are generated in Euro and 25% are generated in U.S. Dollar. As a result, the Pound Sterling sales and earnings for the EMEA segment can be negatively or positively impacted from period to period upon translation from these currencies depending on whether the Euro and U.S. Dollar are weakening or strengthening against the Pound Sterling. |
Sales in the EMEA segment, which includes Europe, the Middle East, Africa and India, decreased to $135.2 million, down $1.6 million, or 1%, for the fiscal year ended August 31, 2016 compared to fiscal year 2015. Changes in foreign currency exchange rates had an unfavorable impact on sales for the EMEA segment from period to period. Sales for the fiscal year ended August 31, 2016 translated at the exchange rates in effect for fiscal year 2015 would have been $146.5 million in the EMEA segment. Thus, on a constant currency basis, sales would have increased by $9.7 million, or 7%, for the fiscal year ended August 31, 2016 compared to fiscal year 2015.
The countries in EMEA where we sell through a direct sales force include the U.K., Italy, France, Iberia (which includes Spain and Portugal) and the Germanics sales region (which includes Germany, Austria, Denmark, Switzerland, Belgium and the Netherlands). Overall, sales from direct markets increased $1.2 million, or 1%, for the fiscal year ended August 31, 2016 compared to fiscal year 2015. Changes in foreign currency exchange rates had an unfavorable impact on sales in the direct markets in EMEA from period to period. On a constant currency basis, sales in the direct markets would have increased by 10% from fiscal year 2016 compared to fiscal year 2015.
We experienced sales increases throughout most of the EMEA direct markets for the fiscal year ended August 31, 2016 compared to fiscal year 2015, with percentage increases in sales as follows: the Germanics region, 10%; Italy, 9%; and France, 1%. Sales increases in these direct markets were primarily due to increased sales of the WD-40 Multi-Use Product, particularly in the Germanics region. Sales in the Germanics increased from period to period due to a change in the distribution model for the do-it-yourself (DIY) channel that we made for this region in fiscal year 2015. In the third quarter of fiscal year 2015, we shifted away from a distribution model for this channel where we sold product through a large wholesale customer who then supplied various retail customers to one where we sell direct to these retail customers. Due to the successful build of our direct customer base in this new model in fiscal year 2016, sales in this region were positively impacted from period to period. The increased sales in these regions were partially offset by sales decreases in the U.K. and Iberia of 6% and 1%, respectively. Sales in the U.K. decreased from period to period primarily due to decreased distribution of our 1001 brand in the retail channel from period to period. Sales generated in Euro in the direct markets also resulted in slightly higher Pound Sterling sales in fiscal year 2016 due the strengthening of the Euro against the Pound Sterling from period to period. The average exchange rate for the Euro against the Pound Sterling increased from 0.7497 to 0.7637, or 2%, from period to period. Also contributing to the overall sales increase in the direct markets were increased sales of the WD-40 Specialist product line of $1.9 million, or 45%, from period to period due to expanded distribution. Sales from direct markets accounted for 66% of the EMEA segment’s sales for fiscal year ended August 31, 2016 compared to 63% of the EMEA segment’s sales for fiscal year 2015.
28
The regions in the EMEA segment where we sell through local distributors include the Middle East, Africa, India, Eastern and Northern Europe. Sales in the distributor markets decreased $2.8 million, or 6%, for the fiscal year ended August 31, 2016 compared to fiscal year 2015 primarily due to an 11% decrease in sales in Russia as a result of the unstable market conditions in Eastern Europe which started in the third quarter of our fiscal year 2015. Although the market conditions in Russia began to stabilize in fiscal year 2016, our sales did not return in fiscal year 2016 to the levels that we experienced prior to the third quarter of fiscal year 2015. Sales were also negatively impacted in fiscal year 2016 by continued political and economic instability in other countries in the distributor markets. Since a high percentage of sales in the distributor markets in the EMEA segment are generated in U.S. Dollars, there were insignificant impacts due to changes in the foreign currency exchange rates from period to period. The distributor markets accounted for 34% of the EMEA segment’s total sales for the fiscal year ended August 31, 2016, compared to 37% for fiscal year 2015.
Asia-Pacific
The following table summarizes net sales by product line for the Asia-Pacific segment (in thousands, except percentages):
|
|
|||||||||||
|
|
Fiscal Year Ended August 31, |
||||||||||
|
|
Change from |
||||||||||
|
|
2016 |
2015 |
Dollars |
Percent |
|||||||
|
Maintenance products |
$ |
47,102 |
$ |
46,639 |
$ |
463 | 1% | ||||
|
Homecare and cleaning products |
6,936 | 7,320 | (384) |
(5)% |
|||||||
|
Total |
$ |
54,038 |
$ |
53,959 |
$ |
79 |
- |
||||
|
% of consolidated net sales |
14% | 14% | |||||||||
|
|
|||||||||||
Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region remained constant at $54.0 million for each of the fiscal years ended August 31, 2016 and 2015. Changes in foreign currency exchange rates had an unfavorable impact on sales for the Asia Pacific segment from period to period. Sales for the fiscal year ended August 31, 2016 translated at the exchange rates in effect for fiscal year 2015 would have been $56.8 million in the Asia-Pacific segment. Thus, on a constant currency basis, sales would have increased by $2.8 million, or 5%, for the fiscal year ended August 31, 2016 compared to fiscal year 2015.
Sales in Asia, which represented 69% of the total sales in the Asia-Pacific segment, increased $0.8 million, or 2%, for the fiscal year ended August 31, 2016 compared to fiscal year 2015. Sales in the Asia distributor markets increased $0.7 million, or 3%, from period to period, primarily attributable to increased distribution resulting from the success of certain significant promotional programs for the WD-40 Multi-Use Product in the Asian distributor markets, particularly those in Vietnam, Sri Lanka, and Thailand. Although sales in China remained relatively constant at $13.3 million and $13.2 million for the fiscal years ended August 31, 2016 and 2015, respectively, changes in foreign currency exchange rates had an unfavorable impact on sales in China. On a constant currency basis, sales would have increased by 7% from period to period primarily due to increased distribution, particularly in Southern China.
Sales in Australia decreased by $0.8 million, or 4%, for the fiscal year ended August 31, 2016 compared to fiscal year 2015. Changes in foreign currency exchange rates had an unfavorable impact on Australia sales. On a constant currency basis, sales would have increased by 7% for the fiscal year ended August 31, 2016 compared to fiscal year 2015 primarily due to increased distribution and higher sales levels resulting from successful promotional programs as well as continued growth of our base business.
Gross Profit
Gross profit increased to $214.4 million for the fiscal year ended August 31, 2016 compared to $200.2 million for fiscal year 2015. As a percentage of net sales, gross profit increased to 56.3% for the fiscal year ended August 31, 2016 compared to 52.9% for fiscal year 2015.
Gross margin was positively impacted by 2.4 percentage points from period to period due to favorable net changes in the costs of petroleum-based specialty chemicals and aerosol cans in all three segments. There is often a delay of one quarter or more before changes in raw material costs impact cost of products sold due to production and inventory life cycles. The average cost of crude oil which flowed through our cost of goods sold was significantly lower in fiscal year 2016 as compared to fiscal year 2015, thus resulting in positive impacts to our gross margin from period to period. The combined effects of favorable sales mix changes and other miscellaneous costs positively impacted gross margin by 0.4 percentage points primarily due to a favorable shift in product mix as a result of a higher portion of sales in the Americas segment being made of higher margin maintenance products from period to period. Gross margin was also positively impacted by 0.2 percentage points from period to period
29
primarily due to sales price increases implemented in the EMEA and Asia-Pacific segments in fiscal year 2016. In addition, advertising, promotional and other discounts that we give to our customers decreased from period to period positively impacting gross margin by 0.1 percentage points. In general, the timing of advertising, promotional and other discounts may cause fluctuations in gross margin from period to period. The costs associated with certain promotional activities are recorded as a reduction to sales while others are recorded as advertising and sales promotion expenses. Advertising, promotional and other discounts that are given to our customers are recorded as a reduction to sales, whereas advertising and sales promotional costs associated with promotional activities that we pay to third parties are recorded as advertising and sales promotion expenses.
Changes in foreign currency exchange rates positively impacted gross margin by 0.4 percentage points primarily due to the fluctuations in the exchange rates for the Euro and U.S. Dollar against the Pound Sterling in our EMEA segment from period to period. In the EMEA segment, the majority of our cost of goods sold is denominated in Pound Sterling whereas sales are generated in Pound Sterling, Euro and the U.S. Dollar. The combined effect of the strengthening of both the Euro and U.S. Dollar against the Pound Sterling from period to period caused an increase in our Pound Sterling sales, resulting in favorable impacts to the gross margin. These favorable impacts to gross margin were slightly offset by 0.1 percentage points due to higher warehousing and in-bound freight costs, particularly in the Americas segment from period to period.
Note that our gross profit and gross margin may not be comparable to those of other consumer product companies, since some of these companies include all costs related to distribution of their products in cost of products sold, whereas we exclude the portion associated with amounts paid to third parties for shipment to our customers from our distribution centers and contract manufacturers and include these costs in selling, general and administrative expenses. These costs totaled $16.1 million and $15.8 million for the fiscal years ended August 31, 2016 and 2015, respectively.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses for the fiscal year ended August 31, 2016 increased $8.9 million to $117.8 million from $108.9 million for fiscal year 2015. As a percentage of net sales, SG&A expenses increased to 30.9% for the fiscal year ended August 31, 2016 from 28.8% for fiscal year 2015. The increase in SG&A expenses was primarily attributable to higher employee-related costs, increased freight costs and other miscellaneous expenses. Employee-related costs, which include salaries, incentive compensation, profit sharing, stock-based compensation and other fringe benefits, increased by $11.5 million. This increase was primarily due to higher accruals for earned incentive compensation from period to period as well as annual compensation increases, which take effect in the first quarter of the fiscal year, and increased headcount. Freight costs associated with shipping products to our customers increased $1.0 million primarily due to higher sales volumes in the EMEA segment from period to period as well as additional costs associated with the shift in the distribution model in the Germanics region in EMEA. Other miscellaneous expenses, which primarily include sales commissions and depreciation expense, increased by $0.8 million period over period. These increases were partially offset by changes in foreign currency exchange rates, which had a favorable impact of $4.4 million on SG&A expenses for the fiscal year ended August 31, 2016 compared to fiscal year 2015.
We continued our research and development investment, the majority of which is associated with our maintenance products, in support of our focus on innovation and renovation of our products. Research and development costs for the fiscal years ended August 31, 2016 and 2015 were $7.7 million and $9.0 million, respectively. Our research and development team engages in consumer research, product development, current product improvement and testing activities. This team leverages its development capabilities by partnering with a network of outside resources including our current and prospective suppliers. The level and types of expenses incurred within research and development can vary from period to period depending upon the types of activities being performed.
Advertising and Sales Promotion Expenses
Advertising and sales promotion expenses for the fiscal year ended August 31, 2016 decreased $0.6 million to $22.3 million from $22.9 million for fiscal year 2015. As a percentage of net sales, these expenses decreased to 5.9% for the fiscal year ended August 31, 2016 from 6.0% for fiscal year 2015. Changes in foreign currency exchange rates had a favorable impact on such expenses of $0.9 million from period to period. Thus, on a constant currency basis, advertising and sales promotion expenses for fiscal year 2016 would have increased by $0.3 million, primarily due to a higher level of promotional programs and marketing support in the EMEA segment from period to period.
As a percentage of net sales, advertising and sales promotion expenses may fluctuate period to period based upon the type of marketing activities we employ and the period in which the costs are incurred. Total promotional costs recorded as a reduction to sales were $16.1 million and $16.0 million for the fiscal years ended August 31, 2016 and 2015, respectively. Therefore, our total investment in advertising and sales promotion activities totaled $38.4 million and $38.9 million for the fiscal years ended August 31, 2016 and 2015, respectively.
30
Amortization of Definite-lived Intangible Assets Expense
Amortization of our definite-lived intangible assets remained constant at $3.0 million for both the fiscal years ended August 31, 2016 and 2015.
Income from Operations by Segment
The following table summarizes income from operations by segment (in thousands, except percentages):
|
|
|||||||||||
|
|
Fiscal Year Ended August 31, |
||||||||||
|
|
Change from |
||||||||||
|
|
2016 |
2015 |
Dollars |
Percent |
|||||||
|
Americas |
$ |
48,404 |
$ |
46,674 |
$ |
1,730 | 4% | ||||
|
EMEA |
31,702 | 30,173 | 1,529 | 5% | |||||||
|
Asia-Pacific |
15,162 | 12,602 | 2,560 | 20% | |||||||
|
Unallocated corporate (1) |
(23,920) | (24,059) | 139 |
(1)% |
|||||||
|
|
$ |
71,348 |
$ |
65,390 |
$ |
5,958 | 9% | ||||
|
|
|||||||||||
|
(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 consolidated statements of operations. |
Americas
Income from operations for the Americas segment increased to $48.4 million, up $1.7 million, or 4%, for the fiscal year ended August 31, 2016 compared to fiscal year 2015, primarily due to a $4.1 million increase in sales and a higher gross margin. As a percentage of net sales, gross profit for the Americas segment increased from 52.6% to 55.1% period over period. This increase in the gross margin was primarily due to the combined positive impacts of decreased costs of petroleum-based specialty chemicals and aerosol cans as well as favorable sales mix changes, which were slightly offset by increased warehousing and in-house freight costs from period to period. The higher level of sales from period to period was accompanied by a $5.1 million increase in operating expenses, most of which related to increased headcount and higher earned incentive compensation expenses period over period. Operating income as a percentage of net sales increased from 24.9% to 25.3% period over period.
EMEA
Income from operations for the EMEA segment increased to $31.7 million, up $1.5 million, or 5%, for the fiscal year ended August 31, 2016 compared to fiscal year 2015, primarily due to a higher gross margin, which was partially offset by a $1.6 million decrease in sales and higher operating expenses. As a percentage of net sales, gross profit for the EMEA segment increased from 54.6% to 58.7% period over period primarily due to the combined positive impacts of decreased costs of petroleum-based specialty chemicals and aerosol cans as well as sales price increases. Fluctuations in foreign currency exchange rates also had a significant favorable impact on gross margin from period to period. Operating expenses increased $3.1 million mainly related to higher earned incentive compensation expenses period over period. Operating income as a percentage of net sales increased from 22.0% to 23.4% period over period.
Asia-Pacific
Income from operations for the Asia-Pacific segment increased to $15.2 million, up $2.6 million, or 20%, the fiscal year ended August 31, 2016 compared to fiscal year 2015, primarily due to a higher gross margin. As a percentage of net sales, gross profit for the Asia-Pacific segment increased from 49.9% to 54.8% period over period primarily due to the combined positive impacts of decreased costs of petroleum-based specialty chemicals and aerosol cans, sales price increases, and a lower level of advertising, promotional and other discounts that we gave to our customers from period to period. Also contributing to the increased gross margin from period to period was the write-off of product and other costs related to a quality issue that occurred during fiscal year 2015 in the Asia distributor markets. Operating income as a percentage of net sales increased from 23.4% to 28.1% period over period.
31
Non-Operating Items
The following table summarizes non-operating income and expenses for our consolidated operations (in thousands):
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2016 |
2015 |
Change |
|||||
|
Interest income |
$ |
683 |
$ |
584 |
$ |
99 | ||
|
Interest expense |
$ |
1,703 |
$ |
1,205 |
$ |
498 | ||
|
Other income (expense), net |
$ |
2,461 |
$ |
(1,659) |
$ |
4,120 | ||
|
Provision for income taxes |
$ |
20,161 |
$ |
18,303 |
$ |
1,858 | ||
|
|
||||||||
Interest Income
Interest income remained relatively constant for the fiscal year ended August 31, 2016 compared to fiscal year 2015.
Interest Expense
Interest expense increased $0.5 million for the fiscal year ended August 31, 2016 compared to fiscal year 2015 primarily due to higher interest rates and an increased outstanding balance on our revolving credit facility period over period.
Other Income (Expense), Net
Other income (expense), net changed by $4.1 million for the fiscal year ended August 31, 2016 compared to fiscal year 2015 primarily due to net foreign currency exchange gains which were recorded for fiscal year ended August 31, 2016 compared to net foreign currency exchange losses which were recorded in fiscal year 2015 as a result of significant fluctuations in the foreign currency exchange rates for both the Euro and the U.S. Dollar against the Pound Sterling.
Provision for Income Taxes
The provision for income taxes was 27.7% of income before income taxes for the fiscal year ended August 31, 2016 compared to 29.0% for fiscal year 2015. The decrease in the effective income tax rate from period to period was driven by an increase in the portion of taxable earnings attributable to foreign operations, particularly those in the U.K., which are taxed at lower tax rates.
Net Income
Net income was $52.6 million, or $3.64 per common share on a fully diluted basis, for fiscal year 2016 compared to $44.8 million, or $3.04 per common share on a fully diluted basis, for fiscal year 2015. Changes in foreign currency exchange rates year over year had an unfavorable impact of $2.8 million on net income for fiscal year 2016. Thus, on a constant currency basis, net income for fiscal year 2016 would have been $55.4 million.
32
Performance Measures and Non-GAAP Reconciliations
In managing our business operations and assessing our financial performance, we supplement the information provided by our financial statements with certain non-GAAP performance measures. These performance measures are part of our current 55/30/25 business model, which includes gross margin, cost of doing business, and earnings before interest, income taxes, depreciation and amortization (“EBITDA”), the latter two of which are non-GAAP performance measures. Cost of doing business is defined as total operating expenses less amortization of definite-lived intangible assets, impairment charges related to intangible assets and depreciation in operating departments, and EBITDA is defined as net income (loss) before interest, income taxes, depreciation and amortization. We target our gross margin to be above 55% of net sales, our cost of doing business to be at or below 30% of net sales, and our EBITDA to be above 25% of net sales. Results for these performance measures may vary from period to period depending on various factors, including economic conditions and our level of investment in activities for the future such as those related to quality assurance, regulatory compliance, and intellectual property protection in order to safeguard our WD-40 brand. The targets for these performance measures are long-term in nature, particularly those for cost of doing business and EBITDA, and we expect to make progress towards achieving them over time as our revenues increase.
The following table summarizes the results of these performance measures:
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2017 |
2016 |
2015 |
|||||
|
Gross margin - GAAP |
56% | 56% | 53% | |||||
|
Cost of doing business as a percentage of net sales - non-GAAP |
35% | 36% | 34% | |||||
|
EBITDA as a percentage of net sales - non-GAAP (1) |
22% | 21% | 19% | |||||
|
|
||||||||
|
(1) |
Percentages may not aggregate to EBITDA percentage due to rounding and because amounts recorded in other income (expense), net on the Company’s consolidated statement of operations are not included as an adjustment to earnings in the EBITDA calculation. |
We use the performance measures above to establish financial goals and to gain an understanding of the comparative performance of the Company from period to period. We believe that these measures provide our shareholders with additional insights into the Company’s results of operations and how we run our business. The non-GAAP financial measures are supplemental in nature and should not be considered in isolation or as alternatives to net income, income from operations or other financial information prepared in accordance with GAAP as indicators of the Company’s performance or operations. The use of any non-GAAP measure may produce results that vary from the GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies. Reconciliations of these non-GAAP financial measures to our financial statements as prepared in accordance with GAAP are as follows:
Cost of Doing Business (in thousands, except percentages):
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2017 |
2016 |
2015 |
|||||
|
Total operating expenses - GAAP |
$ |
137,976 |
$ |
143,021 |
$ |
134,788 | ||
|
Amortization of definite-lived intangible assets |
(2,879) | (2,976) | (3,039) | |||||
|
Depreciation (in operating departments) |
(2,789) | (2,744) | (2,664) | |||||
|
Cost of doing business |
$ |
132,308 |
$ |
137,301 |
$ |
129,085 | ||
|
Net sales |
$ |
380,506 |
$ |
380,670 |
$ |
378,150 | ||
|
Cost of doing business as a percentage of net sales - non-GAAP |
35% | 36% | 34% | |||||
|
|
||||||||
33
EBITDA (in thousands, except percentages):
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2017 |
2016 |
2015 |
|||||
|
Net income - GAAP |
$ |
52,930 |
$ |
52,628 |
$ |
44,807 | ||
|
Provision for income taxes |
21,692 | 20,161 | 18,303 | |||||
|
Interest income |
(508) | (683) | (584) | |||||
|
Interest expense |
2,582 | 1,703 | 1,205 | |||||
|
Amortization of definite-lived |
||||||||
|
intangible assets |
2,879 | 2,976 | 3,039 | |||||
|
Depreciation |
3,890 | 3,489 | 3,425 | |||||
|
EBITDA |
$ |
83,465 |
$ |
80,274 |
$ |
70,195 | ||
|
Net sales |
$ |
380,506 |
$ |
380,670 |
$ |
378,150 | ||
|
EBITDA as a percentage of net sales - non-GAAP |
22% | 21% | 19% | |||||
|
|
||||||||
Liquidity and Capital Resources
Overview
The Company’s financial condition and liquidity remain strong. Net cash provided by operations was $52.3 million for fiscal year 2017 compared to $60.6 million for fiscal year 2016. We believe we continue to be well positioned to weather any uncertainty in the capital markets and global economy due to our strong balance sheet and efficient business model, along with our growing and diversified global revenues. We continue to manage all aspects of our business including, but not limited to, monitoring the financial health of our customers, suppliers and other third-party relationships, implementing gross margin enhancement strategies and developing new opportunities for growth.
Our principal sources of liquidity are our existing cash and cash equivalents, short-term investments, cash generated from operations and cash currently available from our existing $175.0 million revolving credit facility with Bank of America, N.A. (“Bank of America”), which expires on May 13, 2020. To date, we have used the proceeds of the revolving credit facility for our stock repurchases and plan to continue using such proceeds for our general working capital needs and stock repurchases under our board approved share buy-back plan. The Company also utilized this revolving credit facility to fund the purchase and buildout of its new headquarters office, which was purchased in September 2016 and completed in August 2017. The new office building houses both corporate employees and employees in the Company’s Americas segment.
During the fiscal year ended August 31, 2017, we had net new borrowings of $32.0 million U.S. dollars under the revolving credit facility. We regularly convert the vast majority of our draws on our line of credit to new draws with new maturity dates and interest rates. As of August 31, 2017, we had a $154.0 million outstanding balance on the revolving credit facility, of which $134.0 million was classified as long-term and $20.0 million was classified as short-term. There were no other letters of credit outstanding or restrictions on the amount available on this line of credit. Per the terms of the revolving credit facility agreement, our consolidated leverage ratio cannot be greater than three to one and our consolidated interest coverage ratio cannot be less than three to one. See Note 7 – Debt for additional information on these financial covenants. At August 31, 2017, we were in compliance with all debt covenants as required by the revolving credit facility and believe it is unlikely we will fail to comply with any of these covenants over the next twelve months. We would need to have a significant decrease in sales and/or a significant increase in expenses in order for us to not comply with the debt covenants.
At August 31, 2017, we had a total of $117.2 million in cash and cash equivalents and short-term investments. Of this balance, $114.0 million was held in Europe, Australia and China in foreign currencies. It is our intention to indefinitely reinvest the cumulative unremitted earnings at these locations in order to ensure sufficient working capital, expand operations and fund foreign acquisitions in these locations. We believe that our future cash from domestic operations, together with our access to funds available under our unsecured revolving credit facility will provide adequate resources to fund both short-term and long-term operating requirements, capital expenditures, share repurchases, dividend payments, acquisitions and new business development activities in the United States. Although we hold a significant amount of cash outside of the United States and the draws on the credit facility to date have been made by our entity in the United States, we do not foresee any ongoing issues with repaying or refinancing these loans with domestically generated funds since we closely monitor the use of this credit facility. In the event that management elects for any reason in the future to repatriate additional foreign earnings that were previously deemed to be indefinitely reinvested outside of the U.S., we would be required to record additional tax expense at the time when we determine that such foreign earnings are no longer deemed to be indefinitely reinvested outside of the United States.
34
We believe that our existing consolidated cash and cash equivalents at August 31, 2017, the liquidity provided by our $175.0 million revolving credit facility and our anticipated cash flows from operations will be sufficient to meet our projected consolidated operating and capital requirements for at least the next twelve months. We consider various factors when reviewing liquidity needs and plans for available cash on hand including: future debt, principal and interest payments, future capital expenditure requirements, future share repurchases, future dividend payments (which are determined on a quarterly basis by the Company’s Board of Directors), alternative investment opportunities, debt covenants and any other relevant considerations currently facing our business.
The following table summarizes our cash flows by category for the periods presented (in thousands):
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2017 |
2016 |
2015 |
|||||
|
Net cash provided by operating activities |
$ |
52,337 |
$ |
60,604 |
$ |
55,064 | ||
|
Net cash used in investing activities |
(42,291) | (20,920) | (16,951) | |||||
|
Net cash used in financing activities |
(23,603) | (38,536) | (38,663) | |||||
|
Effect of exchange rate changes on cash and cash equivalents |
(252) | (4,153) | (3,357) | |||||
|
Net decrease in cash and cash equivalents |
$ |
(13,809) |
$ |
(3,005) |
$ |
(3,907) | ||
|
|
||||||||
Operating Activities
Net cash provided by operating activities decreased $8.3 million to $52.3 million for fiscal year 2017 from $60.6 million for fiscal year 2016. Cash flows from operating activities depend heavily on operating performance and changes in working capital. Our primary source of operating cash flows for fiscal year ended August 31, 2017 was net income of $52.9 million, which increased $0.3 million from period to period. The changes in our working capital from period to period were primarily attributable to an overall decrease in accrued payroll and related expenses due to higher earned incentive payouts in the first quarter of fiscal year 2017 compared to the same period of the prior fiscal year as well as lower earned incentive accruals during the fiscal year ended August 31, 2017 as compared to the prior fiscal year. These earned incentive payouts and accruals are based on the Company achieving targets for EBITDA which are set each fiscal year. As a result, these amounts have varied year over year due to the Company’s actual or expected achievement of these targets. Higher income taxes receivable balances also contributed to the overall decrease in cash provided by operating activities from period to period. These impacts to working capital were partially offset by changes in trade accounts receivable balances year over year. Such balances a decreased slightly from fiscal year 2016 to fiscal year 2017 whereas they increased significantly from fiscal year 2015 to fiscal year 2016. The significant increase in the trade accounts receivable balance at the end of fiscal year 2016 was primarily due to increased sales volumes in the fourth quarter of fiscal year 2016 as compared to the same quarter in fiscal year 2015 and the timing of payments received from our customers from period to period.
Net cash provided by operating activities increased $5.5 million to $60.6 million for fiscal year 2016 from $55.1 million for fiscal year 2015. Cash flows from operating activities depend heavily on operating performance and changes in working capital. Our primary source of operating cash flows for fiscal year ended August 31, 2016 was net income of $52.6 million, which increased $7.8 million from period to period. This increase was slightly offset by changes in our working capital, which were primarily attributable to an overall increase in the trade accounts receivable balance due to increased sales volumes in the fourth quarter of fiscal year 2016 as compared to the same quarter in fiscal year 2015 and the timing of payments received from our customers from period to period. Also contributing to the change in working capital from period to period were lower earned incentive payouts in the first quarter of fiscal year 2016 compared to the same period of fiscal year 2015 as well as significantly higher accruals for earned incentive compensation in fiscal year 2016 as compared fiscal year 2015.
Investing Activities
Net cash used in investing activities increased $21.4 million to $42.3 million for fiscal year 2017 from $20.9 million for fiscal year 2016 primarily due to an increase of $16.4 million in cash outflow during the fiscal year 2017 related to the purchase and buildout of the Company’s new office building, which was completed in August 2017. Also contributing to the total cash outflows was a $5.7 million net increase from period to period in purchases of short-term investments that were made primarily by our U.K. and Australia subsidiaries.
Net cash used in investing activities increased $4.0 million to $20.9 million for fiscal year 2016 from $16.9 million for fiscal year 2015 primarily due to a $9.5 million increase in net purchases of short-term investments that were made by our U.K. and Australia subsidiaries. This increase was partially offset by a decrease of $4.1 million in cash outflow related to the GT85 Limited
35
acquisition which was completed by our U.K. subsidiary in early fiscal year 2015 and a $1.4 million decrease in capital expenditures from period to period.
Financing Activities
Net cash used in financing activities decreased $14.9 million to $23.6 million for fiscal year 2017 from $38.5 million for fiscal year 2016 primarily due to an $18.0 million increase in cash inflows from our revolving credit facility and a $1.0 million decrease in cash outflows for treasury stock purchases from period to period. This decrease was partially offset by an increase of $3.1 million in dividends paid. Also offsetting cash inflows from financing activities was a $0.5 million decrease in excess tax benefits from settlements of stock-based equity awards and a $0.5 million decrease in proceeds from the issuance of common stock upon the exercise of stock options from period to period.
Net cash used in financing activities decreased $0.2 million to $38.5 million for fiscal year 2016 from $38.7 million for fiscal year 2015 primarily due to a $4.0 million increase in cash proceeds from our revolving credit facility, which was almost completely offset by a $1.9 million increase in dividends paid and a $1.9 million increase in cash outflow for treasury stock purchases from period to period.
Effect of Exchange Rate Changes
All of our foreign subsidiaries currently operate in currencies other than the U.S. Dollar and a significant portion of our consolidated cash balance is denominated in these foreign functional currencies, particularly at our U.K. subsidiary which operates in Pound Sterling. As a result, our cash and cash equivalents balances are subject to the effects of the fluctuations in these functional currencies against the U.S. Dollar at the end of each reporting period. The net effect of exchange rate changes on cash and cash equivalents, when expressed in U.S. Dollar terms, was a decrease in cash of $0.3 million, $4.2 million and $3.4 million for fiscal years 2017, 2016 and 2015, respectively. These changes were primarily due to fluctuations in various foreign currency exchange rates from period to period, but the majority is related to the fluctuations in the Pound Sterling against the U.S. Dollar.
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 August 31, 2017, the Company repurchased 290,573 shares at a total cost of $31.1 million under this $75.0 million plan.
Dividends
The Company has historically paid regular quarterly cash dividends on its common stock. In December 2016, the Board of Directors declared a 17% increase in the regular quarterly cash dividend, increasing it from $0.42 per share to $0.49 per share. On October 10, 2017, the Company’s Board of Directors declared a cash dividend of $0.49 per share payable on October 31, 2017 to shareholders of record on October 20, 2017. Our ability to pay dividends could be affected by future business performance, liquidity, capital needs, alternative investment opportunities and loan covenants.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as defined by Item 303(a)(4)(ii) of Regulation S-K.
Contractual Obligations
The following table sets forth our best estimates as to the amounts and timing of minimum contractual payments for our most significant contractual obligations and commitments as of August 31, 2017 for the next five years and thereafter (in thousands). Future events could cause actual payments to differ significantly from these amounts.
|
|
||||||||||||||
|
|
Total |
1 year |
2-3 years |
4-5 years |
Thereafter |
|||||||||
|
Operating leases |
$ |
5,660 |
$ |
1,856 |
$ |
2,116 |
$ |
1,218 |
$ |
470 | ||||
|
|
||||||||||||||
36
The following summarizes other commitments which are excluded from the contractual obligations table above as of August 31, 2017:
|
· |
We have ongoing relationships with various suppliers (contract manufacturers) who manufacture our products. The contract manufacturers maintain title and control of certain raw materials and components, materials utilized in finished products, and of the finished products themselves until shipment to our customers or third-party distribution centers in accordance with agreed upon shipment terms. Although we typically do not have definitive minimum purchase obligations included in the contract terms with our contract manufacturers, when such obligations have been included, they have been immaterial. In the ordinary course of business, we communicate supply needs to our contract manufacturers based on orders and short-term projections, ranging from two to five months. We are committed to purchase the products produced by the contract manufacturers based on the projections provided. Upon the termination of contracts with contract manufacturers, we obtain certain inventory control rights and are obligated to work with the contract manufacturer to sell through all product held by or manufactured by the contract manufacturer on our behalf during the termination notification period. If any inventory remains at the contract manufacturer at the termination date, we are obligated to purchase such inventory which may include raw materials, components and finished goods. |
|
· |
Under the current terms of the credit facility agreement with Bank of America, we may borrow funds in U.S. dollars or in foreign currencies from time to time during the five-year period commencing March 13, 2015 through May 13, 2020. As of August 31, 2017, we had $154.0 million outstanding on this credit facility. Based on our most recent cash projections and anticipated business activities, we expect to borrow additional amounts ranging from $15.0 million to $20.0 million in fiscal year 2018. We estimate that the interest associated with these incremental borrowings will be approximately $0.4 million for fiscal year 2018 based on estimated applicable interest rates and the expected dates of future borrowings. For additional details on this revolving line of credit, refer to the information set forth in Note 7 – Debt. |
|
· |
At August 31, 2017, the liability recorded for uncertain tax positions, excluding associated interest and penalties, was approximately $1.0 million. We have 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. |
Critical Accounting Policies
Our results of operations and financial condition, as reflected in our consolidated financial statements, have been prepared in accordance with accounting principles generally accepted in the United States of America. Preparation of financial statements requires us to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues and expenses and the disclosures of contingent assets and liabilities. We use historical experience and other relevant factors when developing estimates and assumptions and these estimates and assumptions are continually evaluated. Note 2 to our consolidated financial statements included in Item 15 of this report includes a discussion of the Company’s significant accounting policies. The accounting policies discussed below are the ones we consider to be most critical to an understanding of our consolidated financial statements because their application places the most significant demands on our judgment. Our financial results may have varied from those reported had different assumptions been used or other conditions prevailed. Our critical accounting policies have been reviewed with the Audit Committee of the Board of Directors.
Revenue Recognition and Sales Incentives
Sales are recognized as revenue at the time of delivery to our customer when risks of loss and title have passed. Sales are recorded net of allowances for damaged goods and other sales returns, sales incentives, trade promotions and cash discounts. For certain of our sales we must make judgments and certain assumptions in order to determine when delivery has occurred. Through an analysis of end-of-period shipments for these particular sales, we determine an average time of transit of product to our customers, and this is used to estimate the time of delivery and whether revenue should be recognized during the current reporting period for such shipments. Differences in judgments or estimates related to the lengthening or shortening of the estimated delivery time used could result in material differences in the timing of revenue recognition.
Sales incentives are recorded as a reduction of sales in our consolidated statements of operations. Sales incentives include on-going trade promotion programs with customers and consumer coupon programs that require us to estimate and accrue for the expected costs of such programs. These programs include cooperative marketing programs, shelf price reductions, coupons, rebates, consideration and allowances given to retailers for shelf space and/or favorable display positions in their stores and other promotional activities. Costs related to these sales incentive programs, with the exception of coupon costs, are recorded as a reduction to sales upon delivery of products to customers. Coupon costs are based upon historical redemption rates and are recorded as a reduction to sales as incurred, which is when the coupons are circulated.
37
Sales incentives are calculated based primarily on historical rates and consideration of recent promotional activities. The determination of sales incentive costs and the related liabilities require us to use judgment for estimates that include current and past trade promotion spending patterns, status of trade promotion activities and the interpretation of historical spending trends by customer and category. We review our assumptions and adjust our sales incentive allowances accordingly on a quarterly basis. Our consolidated financial statements could be materially impacted if the actual promotion rates are different from the estimated rates. If our accrual estimates for sales incentives at August 31, 2017 were to differ by 10%, the impact on net sales would be approximately $0.7 million.
Accounting for Income Taxes
Current income tax expense is the amount of income taxes expected to be payable for the current year. A deferred income tax liability or asset is established for the expected future tax consequences resulting from the differences in financial reporting and tax bases of assets and liabilities. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be realized. In addition to valuation allowances, we provide for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement standards prescribed by the authoritative guidance on income taxes. Amounts for uncertain tax positions are adjusted in periods when new information becomes available or when positions are effectively settled. We recognize accrued interest and penalties related to uncertain tax positions as a component of income tax expense.
U.S. federal income tax expense is provided on remittances of foreign earnings and on unremitted foreign earnings that are not indefinitely reinvested. U.S. federal income taxes and foreign withholding taxes are not provided when foreign earnings are indefinitely reinvested. We determine whether our foreign subsidiaries will invest their undistributed earnings indefinitely based on the capital needs of the foreign subsidiaries. We reassess this determination each reporting period. Changes to this determination may be warranted based on our experience as well as plans regarding future international operations and expected remittances.
Valuation of Goodwill
The carrying value of goodwill is reviewed for possible impairment in accordance with the authoritative guidance on goodwill, intangibles and other. We assess for possible impairments to goodwill at least annually during our second fiscal quarter and otherwise when events or changes in circumstances indicate that an impairment condition may exist.
During the second quarter of fiscal year 2017, we performed our 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. We 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, we assessed relevant events and circumstances that may impact the fair value and the carrying amount of each of our 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 employees; 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, we determined that it is more likely than not that the carrying value of each of our reporting units is less than its fair value and, thus, the two-step quantitative analysis was not required. As a result, we concluded that no impairment of our goodwill existed as of February 28, 2017. We also did not identify or record any impairment losses related to our goodwill during our annual impairment tests performed in fiscal years 2016 and 2015.
While we believe that the estimates and assumptions used in our goodwill impairment test and analyses are reasonable, actual events and results could differ substantially from those included in the calculation. In the event that business conditions change in the future, we may be required to reassess and update our forecasts and estimates used in subsequent goodwill impairment analyses. If the results of these future analyses are lower than current estimates, an impairment charge to our goodwill balances may result at that time.
In addition, there were no indicators of impairment identified as a result of our review of events and circumstances related to our goodwill subsequent to February 28, 2017.
Impairment of Definite-Lived Intangible Assets
We assess for potential impairments to our long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and/or its estimated remaining useful life may no longer be
38
appropriate. Any required impairment loss would be measured as the amount by which the asset’s carrying amount exceeds its fair value, which is the amount at which the asset could be bought or sold in a current transaction between willing market participants and would be recorded as a reduction in the carrying amount of the related asset and a charge to results of operations. An impairment loss would be recognized when the sum of the expected future undiscounted net cash flows is less than the carrying amount of the asset.
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 periods ended August 31, 2017, 2016 and 2015.
Recently Issued Accounting Standards
Information on Recently Issued Accounting Standards that could potentially impact the Company’s consolidated financial statements and related disclosures is incorporated by reference to Part IV—Item 15, “Notes to Condensed Consolidated Financial Statements” Note 2 — Basis of Presentation and Summary of Significant Accounting Policies, included in this report.
Related Parties
The information required by this item is incorporated by reference to Part IV—Item 15, “Notes to Condensed Consolidated Financial Statements” Note 10 — Related Parties, included in this report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Risk
The Company is exposed to a variety of risks, including foreign currency exchange rate fluctuations. In the normal course of business, the Company employs established policies and procedures to manage its exposure to fluctuations in foreign currency values.
All of the Company’s international subsidiaries operate in functional currencies other than the U.S. dollar. As a result, the Company is exposed to foreign currency related risk when the financial statements of its international subsidiaries are translated for consolidation purposes from functional currencies to U.S. dollars. This foreign currency risk can affect sales, expenses and profits as well as assets and liabilities that are denominated in currencies other than the U.S. dollar. The Company does not enter into any hedging activities to mitigate this foreign currency translation risk.
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 currencies, specifically the Euro. The Company regularly monitors its foreign exchange 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.
Interest Rate Risk
As of August 31, 2017, the Company had a $154.0 million outstanding balance on its existing $175.0 million revolving credit facility agreement with Bank of America. This $175.0 million revolving credit facility is subject to interest rate fluctuations. Under the terms of the credit facility agreement, the Company may borrow loans in U.S. dollars or in foreign currencies from time to time until May 13, 2020. All loans denominated in U.S. dollars will accrue interest at the bank’s Prime rate or at LIBOR plus a margin of 0.85 percent (together with any applicable mandatory liquid asset costs imposed by non-U.S. banking regulatory authorities). All loans denominated in foreign currencies will accrue interest at LIBOR plus 0.85 percent. Any significant increase in the bank’s Prime rate and/or LIBOR rate could have a material effect on interest expense incurred on any borrowings outstanding under the credit facility.
39
Item 8. Financial Statements and Supplementary Data
The Company’s consolidated financial statements at August 31, 2017 and 2016 and for each of the three fiscal years in the period ended August 31, 2017, and the Report of Independent Registered Public Accounting Firm, are included in Item 15 of this report.
Quarterly Financial Data (Unaudited)
The following table sets forth certain unaudited quarterly consolidated financial data (in thousands, except per share data):
|
|
||||||||||||||
|
|
Fiscal Year Ended August 31, 2017 |
|||||||||||||
|
|
1st |
2nd |
3rd |
4th |
Total |
|||||||||
|
Net sales |
$ |
89,248 |
$ |
96,519 |
$ |
98,178 |
$ |
96,561 |
$ |
380,506 | ||||
|
Gross profit |
$ |
51,040 |
$ |
54,462 |
$ |
54,287 |
$ |
54,096 |
$ |
213,885 | ||||
|
Net income |
$ |
11,758 |
$ |
12,360 |
$ |
14,444 |
$ |
14,368 |
$ |
52,930 | ||||
|
Diluted earnings per common share |
$ |
0.82 |
$ |
0.87 |
$ |
1.02 |
$ |
1.01 |
$ |
3.72 | ||||
|
|
||||||||||||||
|
|
Fiscal Year Ended August 31, 2016 |
|||||||||||||
|
|
1st |
2nd |
3rd |
4th |
Total |
|||||||||
|
Net sales |
$ |
92,522 |
$ |
94,550 |
$ |
96,446 |
$ |
97,152 |
$ |
380,670 | ||||
|
Gross profit |
$ |
51,408 |
$ |
52,362 |
$ |
54,811 |
$ |
55,788 |
$ |
214,369 | ||||
|
Net income |
$ |
12,062 |
$ |
13,669 |
$ |
12,665 |
$ |
14,232 |
$ |
52,628 | ||||
|
Diluted earnings per common share |
$ |
0.83 |
$ |
0.94 |
$ |
0.88 |
$ |
0.99 |
$ |
3.64 | ||||
|
|
||||||||||||||
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (“Exchange Act”). The term disclosure controls and procedures means controls and other procedures of a Company that are designed to ensure the information required to be disclosed by the Company in the reports that it files or submits under the Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures. The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures as of August 31, 2017, the end of the period covered by this report (the Evaluation Date), and they have concluded that, as of the Evaluation Date, such controls and procedures were effective at ensuring that required information will be disclosed on a timely basis in the Company’s reports filed under the Exchange Act. Although management believes the Company’s existing disclosure controls and procedures are adequate to enable the Company to comply with its disclosure obligations, management continues to review and update such controls and procedures. The Company has a disclosure committee, which consists of certain members of the Company’s senior management.
40
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of its internal control over financial reporting based upon the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on that evaluation, management concluded that its internal control over financial reporting is effective as of August 31, 2017.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP, independent registered public accounting firm, who audited and reported on the consolidated financial statements of WD-40 Company included in Item 15 of this report, has audited the effectiveness of WD-40 Company’s internal control over financial reporting as of August 31, 2017, as stated in their report included in Item 15 of this report.
Changes in Internal Control over Financial Reporting
For the quarter ended August 31, 2017, there were no significant changes to the Company’s internal control over financial reporting that materially affected, or would be reasonably likely to materially affect, its internal control over financial reporting.
None.
Item 10. Directors, Executive Officers and Corporate Governance
Certain information required by this item is set forth under the headings “Security Ownership of Directors and Executive Officers,” “Nominees for Election as Directors,” “Audit Committee” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s Proxy Statement to be filed with the Securities and Exchange Commission in connection with the 2017 Annual Meeting of Stockholders on December 12, 2017 (“Proxy Statement”), which information is incorporated by reference herein. Additional information concerning executive officers of the Registrant required by this item is included in this report following Item 4 of Part I under the heading, "Executive Officers of the Registrant."
The Registrant has a code of ethics (as defined in Item 406 of Regulation S-K under the Exchange Act) applicable to its principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions. The code of ethics is represented by the Registrant’s Code of Conduct applicable to all employees and directors. A copy of the Code of Conduct may be found on the Registrant’s internet website on the Corporate Governance link from the Investors page at www.wd40company.com.
Item 11. Executive Compensation
Information required by this item is incorporated by reference to the Proxy Statement under the headings “Board of Directors Compensation,” “Compensation Committee Interlocks and Insider Participation,” “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Executive Compensation,” “Supplemental Death Benefit Plans and Supplemental Insurance Benefits” and “Change of Control Severance Agreements.”
41
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain information required by this item is incorporated by reference to the Proxy Statement under the headings “Principal Security Holders” and “Security Ownership of Directors and Executive Officers.”
Equity Compensation Plan Information
The following table provides information regarding shares of the Company’s common stock authorized for issuance under equity compensation plans as of August 31, 2017:
|
|
||||||||
|
|
Number of securities |
|||||||
|
|
remaining available for |
|||||||
|
|
Number of securities to |
future issuance under |
||||||
|
|
be issued upon exercise |
Weighted-average exercise |
equity compensation plans |
|||||
|
|
of outstanding options, |
price of outstanding options |
(excluding securities |
|||||
|
|
warrants and rights |
warrants and rights |
reflected in column (a)) |
|||||
|
|
(a) |
(b) |
(c) |
|||||
|
Plan category |
||||||||
|
Equity compensation plans |
||||||||
|
approved by security holders |
198,525 |
(1) |
$ |
36.03 |
(2) |
979,546 | ||
|
Equity compensation plans not |
||||||||
|
approved by security holders |
n/a |
n/a |
n/a |
|||||
|
|
198,525 |
(1) |
$ |
36.03 |
(2) |
979,546 | ||
|
|
||||||||
(1) Includes 5,960 securities to be issued upon exercise of outstanding stock options; 116,770 securities to be issued pursuant to outstanding restricted stock units; 44,919 securities to be issued pursuant to outstanding market share units (“MSUs”) based on 100% of the target number of MSU shares to be issued upon achievement of the applicable performance measure specified for such MSUs; and 30,876 securities to be issued pursuant to outstanding deferred performance units (“DPUs”) based on 100% of the maximum number of DPU shares to be issued upon achievement of the applicable performance measure specified for such DPUs.
(2) Weighted average exercise price only applies to stock options outstanding of 5,960, which is included as a component of the number of securities to be issued upon exercise of outstanding options, warrants and rights.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this item is incorporated by reference to the Proxy Statement under the headings “Director Independence”, “Audit Committee” and “Related Party Transactions Review and Oversight.”
Item 14. Principal Accountant Fees and Services
Information required by this item is incorporated by reference to the Proxy Statement under the heading “Ratification of Appointment of Independent Registered Public Accounting Firm.”
42
Item 15. Exhibits, Financial Statement Schedules
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Page |
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(a) |
Documents filed as part of this report |
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(1) |
F-1 |
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F-2 |
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F-3 |
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F-4 |
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F-5 |
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F-6 |
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F-7 |
||||
(2) Financial statement schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
(3) Exhibits
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Exhibit |
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No. |
Description |
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Articles of Incorporation and Bylaws. |
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3(a) |
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3(b) |
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Material Contracts. |
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Executive Compensation Plans and Arrangements (Exhibits 10(a) through 10(t) are management contracts and compensatory plans or arrangements required to be filed as exhibits pursuant to Item 15(b)). |
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10(a) |
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10(b) |
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10(c) |
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10(d) |
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WD-40 Directors’ Compensation Policy and Election Plan dated October 9, 2017. |
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10(e) |
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||
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10(f) |
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10(g) |
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10(h) |
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10(i) |
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10(j) |
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10(k) |
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10(l) |
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43
Not applicable.
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
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|
WD-40 COMPANY |
|
|
Registrant |
|
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|
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|
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/s/ JAY W. REMBOLT |
|
|
JAY W. REMBOLT |
|
|
Vice President, Finance |
|
|
Treasurer and Chief Financial Officer |
|
|
Date: October 23, 2017 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
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/s/ GARRY O. RIDGE |
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|
GARRY O. RIDGE |
|
|
Chief Executive Officer and Director |
|
|
(Principal Executive Officer) |
|
|
Date: October 23, 2017 |
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/s/ PETER D. BEWLEY |
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PETER D. BEWLEY, Director |
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Date: October 23, 2017 |
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/s/ DANIEL T. CARTER |
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DANIEL T. CARTER, Director |
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Date: October 23, 2017 |
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/s/ MELISSA CLAASSEN |
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MELISSA CLAASSEN, Director |
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Date: October 23, 2017 |
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/s/ MARIO L. CRIVELLO |
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MARIO L. CRIVELLO, Director |
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Date: October 23, 2017 |
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/s/ ERIC P. ETCHART |
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ERIC P. ETCHART, Director |
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Date: October 23, 2017 |
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/s/ LINDA A. LANG |
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LINDA A. LANG, Director |
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Date: October 23, 2017 |
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/s/ DANIEL E. PITTARD |
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DANIEL E. PITTARD, Director |
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Date: October 23, 2017 |
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/s/ GREGORY A. SANDFORT |
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GREGORY A. SANDFORT, Director |
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Date: October 23, 2017 |
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/s/ NEAL E. SCHMALE |
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NEAL E. SCHMALE, Director |
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Date: October 23, 2017 |
45
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of WD-40 Company
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of comprehensive income, of shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of WD-40 Company and its subsidiaries as of August 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
San Diego, California
October 23, 2017
F-1
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|
WD-40 COMPANY |
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|
(In thousands, except share and per share amounts) |
|||||
|
|
|||||
|
|
August 31, |
August 31, |
|||
|
|
2017 |
2016 |
|||
|
Assets |
|||||
|
Current assets: |
|||||
|
Cash and cash equivalents |
$ |
37,082 |
$ |
50,891 | |
|
Short-term investments |
80,166 | 57,633 | |||
|
Trade accounts receivable, less allowance for doubtful |
|||||
|
accounts of $240 and $394 at August 31, 2017 |
|||||
|
and 2016, respectively |
64,259 | 64,680 | |||
|
Inventories |
35,340 | 31,793 | |||
|
Other current assets |
8,007 | 4,475 | |||
|
Total current assets |
224,854 | 209,472 | |||
|
Property and equipment, net |
29,439 | 11,545 | |||
|
Goodwill |
95,597 | 95,649 | |||
|
Other intangible assets, net |
16,244 | 19,191 | |||
|
Deferred tax assets, net |
495 | 621 | |||
|
Other assets |
3,088 | 3,190 | |||
|
Total assets |
$ |
369,717 |
$ |
339,668 | |
|
|
|||||
|
Liabilities and Shareholders' Equity |
|||||
|
Current liabilities: |
|||||
|
Accounts payable |
$ |
20,898 |
$ |
18,690 | |
|
Accrued liabilities |
18,997 | 15,757 | |||
|
Accrued payroll and related expenses |
14,222 | 20,866 | |||
|
Revolving credit facility, current portion |
20,000 |
- |
|||
|
Income taxes payable |
1,306 | 3,381 | |||
|
Total current liabilities |
75,423 | 58,694 | |||
|
Revolving credit facility |
134,000 | 122,000 | |||
|
Deferred tax liabilities, net |
18,949 | 16,365 | |||
|
Other long-term liabilities |
1,958 | 2,214 | |||
|
Total liabilities |
230,330 | 199,273 | |||
|
|
|||||
|
Commitments and Contingencies (Note 11) |
|||||
|
|
|||||
|
Shareholders' equity: |
|||||
|
Common stock ― authorized 36,000,000 shares, $0.001 par value; |
|||||
|
19,688,238 and 19,621,820 shares issued at August 31, 2017 and 2016, |
|||||
|
respectively; and 13,984,183 and 14,208,338 shares outstanding at |
|||||
|
August 31, 2017 and 2016, respectively |
20 | 20 | |||
|
Additional paid-in capital |
150,692 | 145,936 | |||
|
Retained earnings |
315,764 | 289,642 | |||
|
Accumulated other comprehensive income (loss) |
(28,075) | (27,298) | |||
|
Common stock held in treasury, at cost ― 5,704,055 and 5,413,482 |
|||||
|
shares at August 31, 2017 and 2016, respectively |
(299,014) | (267,905) | |||
|
Total shareholders' equity |
139,387 | 140,395 | |||
|
Total liabilities and shareholders' equity |
$ |
369,717 |
$ |
339,668 | |
|
|
|||||
|
See accompanying notes to consolidated financial statements. |
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|
|
|||||
F-2
|
|
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|
WD-40 COMPANY |
||||||||
|
(In thousands, except per share amounts) |
||||||||
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2017 |
2016 |
2015 |
|||||
|
|
||||||||
|
Net sales |
$ |
380,506 |
$ |
380,670 |
$ |
378,150 | ||
|
Cost of products sold |
166,621 | 166,301 | 177,972 | |||||
|
Gross profit |
213,885 | 214,369 | 200,178 | |||||
|
|
||||||||
|
Operating expenses: |
||||||||
|
Selling, general and administrative |
114,560 | 117,767 | 108,873 | |||||
|
Advertising and sales promotion |
20,537 | 22,278 | 22,876 | |||||
|
Amortization of definite-lived intangible assets |
2,879 | 2,976 | 3,039 | |||||
|
Total operating expenses |
137,976 | 143,021 | 134,788 | |||||
|
|
||||||||
|
Income from operations |
75,909 | 71,348 | 65,390 | |||||
|
|
||||||||
|
Other income (expense): |
||||||||
|
Interest income |
508 | 683 | 584 | |||||
|
Interest expense |
(2,582) | (1,703) | (1,205) | |||||
|
Other income (expense), net |
787 | 2,461 | (1,659) | |||||
|
Income before income taxes |
74,622 | 72,789 | 63,110 | |||||
|
Provision for income taxes |
21,692 | 20,161 | 18,303 | |||||
|
Net income |
$ |
52,930 |
$ |
52,628 |
$ |
44,807 | ||
|
|
||||||||
|
Earnings per common share: |
||||||||
|
Basic |
$ |
3.73 |
$ |
3.65 |
$ |
3.05 | ||
|
Diluted |
$ |
3.72 |
$ |
3.64 |
$ |
3.04 | ||
|
|
||||||||
|
Shares used in per share calculations: |
||||||||
|
Basic |
14,089 | 14,332 | 14,582 | |||||
|
Diluted |
14,123 | 14,379 | 14,649 | |||||
|
|
||||||||
|
See accompanying notes to consolidated financial statements. |
||||||||
|
|
||||||||
F-3
|
|
||||||||
|
WD-40 COMPANY |
||||||||
|
(In thousands) |
||||||||
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2017 |
2016 |
2015 |
|||||
|
|
||||||||
|
Net income |
$ |
52,930 |
$ |
52,628 |
$ |
44,807 | ||
|
Other comprehensive loss: |
||||||||
|
Foreign currency translation adjustment |
(777) | (18,576) | (9,825) | |||||
|
Total comprehensive income |
$ |
52,153 |
$ |
34,052 |
$ |
34,982 | ||
|
|
||||||||
|
See accompanying notes to consolidated financial statements. |
||||||||
|
|
||||||||
F-4
|
|
|||||||||||||||||||||
|
WD-40 COMPANY |
|||||||||||||||||||||
|
(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, 2014 |
19,464,310 |
$ |
19 |
$ |
136,212 |
$ |
237,596 |
$ |
1,103 | 4,709,948 |
$ |
(205,515) |
$ |
169,415 | |||||||
|
Issuance of common stock under share-based |
|||||||||||||||||||||
|
compensation plan, net of shares withheld for taxes |
82,578 | 1 | 1,449 | 1,450 | |||||||||||||||||
|
Stock-based compensation |
2,782 | 2,782 | |||||||||||||||||||
|
Tax benefits from settlements of |
|||||||||||||||||||||
|
stock-based equity awards |
1,208 | 1,208 | |||||||||||||||||||
|
Cash dividends ($1.48 per share) |
(21,720) | (21,720) | |||||||||||||||||||
|
Acquisition of treasury stock |
386,450 | (30,259) | (30,259) | ||||||||||||||||||
|
Foreign currency translation adjustment |
(9,825) | (9,825) | |||||||||||||||||||
|
Net income |
44,807 | 44,807 | |||||||||||||||||||
|
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 |
74,932 | (1,434) | (1,434) | ||||||||||||||||||
|
Stock-based compensation |
3,655 | 3,655 | |||||||||||||||||||
|
Tax benefits from settlements of |
|||||||||||||||||||||
|
stock-based equity awards |
2,064 | 2,064 | |||||||||||||||||||
|
Cash dividends ($1.64 per share) |
(23,669) | (23,669) | |||||||||||||||||||
|
Acquisition of treasury stock |
317,084 | (32,131) | (32,131) | ||||||||||||||||||
|
Foreign currency translation adjustment |
(18,576) | (18,576) | |||||||||||||||||||
|
Net income |
52,628 | 52,628 | |||||||||||||||||||
|
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 |
66,418 | (921) | (921) | ||||||||||||||||||
|
Stock-based compensation |
4,138 | 4,138 | |||||||||||||||||||
|
Tax benefits from settlements of |
|||||||||||||||||||||
|
stock-based equity awards |
1,539 | 1,539 | |||||||||||||||||||
|
Cash dividends ($1.89 per share) |
(26,808) | (26,808) | |||||||||||||||||||
|
Acquisition of treasury stock |
290,573 | (31,109) | (31,109) | ||||||||||||||||||
|
Foreign currency translation adjustment |
(777) | (777) | |||||||||||||||||||
|
Net income |
52,930 | 52,930 | |||||||||||||||||||
|
Balance at August 31, 2017 |
19,688,238 |
$ |
20 |
$ |
150,692 |
$ |
315,764 |
$ |
(28,075) | 5,704,055 |
$ |
(299,014) |
$ |
139,387 | |||||||
|
|
|||||||||||||||||||||
|
See accompanying notes to consolidated financial statements. |
|||||||||||||||||||||
|
|
|||||||||||||||||||||
F-5
|
|
||||||||
|
WD-40 COMPANY |
||||||||
|
(In thousands) |
||||||||
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2017 |
2016 |
2015 |
|||||
|
Operating activities: |
||||||||
|
Net income |
$ |
52,930 |
$ |
52,628 |
$ |
44,807 | ||
|
Adjustments to reconcile net income to net cash provided by |
||||||||
|
operating activities: |
||||||||
|
Depreciation and amortization |
6,769 | 6,465 | 6,464 | |||||
|
Net gains on sales and disposals of property and equipment |
(115) | (75) | (71) | |||||
|
Deferred income taxes |
1,608 | (2,227) | (1,334) | |||||
|
Excess tax benefits from settlements of stock-based equity awards |
(1,539) | (2,064) | (1,205) | |||||
|
Stock-based compensation |
4,138 | 3,655 | 2,782 | |||||
|
Unrealized foreign currency exchange losses (gains), net |
364 | (986) | 2,086 | |||||
|
Provision for bad debts |
(138) | 52 | 302 | |||||
|
Changes in assets and liabilities: |
||||||||
|
Trade accounts receivable |
482 | (9,936) | (314) | |||||
|
Inventories |
(3,487) | (1,001) | 2,037 | |||||
|
Other assets |
(3,514) | 1,557 | 1,731 | |||||
|
Accounts payable and accrued liabilities |
2,827 | 2,871 | (2,464) | |||||
|
Accrued payroll and related expenses |
(8,328) | 5,486 | (2,722) | |||||
|
Income taxes payable |
605 | 4,235 | 2,737 | |||||
|
Other long-term liabilities |
(265) | (56) | 228 | |||||
|
Net cash provided by operating activities |
52,337 | 60,604 | 55,064 | |||||
|
|
||||||||
|
Investing activities: |
||||||||
|
Purchases of property and equipment |
(20,150) | (4,354) | (5,784) | |||||
|
Proceeds from sales of property and equipment |
430 | 301 | 333 | |||||
|
Acquisition of business |
- |
- |
(4,117) | |||||
|
Purchases of short-term investments |
(27,136) | (24,899) | (10,575) | |||||
|
Maturities of short-term investments |
4,565 | 8,032 | 3,192 | |||||
|
Net cash used in investing activities |
(42,291) | (20,920) | (16,951) | |||||
|
|
||||||||
|
Financing activities: |
||||||||
|
Treasury stock purchases |
(31,109) | (32,131) | (30,259) | |||||
|
Dividends paid |
(26,808) | (23,669) | (21,720) | |||||
|
Proceeds from issuance of common stock |
775 | 1,200 | 2,111 | |||||
|
Excess tax benefits from settlements of stock-based equity awards |
1,539 | 2,064 | 1,205 | |||||
|
Net proceeds from revolving credit facility |
32,000 | 14,000 | 10,000 | |||||
|
Net cash used in financing activities |
(23,603) | (38,536) | (38,663) | |||||
|
Effect of exchange rate changes on cash and cash equivalents |
(252) | (4,153) | (3,357) | |||||
|
Net decrease in cash and cash equivalents |
(13,809) | (3,005) | (3,907) | |||||
|
Cash and cash equivalents at beginning of period |
50,891 | 53,896 | 57,803 | |||||
|
Cash and cash equivalents at end of period |
$ |
37,082 |
$ |
50,891 |
$ |
53,896 | ||
|
|
||||||||
|
Supplemental cash flow information: |
||||||||
|
Cash paid for: |
||||||||
|
Interest |
$ |
2,625 |
$ |
1,573 |
$ |
1,168 | ||
|
Income taxes, net of tax refunds received |
$ |
21,933 |
$ |
16,494 |
$ |
15,414 | ||
|
|
||||||||
|
See accompanying notes to consolidated financial statements. |
||||||||
|
|
||||||||
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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.
Supplier Risk
The Company relies on a limited number of suppliers, including single or sole source suppliers for certain of its raw materials, packaging, product components and other necessary supplies. Where possible and where it makes business sense, the Company works with secondary or multiple suppliers to qualify additional supply sources. To date, the Company has been able to obtain adequate supplies of these materials which are used in the production of its maintenance products and homecare and cleaning products in a timely manner from existing sources.
Cash and Cash Equivalents
Cash equivalents are highly liquid investments purchased with an original maturity of three months or less.
Short-term Investments
The Company's short-term investments consist of term deposits and callable time deposits. These short-term investments had a carrying value of $80.2 million and $57.6 million at August 31, 2017 and 2016, respectively. The term deposits are subject to penalty for early redemption before their maturity, and the callable time deposits require a notice before redemption.
Trade Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in existing accounts receivable. The Company determines the allowance for doubtful accounts based on historical write-off experience and the identification of specific balances deemed uncollectible. Trade accounts receivable are charged against the allowance when the Company believes it is probable that the trade accounts receivable will not be recovered. The Company does not have any off-balance sheet credit exposure related to its customers. Allowance for doubtful accounts related to the Company’s trade accounts receivable were not significant at August 31, 2017 and 2016.
F-7
Inventories
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. When necessary, the Company adjusts the carrying value of its inventory to the lower of cost or market, including any costs to sell or dispose of such inventory. Appropriate consideration is given by the Company to obsolescence, excessive inventory levels, product deterioration and other factors when evaluating net realizable value for the purposes of determining the lower of cost or market.
Included in inventories are amounts for certain raw materials and components that the Company has provided to its third-party contract manufacturers but that remain unpaid to the Company as of the balance sheet date. The Company’s contract manufacturers package products to the Company’s specifications and, upon order from the Company, ship ready-to-sell inventory to either the Company’s third-party distribution centers or directly to its customers. The Company transfers certain raw materials and components to these contract manufacturers for use in the manufacturing process. Contract manufacturers are obligated to pay the Company for these raw materials and components upon receipt. Amounts receivable from the contract manufacturers as of the balance sheet date related to transfers of these raw materials and components by the Company to its contract manufacturers are considered product held at third-party contract manufacturers and are included in inventories in the accompanying consolidated balance sheets.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the straight-line method based upon estimated useful lives of ten to forty years for buildings and improvements, three to fifteen years for machinery and equipment, three to five years for vehicles, three to ten years for furniture and fixtures and three to five years for software and computer equipment. Depreciation expense totaled $3.9 million, $3.5 million and $3.4 million for fiscal years 2017, 2016 and 2015, respectively. These amounts include factory depreciation expense which is recognized as cost of products sold and totaled $1.1 million for fiscal year 2017 and $0.8 million for each of the fiscal years ended August 31, 2016 and 2015.
Software
The Company capitalizes costs related to computer software obtained or developed for internal use. Software obtained for internal use has generally been enterprise-level business and finance software that the Company customizes to meet its specific operational needs. Costs incurred in the application development phase are capitalized and amortized over their useful lives, which are generally three to five years.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of tangible and intangible assets acquired. The carrying value of goodwill is reviewed for possible impairment in accordance with the authoritative guidance on goodwill, intangibles and other. The Company assesses possible impairments to goodwill at least annually during its second fiscal quarter and otherwise when events or changes in circumstances indicate that an impairment condition may exist. In performing the annual impairment test of its goodwill, the Company considers the fair value concepts of a market participant and the highest and best use for its intangible assets. In addition to the annual impairment test, goodwill is evaluated each reporting period to determine whether events and circumstances would more likely than not reduce the fair value of a reporting unit below its carrying value.
When testing goodwill for impairment, the Company first assesses qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. If, after assessing qualitative factors, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing additional quantitative tests is unnecessary. Otherwise, a two-step quantitative test is performed to identify the potential impairment and to measure the amount of goodwill impairment, if any. Any required impairment losses are recorded as a reduction in the carrying amount of the related asset and charged to results of operations. No goodwill impairments were identified by the Company during fiscal years 2017, 2016 and 2015.
Long-lived Assets
The Company’s long-lived assets consist of property and equipment and definite-lived intangible assets. Long-lived assets are depreciated or amortized, as applicable, on a straight-line basis over their estimated useful lives. The Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and/or its remaining useful life may no longer be appropriate. Any required impairment loss would be measured as the amount by which the asset’s carrying amount exceeds its fair value, which is the amount at which the asset could be bought or sold in a current transaction between willing market participants and would be recorded as a reduction in the carrying amount of the related asset and a charge to results of operations. An impairment loss would be recognized when
F-8
the sum of the expected future undiscounted net cash flows is less than the carrying amount of the asset. No impairments to its long-lived assets were identified by the Company during fiscal years 2017, 2016 and 2015.
Fair Value of Financial Instruments
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 August 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. In addition, the carrying value of long-term borrowings on the Company’s consolidated balance sheets approximate fair value and is also classified as Level 2 within the fair value hierarchy. During the fiscal years ended August 31, 2017, 2016 and 2015, the Company did not record any significant nonrecurring fair value measurements for assets or liabilities in periods subsequent to their initial recognition.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents, short-term investments and trade accounts receivable. The Company’s policy is to place its cash in high credit quality financial institutions, in investments that include demand deposits, term deposits and callable time deposits. The Company’s trade accounts receivable are derived from customers located in North America, South America, Asia-Pacific, Europe, the Middle East, Africa and India. The Company limits its credit exposure from trade accounts receivable by performing on-going credit evaluations of customers, as well as insuring its trade accounts receivable in selected markets.
Insurance Coverage
The Company carries insurance policies to cover insurable risks such as property damage, business interruption, product liability, workers’ compensation and other risks, with coverage and other terms that it believes to be adequate and appropriate. These policies may be subject to applicable deductible or retention amounts, coverage limitations and exclusions. The Company does not maintain self-insurance with respect to its material risks; therefore, the Company has not provided for self-insurance reserves as of August 31, 2017 and 2016.
Revenue Recognition and Sales Incentives
Sales are recognized as revenue at the time of delivery to the customer when risks of loss and title have passed. Sales are recorded net of allowances for damaged goods and other sales returns, sales incentives, trade promotions and cash discounts.
The Company records the costs of promotional activities such as sales incentives, trade promotions, coupon offers and cash discounts that are given to its customers as a reduction of sales in its consolidated statements of operations. The Company offers on-going trade promotion programs with customers and consumer coupon programs that require the Company to estimate and accrue the expected costs for such programs. Programs include cooperative marketing programs, shelf price reductions, coupons, rebates, consideration and allowances given to retailers for shelf space and/or favorable display positions in their stores and other promotional activities. Costs related to rebates, cooperative advertising and other promotional activities are recorded as a reduction to sales upon delivery of the Company’s products to its customers. Coupon costs are based upon historical redemption rates and are recorded as a reduction to sales as incurred, which is when the coupons are circulated.
F-9
Cost of Products Sold
Cost of products sold primarily includes the cost of products manufactured on the Company’s behalf by its third-party contract manufacturers, net of volume and other rebates. Cost of products sold also includes the costs to manufacture WD-40 concentrate, which is done at the Company’s own facilities or at third-party contract manufacturers. When the concentrate is manufactured by the Company, cost of products sold includes direct labor, direct materials and supplies; in-bound freight costs related to purchased raw materials and finished product; and depreciation of machinery and equipment used in the manufacturing process.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include costs related to selling the Company’s products, such as the cost of the sales force and related sales and broker commissions; shipping and handling costs paid to third-party companies to distribute finished goods from the Company’s third-party contract manufacturers and distribution centers to its customers; other general and administrative costs related to the Company’s business such as general overhead, legal and accounting fees, insurance, and depreciation; and other employee-related costs to support marketing, human resources, finance, supply chain, information technology and research and development activities.
Shipping and Handling Costs
Shipping and handling costs associated with in-bound freight and movement of product from third-party contract manufacturers to the Company’s third-party warehouses are capitalized in the cost of inventory and subsequently included in cost of sales when recognized in the statement of operations. Shipping and handling costs associated with out-bound transportation are included in selling, general and administrative expenses and are recorded at the time of shipment of product to the Company’s customers. Out-bound shipping and handling costs were $16.4 million, $16.1 million and $15.8 million for fiscal years 2017, 2016 and 2015, respectively.
Advertising and Sales Promotion Expenses
Advertising and sales promotion expenses are expensed as incurred. Advertising and sales promotion expenses include costs associated with promotional activities that the Company pays to third parties, which include costs for advertising (television, print media and internet), administration of coupon programs, consumer promotions, product demonstrations, public relations, agency costs, package design expenses and market research costs. Total advertising and sales promotion expenses were $20.5 million, $22.3 million and $22.9 million for fiscal years 2017, 2016 and 2015, respectively.
Research and Development
The Company is involved in research and development efforts that include the ongoing development or innovation of new products and the improvement, extension or renovation of existing products or product lines. All research and development costs are expensed as incurred and are included in selling, general and administrative expenses. Research and development expenses were $8.4 million, $7.7 million and $9.0 million in fiscal years 2017, 2016 and 2015, respectively. These expenses include costs associated with general research and development activities, as well as those associated with internal staff, overhead, design testing, market research and consultants.
Income Taxes
Current income tax expense is the amount of income taxes expected to be payable for the current year. A deferred income tax liability or asset is established for the expected future tax consequences resulting from the differences in financial reporting and tax bases of assets and liabilities. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be realized. In addition to valuation allowances, the Company provides for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement standards prescribed by the authoritative guidance on income taxes. Amounts for uncertain tax positions are adjusted in periods when new information becomes available or when positions are effectively settled. The Company recognizes accrued interest and penalties related to uncertain tax positions as a component of income tax expense.
U.S. federal income tax expense is provided on remittances of foreign earnings and on unremitted foreign earnings that are not indefinitely reinvested. U.S. federal income taxes and foreign withholding taxes are not provided when foreign earnings are indefinitely reinvested. The Company determines whether its foreign subsidiaries will invest their undistributed earnings indefinitely based on the capital needs of the foreign subsidiaries and reassesses this determination each reporting period. Changes to the Company’s determination may be warranted based on the Company’s experience as well as its plans regarding future international operations and expected remittances.
F-10
Foreign Currency
The Company translates the assets and liabilities of its foreign subsidiaries into U.S. dollars at current rates of exchange in effect at the end of the reporting period. Income and expense items are translated at rates that approximate the rates in effect at the transaction date. Gains and losses from translation are included in accumulated other comprehensive income or loss. Gains or losses resulting from foreign currency transactions (transactions denominated in a currency other than the entity’s functional currency) are included as other income (expense) in the Company’s consolidated statements of operations. The Company had $0.4 million and $2.4 million of net gains in foreign currency transactions in fiscal years 2017 and 2016, respectively, and $1.7 million of net losses in fiscal year 2015.
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 currencies, 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.
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 August 31, 2017, the Company had a notional amount of $23.4 million outstanding in foreign currency forward contracts, which matured in September 2017. Unrealized net losses related to foreign currency forward contracts were $0.6 million at August 31, 2017, while unrealized net gains and losses were not significant at August 31, 2016. Realized net losses related to foreign currency forward contracts were $0.5 million for the fiscal year ended August 31, 2017, while realized net gains and losses were not significant for the fiscal year ended August 31, 2016.
Earnings per Common Share
Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities that are required to be included in the computation of earnings per common share pursuant to the two-class method. Accordingly, the Company’s outstanding unvested, if any, and outstanding vested stock-based equity awards that provide such nonforfeitable rights to dividend equivalents are included as participating securities in the calculation of earnings per common share (“EPS”) pursuant to the two-class method.
The Company calculates EPS using the two-class method, which provides for an allocation of net income between common stock and other participating securities based on their respective participation rights to share in dividends. Basic EPS is calculated by dividing net income available to common shareholders for the period by the weighted-average number of common shares outstanding during the period. Net income available to common shareholders for the period includes dividends paid to common shareholders during the period plus a proportionate share of undistributed net income allocable to common shareholders for the period; the proportionate share of undistributed net income allocable to common shareholders for the period is based on the proportionate share of total weighted-average common shares and participating securities outstanding during the period.
Diluted EPS is calculated by dividing net income available to common shareholders for the period by the weighted-average number of common shares outstanding during the period increased by the weighted-average number of potentially dilutive common shares (dilutive securities) that were outstanding during the period if the effect is dilutive. Dilutive securities are comprised of stock options, restricted stock units, market share units and deferred performance units granted under the Company’s prior and current equity incentive plans.
Stock-based Compensation
The Company accounts for stock-based equity awards exchanged for employee and non-employee director services in accordance with the authoritative guidance for share-based payments. Under such guidance, stock-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense, net of estimated forfeitures, over the requisite service period. Compensation expense is amortized on a straight-line basis over the requisite service period for the entire award, which is generally the maximum vesting period of the award.
The fair value of stock options is determined using a Black-Scholes option pricing model. The fair values of restricted stock unit awards and deferred performance unit awards are based on the fair value of the Company’s common stock on the date that such awards are granted. The fair value of market share unit awards is determined using a Monte Carlo simulation model. For the
F-11
deferred performance unit awards, the Company adjusts the compensation expense over the service period based upon the expected achievement level of the applicable performance condition. As the grant date fair value of market share unit awards reflects the probabilities of the actual number of such awards expected to vest, compensation expense for such awards is not adjusted based on the expected achievement level of the applicable performance condition. An estimated forfeiture rate is applied and included in the calculation of stock-based compensation expense at the time that the stock-based equity awards are granted and revised, if necessary, in subsequent periods if actual forfeiture rates differ from those estimates. Compensation expense related to the Company’s stock-based equity awards is recorded as selling, general and administrative expenses in the Company’s consolidated statements of operations.
The Company calculates its windfall tax benefits additional paid-in capital pool that is available to absorb tax deficiencies in accordance with the short-cut method provided for by the authoritative guidance for share-based payments. As of August 31, 2017, the Company determined that it has a remaining pool of windfall tax benefits.
Segment Information
The Company discloses certain information about its business segments, which are determined consistent with the way the Company’s Chief Operating Decision Maker organizes and evaluates financial information internally for making operating decisions and assessing performance. In addition, the Chief Operating Decision Maker assesses and measures revenue based on product groups.
Recently Adopted Accounting Standards
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 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. The Company adopted this guidance in the fourth quarter of fiscal year 2017 on a prospective basis and there was no impact on its consolidated financial statements and related disclosures.
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 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
F-12
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 was permitted. The Company did not adopt this updated guidance early and therefore this guidance will become effective for the Company during the first quarter of fiscal year 2018. The Company 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 2017, its income tax expense for the year would have been reduced by approximately $1.5 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 Consolidated 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 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.
F-13
Note 3. Inventories
Inventories consisted of the following (in thousands):
|
|
|||||
|
|
August 31, |
August 31, |
|||
|
|
2017 |
2016 |
|||
|
Product held at third-party contract manufacturers |
$ |
3,021 |
$ |
3,521 | |
|
Raw materials and components |
3,021 | 2,996 | |||
|
Work-in-process |
215 | 163 | |||
|
Finished goods |
29,083 | 25,113 | |||
|
Total |
$ |
35,340 |
$ |
31,793 | |
|
|
|||||
Note 4. Property and Equipment
Property and equipment, net, consisted of the following (in thousands):
|
|
|||||
|
|
August 31, |
August 31, |
|||
|
|
2017 |
2016 |
|||
|
Machinery, equipment and vehicles |
$ |
17,491 |
$ |
14,892 | |
|
Buildings and improvements |
16,953 | 4,223 | |||
|
Computer and office equipment |
4,552 | 3,605 | |||
|
Software |
7,947 | 7,392 | |||
|
Furniture and fixtures |
1,608 | 1,286 | |||
|
Capital in progress |
861 | 2,200 | |||
|
Land |
3,453 | 254 | |||
|
Subtotal |
52,865 | 33,852 | |||
|
Less: accumulated depreciation and amortization |
(23,426) | (22,307) | |||
|
Total |
$ |
29,439 |
$ |
11,545 | |
|
|
|||||
Note 5. Goodwill and Other Intangible Assets
Acquisitions
During the first quarter of fiscal year 2015, the Company entered into an agreement by and between GT 85 Limited (“GT85”) and WD-40 Company Limited, which is the Company’s U.K. subsidiary, to acquire the GT85 business and certain of its assets for a purchase consideration of $4.1 million. Of this purchase consideration, $3.7 million was paid in cash upon completion of the acquisition (“completion”) and the remaining balance was paid in June 2015. Located in the U.K., the GT85 business was engaged in the marketing and sale of the GT85® and SG85 brands of maintenance products. This acquisition complements the Company’s maintenance products and will help to build upon its strategy to develop new product categories for WD-40 Specialist and WD-40 BIKE.
The purchase price was allocated to certain customer-related, trade name-related, and technology-based intangible assets in the amount of $1.7 million, $0.9 million, and $0.2 million, respectively. The Company began to amortize these definite-lived intangible assets on a straight-line basis over their estimated useful lives of eight, ten, and four years, respectively, in the first quarter of fiscal year 2015. The purchase price exceeded the fair value of the intangible assets acquired and, as a result, the Company recorded goodwill of $1.3 million in connection with this transaction. This acquisition did not have a material impact on the Company’s condensed consolidated financial statements, and as a result no pro forma disclosures have been presented.
F-14
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 |
(80) | (680) |
- |
(760) | |||||||
|
Balance as of August 31, 2016 |
85,452 | 8,987 | 1,210 | 95,649 | |||||||
|
Translation adjustments |
(4) | (48) |
- |
(52) | |||||||
|
Balance as of August 31, 2017 |
$ |
85,448 |
$ |
8,939 |
$ |
1,210 |
$ |
95,597 | |||
|
|
|||||||||||
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, which resides at a component level below the Company’s operating segment level and for which discrete financial information is available, as required by the authoritative guidance. 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 employees; 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 (in thousands):
|
|
|||||
|
|
August 31, |
August 31, |
|||
|
|
2017 |
2016 |
|||
|
Gross carrying amount |
$ |
35,891 |
$ |
36,009 | |
|
Accumulated amortization |
(19,647) | (16,818) | |||
|
Net carrying amount |
$ |
16,244 |
$ |
19,191 | |
|
|
|||||
There has been no impairment charge for the period ended August 31, 2017 as a result of the Company’s review of events and circumstances related to its existing definite-lived intangible assets.
Changes in the carrying amounts of definite-lived intangible assets by segment are summarized below (in thousands):
|
|
|||||||||||
|
|
Americas |
EMEA |
Asia-Pacific |
Total |
|||||||
|
Balance as of August 31, 2015 |
$ |
17,121 |
$ |
5,840 |
$ |
- |
$ |
22,961 | |||
|
Amortization expense |
(2,208) | (768) |
- |
(2,976) | |||||||
|
Translation adjustments |
- |
(794) |
- |
(794) | |||||||
|
Balance as of August 31, 2016 |
14,913 | 4,278 |
- |
19,191 | |||||||
|
Amortization expense |
(2,207) | (672) |
- |
(2,879) | |||||||
|
Translation adjustments |
- |
(68) |
- |
(68) | |||||||
|
Balance as of August 31, 2017 |
$ |
12,706 |
$ |
3,538 |
$ |
- |
$ |
16,244 | |||
|
|
|||||||||||
F-15
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 |
|||||
|
Fiscal year 2018 |
$ |
2,419 |
$ |
446 |
$ |
33 | ||
|
Fiscal year 2019 |
2,414 | 259 |
- |
|||||
|
Fiscal year 2020 |
2,019 | 165 |
- |
|||||
|
Fiscal year 2021 |
1,230 | 165 |
- |
|||||
|
Fiscal year 2022 |
1,229 | 165 |
- |
|||||
|
Thereafter |
5,700 |
- |
- |
|||||
|
Total |
$ |
15,011 |
$ |
1,200 |
$ |
33 | ||
|
|
||||||||
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):
|
|
|||||
|
|
August 31, |
August 31, |
|||
|
|
2017 |
2016 |
|||
|
Accrued advertising and sales promotion expenses |
$ |
10,889 |
$ |
9,763 | |
|
Accrued professional services fees |
1,456 | 1,262 | |||
|
Accrued sales taxes and other taxes |
1,701 | 954 | |||
|
Other |
4,951 | 3,778 | |||
|
Total |
$ |
18,997 |
$ |
15,757 | |
|
|
|||||
Accrued payroll and related expenses consisted of the following (in thousands):
|
|
|||||
|
|
August 31, |
August 31, |
|||
|
|
2017 |
2016 |
|||
|
Accrued incentive compensation |
$ |
6,554 |
$ |
12,203 | |
|
Accrued payroll |
3,338 | 3,559 | |||
|
Accrued profit sharing |
2,257 | 2,716 | |||
|
Accrued payroll taxes |
1,503 | 1,744 | |||
|
Other |
570 | 644 | |||
|
Total |
$ |
14,222 |
$ |
20,866 | |
|
|
|||||
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 office building and related 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
F-16
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 August 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 fiscal year ended August 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 fiscal year ended August 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 fiscal year ended August 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 August 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 August 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.
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 August 31, 2017, the Company repurchased 290,573 shares at a total cost of $31.1 million under this $75.0 million plan.
F-17
Note 9. Earnings per Common Share
The table below reconciles net income to net income available to common shareholders (in thousands):
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2017 |
2016 |
2015 |
|||||
|
Net income |
$ |
52,930 |
$ |
52,628 |
$ |
44,807 | ||
|
Less: Net income allocated to participating securities |
(323) | (334) | (271) | |||||
|
Net income available to common shareholders |
$ |
52,607 |
$ |
52,294 |
$ |
44,536 | ||
|
|
||||||||
The table below summarizes the weighted-average number of common shares outstanding included in the calculation of basic and diluted EPS (in thousands):
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2017 |
2016 |
2015 |
|||||
|
Weighted-average common shares outstanding, basic |
14,089 | 14,332 | 14,582 | |||||
|
Weighted-average dilutive securities |
34 | 47 | 67 | |||||
|
Weighted-average common shares outstanding, diluted |
14,123 | 14,379 | 14,649 | |||||
|
|
||||||||
There were no anti-dilutive stock-based equity awards outstanding for the fiscal year ended August 31, 2017. For the fiscal years ended August 31, 2016 and 2015, weighted-average stock-based equity awards outstanding that are non-participating securities in the amounts of 4,501 and 1,337, 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 the 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 consolidated financial statements include sales to Tractor Supply of $1.2 million for each of the fiscal years 2017 and 2016, respectively, and $1.1 million for fiscal year 2015. Accounts receivable from Tractor Supply were not significant as of August 31, 2017 and 2016.
Note 11. Commitments and Contingencies
Leases
The Company was committed under certain non-cancelable operating leases at August 31, 2017 which provide for the following future fiscal year minimum payments (in thousands):
|
|
|||||||||||||||||
|
|
2018 |
2019 |
2020 |
2021 |
2022 |
Thereafter |
|||||||||||
|
Operating leases |
$ |
1,856 |
$ |
1,223 |
$ |
893 |
$ |
739 |
$ |
479 |
$ |
470 | |||||
|
|
|||||||||||||||||
Rent expense was $2.1 million, $1.9 million, and $2.1 million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively.
Purchase Commitments
The Company has ongoing relationships with various suppliers (contract manufacturers) who manufacture the Company’s products. The contract manufacturers maintain title 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.
F-18
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 August 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 alleged claims of 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”) claimed exclusive ownership and the right to use the words “EZ REACH” for lubricating oil products based on certain registered trademarks covering such words. 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. On July 18, 2017 the District Court issued a Memorandum Opinion denying FirstPower’s motion for preliminary injunction. On October 13, 2017 the case was dismissed as to all of the defendants pursuant to a confidential settlement agreement between the Company and FirstPower, which did not have a material impact on the Company’s business, 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 August 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 August 31, 2017.
F-19
Note 12. Income Taxes
Income before income taxes consisted of the following (in thousands):
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2017 |
2016 |
2015 |
|||||
|
United States |
$ |
42,060 |
$ |
41,128 |
$ |
38,044 | ||
|
Foreign (1) |
32,562 | 31,661 | 25,066 | |||||
|
Income before income taxes |
$ |
74,622 |
$ |
72,789 |
$ |
63,110 | ||
|
|
||||||||
|
(1) |
Included in these amounts are income before income taxes for the EMEA segment of $28.1 million, $28.3 million and $21.9 million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively. |
The provision for income taxes consisted of the following (in thousands):
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2017 |
2016 |
2015 |
|||||
|
Current: |
||||||||
|
Federal |
$ |
10,813 |
$ |
13,269 |
$ |
12,302 | ||
|
State |
744 | 894 | 966 | |||||
|
Foreign |
7,465 | 7,593 | 5,886 | |||||
|
Total current |
19,022 | 21,756 | 19,154 | |||||
|
|
||||||||
|
Deferred: |
||||||||
|
United States |
2,627 | (1,100) | (870) | |||||
|
Foreign |
43 | (495) | 19 | |||||
|
Total deferred |
2,670 | (1,595) | (851) | |||||
|
Provision for income taxes |
$ |
21,692 |
$ |
20,161 |
$ |
18,303 | ||
|
|
||||||||
Deferred tax assets and deferred tax liabilities consisted of the following (in thousands):
|
|
|||||
|
|
August 31, |
August 31, |
|||
|
|
2017 |
2016 |
|||
|
Deferred tax assets: |
|||||
|
Accrued payroll and related expenses |
$ |
1,252 |
$ |
1,621 | |
|
Accounts receivable |
644 | 498 | |||
|
Reserves and accruals |
2,393 | 2,292 | |||
|
Unrealized exchange loss |
25 | 992 | |||
|
Stock-based compensation expense |
3,213 | 2,976 | |||
|
Uniform capitalization |
1,598 | 1,473 | |||
|
Tax credit carryforwards |
2,309 | 2,038 | |||
|
Other |
1,264 | 2,043 | |||
|
Total gross deferred tax assets |
12,698 | 13,933 | |||
|
Valuation allowance |
(2,328) | (2,054) | |||
|
Total net deferred tax assets |
10,370 | 11,879 | |||
|
|
|||||
|
Deferred tax liabilities: |
|||||
|
Property and equipment, net |
(2,109) | (558) | |||
|
Amortization of tax goodwill and intangible assets |
(26,036) | (26,321) | |||
|
Investments in partnerships |
(679) | (744) | |||
|
Total deferred tax liabilities |
(28,824) | (27,623) | |||
|
Net deferred tax liabilities |
$ |
(18,454) |
$ |
(15,744) | |
|
|
|||||
F-20
The Company had state net operating loss (“NOL”) carryforwards of $2.6 million and $2.4 million as of August 31, 2017 and 2016, respectively, which generated a net deferred tax asset of $0.2 million for each of the fiscal years 2017 and 2016. The state NOL carryforwards, if unused, will expire between fiscal year 2018 and 2037. The Company also had cumulative tax credit carryforwards of $2.3 million and $2.0 million as of August 31, 2017 and 2016, respectively, of which $2.1 million and $1.9 million, respectively, is attributable to a U.K. tax credit carryforward, which does not expire. Future utilization of the tax credit carryforwards and certain state NOL carryovers is uncertain and is dependent upon several factors that may not occur, including the generation of future taxable income in certain jurisdictions. At this time, management cannot conclude that it is “more likely than not” that the related deferred tax assets will be realized. Accordingly, a full valuation allowance has been recorded against the related deferred tax asset associated with cumulative tax credit carryforwards.
A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows (in thousands):
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2017 |
2016 |
2015 |
|||||
|
Amount computed at U.S. statutory federal tax rate |
$ |
26,118 |
$ |
25,476 |
$ |
22,088 | ||
|
State income taxes, net of federal tax benefits |
327 | 397 | 578 | |||||
|
Effect of foreign operations |
(4,277) | (4,382) | (3,221) | |||||
|
Benefit from qualified domestic production deduction |
(1,295) | (1,190) | (1,131) | |||||
|
Other |
819 | (140) | (11) | |||||
|
Provision for income taxes |
$ |
21,692 |
$ |
20,161 |
$ |
18,303 | ||
|
|
||||||||
The provision for income taxes was 29.1% and 27.7% of income before income taxes for the fiscal years ended August 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.
As of August 31, 2017, the Company has not provided for U.S. federal and state income taxes and foreign withholding taxes on $137.5 million of the undistributed earnings of certain foreign subsidiaries, mostly attributable to the U.K., since these earnings are considered indefinitely reinvested outside of the United States. The amount of unrecognized deferred U.S. federal and state income tax liability, net of unrecognized foreign tax credits, is estimated to be approximately $12.9 million as of August 31, 2017. This net liability is impacted by changes in foreign currency exchange rates and, as a result, will fluctuate with any changes in such rates. If management decides to repatriate foreign earnings in future periods, the Company would be required to provide for the incremental U.S. federal and state income taxes as well as foreign withholding taxes on such amounts in the period in which the decision is made. In the fourth quarter of fiscal year 2016, the Company approved a one-time repatriation of $8.2 million of historical foreign earnings from its Australia and China subsidiaries due to favorable tax consequences stemming principally from the strengthening of the U.S. dollar against various currencies in which the Company conducts business. This action resulted in the recognition of an incremental immaterial tax benefit in fiscal year 2016. The Company continues to consider the remaining amount of unremitted foreign earnings in Australia and China, in addition to the U.K, to be indefinitely reinvested outside of the United States. The Company continues to provide for U.S. income taxes and foreign withholding taxes on the undistributed earnings of its Canada and Malaysia subsidiaries, whose earnings are not considered indefinitely reinvested.
Reconciliations of the beginning and ending amounts of the Company’s gross unrecognized tax benefits, excluding interest and penalties, are as follows (in thousands):
|
|
|||||
|
|
Fiscal Year Ended August 31, |
||||
|
|
2017 |
2016 |
|||
|
Unrecognized tax benefits - beginning of fiscal year |
$ |
1,239 |
$ |
1,279 | |
|
Net decreases - prior period tax positions |
(68) |
- |
|||
|
Net increases - current period tax positions |
228 | 211 | |||
|
Expirations of statute of limitations for assessment |
(382) | (251) | |||
|
Settlements |
(36) |
- |
|||
|
Unrecognized tax benefits - end of fiscal year |
$ |
981 |
$ |
1,239 | |
|
|
|||||
Gross unrecognized tax benefits totaled $1.0 million and $1.2 million as of August 31, 2017 and 2016, of which $0.6 million and $0.9 million, respectively, would affect the Company’s effective income tax rate if recognized. There were no material interest or penalties included in income tax expense for the fiscal years ended August 31, 2017 and 2016. The total balance of accrued interest and penalties related to uncertain tax positions was also immaterial at August 31, 2017 and 2016.
F-21
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 was concluded in the third quarter of fiscal year 2017 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 $0.4 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.
Note 13. Stock-based Compensation
As of August 31, 2017, the Company had one stock incentive plan, the WD-40 Company 2016 Stock Incentive Plan (“2016 Plan”), which was approved by the Company’s shareholders effective as of December 13, 2016. The 2016 Plan permits the granting of various stock-based equity awards, including non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and other stock-based awards to employees, directors and consultants. To date through August 31, 2017, the Company had granted awards of restricted stock units (“RSUs”) under the 2016 Plan. Additionally, as of August 31, 2017, there were still outstanding stock options, RSUs, market share units (“MSUs”) and deferred performance units (“DPUs”) which had been granted under the Company’s prior equity incentive plans. The 2016 Plan is administered by the Board of Directors (the “Board”) or the Compensation Committee or other designated committee of the Board (the “Committee”). All stock-based equity awards granted under the 2016 Plan are subject to the specific terms and conditions as determined by the Committee at the time of grant of such awards in accordance with the various terms and conditions specified for each award type per the 2016 Plan. The total number of shares of common stock authorized for issuance pursuant to grants of awards under the 2016 Plan is 1,000,000. As of August 31, 2017, 979,546 shares of common stock remained available for future issuance pursuant to grants of awards under the 2016 Plan. The shares of common stock to be issued pursuant to awards under the 2016 Plan may be authorized but unissued shares or treasury shares. The Company has historically issued new authorized but unissued shares upon the settlement of the various stock-based equity awards under its equity incentive plans.
Vesting of the RSUs granted to directors is immediate, with shares to be issued pursuant to the vested RSUs upon termination of each director’s service as a director of the Company. Vesting of the one-time grant of RSUs granted to certain key executives of the Company in March 2008 in settlement of these key executives’ benefits under the Company’s supplemental employee retirement plan agreements was over a period of three years from the date of grant, with shares to be issued pursuant to the vested RSUs six months following the day after each executive officer’s termination of employment with the Company. Vesting of the RSUs granted to certain high level employees is over a period of three years from the date of grant, subject to potential earlier vesting in the event of retirement of the holder of the award in accordance with the award agreement, with shares to be issued pursuant to the vested RSUs at the time of vest. The director RSU holders and the executive officer March 2008 grant date RSU holders are entitled to receive dividend equivalents with respect to their RSUs, payable in cash as and when dividends are declared by the Company’s Board of Directors.
Vesting of the MSUs granted to certain high level employees follows a performance measurement period of three fiscal years commencing with the Company’s fiscal year in which the MSU awards are granted (the “Measurement Period”). Shares will be issued pursuant to the vested MSUs following the conclusion of the applicable MSU Measurement Period after the Committee’s certification of achievement of the applicable performance measure for such awards and the vesting of the MSU awards and the applicable percentage of the target number of MSU shares to be issued. The recipient must remain employed with the Company for vesting purposes until the date on which the Committee certifies achievement of the applicable performance measure for the MSU awards, subject to potential pro-rata vesting in the event of earlier retirement of the holder of the award in accordance with the award agreement.
Vesting of the DPUs granted to certain high level employees follows a performance measurement period of one fiscal year that is the same fiscal year in which the DPU awards are granted (the “Measurement Year”). A number of DPUs equal to the applicable percentage of the maximum number of DPUs awarded will be confirmed as vested following the conclusion of the applicable DPU Measurement Year after the Committee’s certification of achievement of the applicable performance measure for such awards (the “Vested DPUs”). The recipient must remain employed with the Company for vesting purposes until August 31 of the Measurement Year, subject to potential pro-rata vesting in the event of earlier retirement of the holder of the award in accordance with the award agreement. For recipients who are residents of the United States, the Vested DPUs must be held until termination of employment, with shares to be issued pursuant to the Vested DPUs six months following the day after each such recipient’s termination of employment with the Company. For recipients who are not residents of the United States, the Committee has discretion to either defer settlement of each such recipient’s Vested DPUs by issuance of shares following termination of employment or settle each Vested DPU in cash by payment of an amount equal to the closing price of one share
F-22
of the Company’s common stock as of the date of the Committee’s certification of the relative achievement of the applicable performance measure for the DPU awards. Until issuance of shares in settlement of the Vested DPUs, the holders of each Vested DPU that is not settled in cash are entitled to receive dividend equivalents with respect to their Vested DPUs, payable in cash as and when dividends are declared by the Company’s Board of Directors.
Stock-based compensation expense is amortized on a straight-line basis over the requisite service period for the entire award. Stock-based compensation expense related to the Company’s stock-based equity awards totaled $4.1 million, $3.7 million and $2.8 million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively. The Company recognized income tax benefits related to such stock-based compensation of $1.4 million, $1.2 million and $0.9 million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively. As of August 31, 2017, the total unamortized compensation cost related to non-vested stock-based equity awards was $0.8 million and $1.6 million for RSUs and MSUs, respectively, which the Company expects to recognize over remaining weighted-average vesting periods of 1.5 and 1.7 years for RSUs and MSUs, respectively. No unamortized compensation cost for DPUs remained as of August 31, 2017.
Stock Options
Fiscal year 2008 was the last fiscal period in which the Company granted stock options. The estimated fair value of each of the Company’s stock option awards granted in and prior to fiscal year 2008 was determined on the date of grant using the Black-Scholes option pricing model.
A summary of the Company’s stock option award activity is as follows (in thousands, except share and per share amounts and contractual term in years data):
|
|
|||||||||||
|
|
Weighted-Average |
||||||||||
|
|
Remaining |
||||||||||
|
|
Weighted-Average |
Contractual Term |
|||||||||
|
|
Number of |
Exercise Price |
Per Share |
Aggregate |
|||||||
|
Stock Options |
Shares |
Per Share |
(in years) |
Intrinsic Value |
|||||||
|
Outstanding at August 31, 2016 |
27,820 |
$ |
35.59 | ||||||||
|
Granted |
- |
$ |
- |
||||||||
|
Exercised |
(21,860) |
$ |
35.47 | ||||||||
|
Forfeited or expired |
- |
$ |
- |
||||||||
|
Outstanding at August 31, 2017 |
5,960 |
$ |
36.03 | 0.1 |
$ |
435 | |||||
|
Exercisable at August 31, 2017 |
5,960 |
$ |
36.03 | 0.1 |
$ |
435 | |||||
|
|
|||||||||||
The total intrinsic value of stock options exercised was $1.6 million, $2.5 million and $3.3 million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively.
The income tax benefits from stock options exercised totaled $0.4 million, $0.7 million and $1.1 million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively.
Restricted Stock Units
The estimated fair value of each of the Company’s RSU awards was determined on the date of grant based on the closing market price of the Company’s common stock on the date of grant for those RSUs which are entitled to receive dividend equivalents with respect to the RSUs, or based on the closing market price of the Company’s common stock on the date of grant less the grant date present value of expected dividends during the vesting period for those RSUs which are not entitled to receive dividend equivalents with respect to the RSUs.
F-23
A summary of the Company’s restricted stock unit activity is as follows (in thousands, except share and per share amounts):
|
|
||||||||
|
|
Weighted-Average |
|||||||
|
|
Grant Date |
|||||||
|
|
Number of |
Fair Value |
Aggregate |
|||||
|
Restricted Stock Units |
Shares |
Per Share |
Intrinsic Value |
|||||
|
Outstanding at August 31, 2016 |
130,035 |
$ |
54.80 | |||||
|
Granted |
21,501 |
$ |
109.23 | |||||
|
Converted to common shares |
(34,479) |
$ |
58.71 | |||||
|
Forfeited |
(287) |
$ |
81.44 | |||||
|
Outstanding at August 31, 2017 |
116,770 |
$ |
63.61 |
$ |
12,722 | |||
|
Vested at August 31, 2017 |
87,258 |
$ |
52.78 |
$ |
9,507 | |||
|
|
||||||||
The weighted-average grant date fair value of all RSUs granted during the fiscal years ended August 31, 2017, 2016 and 2015 was $109.23, $95.89 and $69.35, respectively. The total intrinsic value of all RSUs converted to common shares was $3.6 million, $2.8 million and $1.8 million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively.
The income tax benefits from RSUs converted to common shares totaled $1.3 million, $1.0 million and $0.6 million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively.
Market Share Units
The MSUs are market performance-based awards that shall vest with respect to the applicable percentage of the target number of MSU shares based on relative total stockholder return (“TSR”) for the Company as compared to the total return for the Russell 2000 Index (“Index”) over the performance Measurement Period. The ultimate number of MSUs that vest may range from 0% to 200% of the original target number of shares depending on the relative achievement of the TSR performance measure at the end of the Measurement Period. The probabilities of the actual number of MSUs expected to vest and resultant actual number of shares of common stock expected to be awarded are reflected in the grant date fair values of the various MSU awards; therefore, the compensation expense for the MSU awards will be recognized assuming the requisite service period is rendered and will not be adjusted based on the actual number of such MSU awards to ultimately vest.
The estimated fair value of each of the Company’s MSU awards, which are not entitled to receive dividend equivalents with respect to the MSUs, was determined on the date of grant using the Monte Carlo simulation model, which utilizes multiple input variables to simulate a range of possible future stock prices for both the Company and the Index and estimates the probabilities of the potential payouts. The determination of the estimated grant date fair value of the MSUs is affected by the Company’s stock price and a number of assumptions including the expected volatilities of the Company’s stock and the Index, the Company’s risk-free interest rate and expected dividends. The following weighted-average assumptions for MSU grants for the last three fiscal years were used in the Monte Carlo simulation model:
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2017 |
2016 |
2015 |
|||||
|
Expected volatility |
21.1% | 22.2% | 22.0% | |||||
|
Risk-free interest rate |
1.0% | 0.9% | 0.8% | |||||
|
Expected dividend yield |
0.0% | 0.0% | 0.0% | |||||
|
|
||||||||
The expected volatility utilized was based on the historical volatilities of the Company’s common stock and the Index in order to model the stock price movements. The volatility used was calculated over the most recent 2.89-year periods for MSUs granted during each of the fiscal years ended August 31, 2017 and 2016, and over the most recent 2.88-year period for MSUs granted during the fiscal year ended August 31, 2015, which were the remaining terms of the performance Measurement Period at the dates of grant. The risk-free interest rates used were based on the implied yield available on a U.S. Treasury zero-coupon bill with a remaining term equivalent to the remaining performance Measurement Period. The MSU awards stipulate that, for purposes of computing the relative TSR for the Company as compared to the return for the Index, dividends paid with respect to both the Company’s stock and the Index are to be treated as being reinvested into the stock of each entity as of the ex-dividend date. Accordingly, an expected dividend yield of zero was used in the Monte Carlo simulation model, which is the mathematical equivalent to reinvesting dividends in the issuing entity over the performance Measurement Period.
F-24
A summary of the Company’s market share unit activity is as follows (in thousands, except share and per share amounts):
|
|
||||||||
|
|
Weighted-Average |
|||||||
|
|
Grant Date |
|||||||
|
|
Number of |
Fair Value |
Aggregate |
|||||
|
Market Share Units |
Shares |
Per Share |
Intrinsic Value |
|||||
|
Outstanding at August 31, 2016 |
45,700 |
$ |
87.82 | |||||
|
Granted |
14,683 |
$ |
90.91 | |||||
|
Performance factor adjustments |
10,974 |
$ |
73.44 | |||||
|
Converted to common shares |
(25,825) |
$ |
71.20 | |||||
|
Forfeited |
(613) |
$ |
82.51 | |||||
|
Outstanding at August 31, 2017 (1) |
44,919 |
$ |
94.95 |
$ |
4,894 | |||
|
|
||||||||
|
(1) |
This figure represents the total number of shares underlying MSU grants assuming achievement of the target number of shares at 100%. As the ultimate number of shares that vest could be as high as 200% of the target, the Company may be required to issue additional shares to satisfy outstanding MSU award grants. |
The weighted-average grant date fair value of all MSUs granted during the fiscal years ended August 31, 2017, 2016 and 2015 was $90.91, $120.99 and $71.66 respectively. The total intrinsic value of all MSUs converted to common shares was $2.8 million and $3.7 million for the fiscal years ended August 31, 2017 and 2016, respectively. No MSUs were converted to common shares during the fiscal year ended August 31, 2015.
The income tax benefits from MSUs converted to common shares totaled $0.9 million and $1.2 million for the fiscal years ended August 31, 2017 and 2016, respectively.
Deferred Performance Units
The DPU awards provide for performance-based vesting over a performance measurement period of the fiscal year in which the DPU awards are granted. The performance vesting provisions of the DPUs are based on relative achievement within an established performance measure range of the Company’s reported earnings before interest, income taxes, depreciation in operating departments, and amortization computed on a consolidated basis for the Measurement Year, before deduction of the stock-based compensation expense for the Vested DPUs and excluding other non-operating income and expense amounts (“Adjusted Global EBITDA”). The ultimate number of DPUs that vest may range from 0% to 100% of the original maximum number of DPUs awarded depending on the relative achievement of the Adjusted Global EBITDA performance measure at the end of the Measurement Year.
The estimated fair value of each of the Company’s DPU awards was determined on the date of grant based on the closing market price of the Company’s common stock on the date of grant less the grant date present value of expected dividends during the vesting period for the DPUs, which are not entitled to receive dividend equivalents with respect to the unvested DPUs.
A summary of the Company’s deferred performance unit activity is as follows (in thousands, except share and per share amounts):
|
|
||||||||
|
|
Weighted-Average |
|||||||
|
|
Grant Date |
|||||||
|
|
Number of |
Fair Value |
Aggregate |
|||||
|
Deferred Performance Units |
Shares |
Per Share |
Intrinsic Value |
|||||
|
Outstanding at August 31, 2016 |
26,323 |
$ |
94.54 | |||||
|
Granted |
25,882 |
$ |
110.19 | |||||
|
Performance factor adjustments |
(21,240) |
$ |
94.54 | |||||
|
Converted to common shares |
(89) |
$ |
94.54 | |||||
|
Forfeited |
- |
$ |
- |
|||||
|
Outstanding at August 31, 2017 |
30,876 |
$ |
107.66 |
$ |
3,364 | |||
|
Vested at August 31, 2017 |
4,994 |
$ |
94.54 |
$ |
544 | |||
|
|
||||||||
F-25
The weighted-average grant date fair value of all DPUs granted during the fiscal years ended August 31, 2017, 2016 and 2015 was $110.19, $94.54 and $75.14, respectively. The total intrinsic value of all DPUs converted to common shares was not significant for the fiscal year ended August 31, 2017. No DPUs were converted to common shares during the fiscal years ended August 31, 2016, or 2015.
The income tax benefits from DPUs converted to common shares were not significant for the fiscal year ended August 31, 2017.
Note 14. Other Benefit Plans
The Company has a WD-40 Company Profit Sharing/401(k) Plan and Trust (the “Profit Sharing/401(k) Plan”) whereby regular U.S. employees who have completed certain minimum service requirements can defer a portion of their income through contributions to a trust. The Profit Sharing/401(k) Plan provides for Company contributions to the trust, as approved by the Board of Directors, as follows: 1) matching contributions to each participant up to 50% of the first 6.6% of compensation contributed by the participant; 2) fixed non-elective contributions in the amount equal to 10% of eligible compensation; and 3) a discretionary non-elective contribution in an amount to be determined by the Board of Directors up to 5% of eligible compensation. The Company’s contributions are subject to overall employer contribution limits and may not exceed the amount deductible for income tax purposes. The Profit Sharing/401(k) Plan may be amended or discontinued at any time by the Company. The Company’s contribution expense for the Profit Sharing/401(k) Plan was $3.3 million, $3.2 million and $3.1 million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively.
The Company’s international subsidiaries have similar benefit plan arrangements, dependent upon the local applicable laws and regulations. The plans provide for Company contributions to an appropriate third-party plan, as approved by the subsidiary’s Board of Directors. The Company’s contribution expense related to the international plans was $1.4 million, $1.5 million and $1.4 million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively.
F-26
Note 15. 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.
|
|
||||||||||||||
|
|
Unallocated |
|||||||||||||
|
|
Americas |
EMEA |
Asia-Pacific |
Corporate (1) |
Total |
|||||||||
|
Fiscal Year Ended August 31, 2017 |
||||||||||||||
|
Net sales |
$ |
184,929 |
$ |
136,771 |
$ |
58,806 |
$ |
- |
$ |
380,506 | ||||
|
Income from operations |
$ |
48,303 |
$ |
35,389 |
$ |
16,765 |
$ |
(24,548) |
$ |
75,909 | ||||
|
Depreciation and |
||||||||||||||
|
amortization expense |
$ |
4,270 |
$ |
2,090 |
$ |
254 |
$ |
155 |
$ |
6,769 | ||||
|
Interest income |
$ |
8 |
$ |
389 |
$ |
111 |
$ |
- |
$ |
508 | ||||
|
Interest expense |
$ |
2,570 |
$ |
- |
$ |
12 |
$ |
- |
$ |
2,582 | ||||
|
|
||||||||||||||
|
Fiscal Year Ended August 31, 2016 |
||||||||||||||
|
Net sales |
$ |
191,397 |
$ |
135,235 |
$ |
54,038 |
$ |
- |
$ |
380,670 | ||||
|
Income from operations |
$ |
48,404 |
$ |
31,702 |
$ |
15,162 |
$ |
(23,920) |
$ |
71,348 | ||||
|
Depreciation and |
||||||||||||||
|
amortization expense |
$ |
4,071 |
$ |
2,084 |
$ |
280 |
$ |
30 |
$ |
6,465 | ||||
|
Interest income |
$ |
5 |
$ |
485 |
$ |
193 |
$ |
- |
$ |
683 | ||||
|
Interest expense |
$ |
1,689 |
$ |
- |
$ |
14 |
$ |
- |
$ |
1,703 | ||||
|
|
||||||||||||||
|
Fiscal Year Ended August 31, 2015 |
||||||||||||||
|
Net sales |
$ |
187,344 |
$ |
136,847 |
$ |
53,959 |
$ |
- |
$ |
378,150 | ||||
|
Income from operations |
$ |
46,674 |
$ |
30,173 |
$ |
12,602 |
$ |
(24,059) |
$ |
65,390 | ||||
|
Depreciation and |
||||||||||||||
|
amortization expense |
$ |
4,078 |
$ |
2,102 |
$ |
253 |
$ |
31 |
$ |
6,464 | ||||
|
Interest income |
$ |
9 |
$ |
417 |
$ |
158 |
$ |
- |
$ |
584 | ||||
|
Interest expense |
$ |
1,197 |
$ |
- |
$ |
8 |
$ |
- |
$ |
1,205 | ||||
|
|
||||||||||||||
|
(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 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):
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2017 |
2016 |
2015 |
|||||
|
Maintenance products |
$ |
342,295 |
$ |
339,974 |
$ |
333,306 | ||
|
Homecare and cleaning products |
38,211 | 40,696 | 44,844 | |||||
|
Total |
$ |
380,506 |
$ |
380,670 |
$ |
378,150 | ||
|
|
||||||||
F-27
Net sales and long-lived assets by geographic area are as follows (in thousands):
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2017 |
2016 |
2015 |
|||||
|
Net Sales by Geography: |
||||||||
|
United States |
$ |
150,086 |
$ |
158,139 |
$ |
153,116 | ||
|
International |
230,420 | 222,531 | 225,034 | |||||
|
Total |
$ |
380,506 |
$ |
380,670 |
$ |
378,150 | ||
|
|
||||||||
|
Long-lived Assets by Geography (2) : |
||||||||
|
United States |
$ |
23,346 |
$ |
6,419 |
$ |
5,955 | ||
|
International |
6,093 | 5,126 | 5,421 | |||||
|
Total |
$ |
29,439 |
$ |
11,545 |
$ |
11,376 | ||
|
|
||||||||
(2) Includes tangible assets and property and equipment, net, attributed to the geographic location in which such assets are located.
Note 16. Subsequent Events
On October 10, 2017, the Company’s Board of Directors declared a cash dividend of $0.49 per share payable on October 31, 2017 to shareholders of record on October 20, 2017.
F-28
WD-40 Directors’ Compensation Policy and Election Plan
October 9, 2017
The WD-40 Corporate Governance Committee has proposed, and the Board of Directors has adopted, the following Compensation Policy and Election Plan for directors (the “Election Plan”), effective as of October 9, 2017.
RESTRICTED STOCK UNITS
Each new non-employee director joining the Board after the adoption of this Election Plan will receive restricted stock units (“RSUs”) with a fair market value on the date of grant of $70,000 as soon as practicable upon joining the Board. RSUs shall be granted by affirmative action of the full Board under the WD-40 Company 2016 Stock Incentive Plan (the “Incentive Plan”). Vesting will be immediate and the units will be settled in Company stock upon termination of the director’s service on the Board for any reason, including upon death, resignation, retirement or removal from office (“Termination”.) The RSUs will carry dividend equivalents payable in cash as and when declared on the Company’s stock in accordance with the Incentive Plan. The Award Agreements issued with respect to the RSUs shall not permit the director to accelerate or otherwise obtain benefits (other than the dividend equivalent payments) with respect to the RSUs until Termination. All RSUs awarded pursuant to this Election Plan shall be subject to Award Agreements having the same terms and conditions for vesting, time of payment, dividend equivalents and acceleration prohibition as provided for hereinabove and all references to RSUs in this Election Plan shall refer to RSUs subject to such Award Agreements.
Each continuing non-employee director will receive annually an award of RSUs with a fair market value of $70,000 on the date of grant. The RSUs will be granted by affirmative action of the full Board under the Incentive Plan at the organizational meeting of the Board immediately following the annual meeting of stockholders in December of each year.
The award of RSUs to directors at the December meeting shall represent, in part, the full measure of compensation earned by each director for services rendered in the month of December from and after such meeting.
ELECTION PLAN FOR PAYMENT OF ANNUAL BASE COMPENSATION IN CASH AND/OR BY AWARD OF RESTRICTED STOCK UNITS
Annual base compensation for directors for services rendered during the calendar year beginning on January 1st following the Company’s annual meeting of stockholders through the date of the next annual meeting shall be $45,000. Such amount does not include board committee fees, director contribution fund donation or reimbursement for travel expenses. No separate compensation shall be payable for special meetings of the directors.
Compensation for Directors to be Elected at the Annual Meeting
Annual base compensation for each non-employee director will be paid in a combination of cash and/or RSUs. Each director may elect to receive all or a portion of the annual base compensation in cash in increments of $1,000 and shall make this election by the date of the annual meeting. The cash compensation to be paid, if any, shall be paid on March 1 of the following year. RSUs having a fair market value as of the date of grant equal to the amount of annual base compensation not elected to be received in cash will be granted by affirmative action of the full Board under the Incentive Plan immediately following the annual shareholders meeting in December, at which time, the director’s election shall become irrevocable.
Compensation for Directors Appointed During Year
Directors appointed during the year to fill a vacancy on the Board will receive annual base compensation according to the following schedule:
|
|
||||
|
|
Appointment at or prior to the second quarter meeting: |
$ 45,000 |
||
|
|
Appointment at or prior to the third quarter meeting: |
$ 34,000 |
||
|
|
Appointment at or prior to the fourth quarter meeting: |
$ 22,500 |
||
|
|
Payment of such compensation shall be made on or about the first day of the second month following appointment to the Board. Prior to the effective date of the new director’s election to the Board, the director may elect to receive all or part of such compensation in cash in increments of $1,000 and RSUs shall be awarded in the manner provided for elections with respect to the receipt of annual base compensation as set forth above. The RSUs are to be granted by the full Board under the Incentive Plan at the next meeting of the Board following receipt of the director’s election in the same manner in which RSUs are awarded to directors pursuant to their annual compensation elections. The new director’s election shall be irrevocable upon the effective date of his or her service as a director.
Compensation for Directors Leaving During Year
If deemed practical by the Corporate Governance Committee, a departing director will be paid for the pro-rata portion of time actually served and may be required to return a pro rata portion of compensation received or to forfeit a pro rata portion of RSUs awarded pursuant to the foregoing election provisions, as such required return of compensation or forfeiture may be determined by the Corporate Governance Committee in its reasonable discretion.
IRC SECTION 409A PLAN
The foregoing provisions relating to the grant of RSUs under the Incentive Plan and a director’s election to receive all or part of the annual base compensation in cash are intended to constitute a binding plan for purposes of Section 409A of the Internal Revenue Code.
BOARD CHAIRMAN COMPENSATION
The Chairman of the Board will receive $22,000 as additional cash compensation annually. This amount will be pro-rated for partial year service as Chairman.
COMMITTEE COMPENSATION
Annual Committee service fees are as stated below:
Audit Committee
$8,000 per member
Chairman $16,000
Compensation Committee
$4,000 per member
Chairman $10,000
Corporate Governance Committee
$4,000 per member
Chairman $8,000
Finance Committee
$4,000 per member
Chairman $8,000
Payment of annual committee service fees shall be made in lump sum on or about March 1 of each year covering committee services provided from the beginning of the calendar year following each annual meeting to the next annual meeting. Amounts will be pro-rated for partial year service.
ADDITIONAL BENEFITS
Charitable Donations
Each director is allowed to designate $6,000 annually from WD-40 Company Director Contributions Fund to a qualified (501(c)(3)) charitable organization. Newly elected directors will be eligible to make charitable funding designations for
the fiscal year following the fiscal year in which they are elected. Any continuing director who serves any part of a fiscal year shall be entitled to designate $6,000 for that year.
Continuing Education
Each director will be reimbursed up to a total of $3,000 per year for education expenses, including appropriate travel costs. There will be no “carry-forward” if the amount is not utilized during the year. Reimbursement shall be up to a total of $10,000 in any year if a director engages in international travel to visit company worksites or travel with company personnel. Directors are encouraged to share their learning from educational programs with the Board.
Adopted by the Board of Directors, October 9, 2017
/s/ RICHARD T. CLAMPITT
Richard T. Clampitt
WD-40 Company Corporate Secretary
WD-40 COMPANY
2007 STOCK INCENTIVE PLAN
FY 2017 RESTRICTED STOCK UNIT AWARD GRANT NOTICE AND ACCEPTANCE
Number of RSU Shares: The Total “Vest Quantity” Shown Above
Period of Restriction: Three Year Vesting
Vesting Dates: For Each “Vest Quantity”, Not Later Than the “Vest Dates” Shown Above
FY 2017 RESTRICTED STOCK UNIT AWARD AGREEMENT
Pursuant to your RSU Award Grant Notice and Acceptance (“Grant Notice”) and this Restricted Stock Unit Award Agreement (“Agreement”), WD-40 Company, a Delaware corporation, (the “Company”) has awarded to you Restricted Stock Units (“RSUs”) under the WD-40 Company 2007 Stock Incentive Plan (the “Plan”) with respect to the number of shares of the Company’s Common Stock indicated in your Grant Notice. Defined terms not explicitly defined in this Agreement but defined in the Plan shall have the same definitions as in the Plan.
The details of your RSUs are as follows:
|
1. Number of Shares. The number of Shares to be issued to you upon payment of your RSUs (your “RSU Shares”) as referenced in your Grant Notice may be adjusted from time to time upon changes in capitalization of the Company pursuant to Section 18 of the Plan. |
|
2. No Payment of Dividend Equivalents. Dividend Equivalents are not payable with respect to your RSUs. Upon issuance of your RSU Shares at the time of vesting or otherwise as provided for herein, you will then be entitled to receive dividends as and when declared upon the Shares by the Company. |
|
3. Vesting. Your RSUs vest over a period of three years from the Date of Grant. The number of RSUs vesting on each vesting date is set forth on your Grant Notice. The vesting date for each fiscal year (the “vesting year”) will be the earlier of the date that is the 3rd business day following the Company’s public release of its annual earnings for the immediately preceding fiscal year or November 15 of the vesting year as specified in your Grant Notice. Except as otherwise provided for herein, RSUs that are not vested as of the effective date of the termination of your employment with the Company or a Subsidiary for any reason, including death, resignation or termination by the Company or Subsidiary (“Termination of Employment”), shall be forfeited. |
|
4. Payment in Shares upon Vesting. Your vested RSUs shall be payable solely in an equivalent number of Shares immediately as of the vesting date as set forth in Paragraph 3 above. Subject to the provisions of Paragraphs 8 and 11 of this Agreement, the RSU Shares shall be issued and delivered to you or to your designated Beneficiary (as hereinafter defined) on the vesting date. Issuance of the RSU Shares may not be accelerated, deferred or otherwise claimed by you for any reason or at any time other than upon vesting or otherwise as provided for herein. |
1
|
5. Retirement Vesting. Notwithstanding the provisions of Paragraph 3 above and except as provided in Paragraph 7 below, all of your RSUs shall be immediately vested and, subject to the provisions of Paragraphs 8 and 11 of this Agreement, the RSU Shares shall be issued to you as of a date that is thirty (30) days following the effective date of your Retirement (as hereinafter defined). “Retirement”, for purposes of this Agreement, means Termination of Employment (for any reason other than termination by the Company or a Subsidiary for Cause): (i) after attainment of age sixty-five (65), or (ii) after attainment of age fifty-five (55) provided that you have been in Continuous Service with the Company or a Subsidiary for not less than ten (10) years. |
|
6. Change of Control Vesting. The provisions of Section 19 of the Plan shall apply in the event of a Change of Control of the Company. Vesting of your RSUs upon Termination of Employment for “good reason” following a Change of Control shall also be provided for if specifically provided for in a written employment or severance agreement between you and the Company. In the event your RSUs are vested pursuant to Section 19 of the Plan, subject to the provisions of Paragraphs 7, 8 and 11 of this Agreement, the RSU Shares shall be issued to you as of a date that is thirty (30) days following the effective date of the Change of Control of the Company or the effective date of your Termination of Employment without Cause, as the case may be. |
|
7. Six Month Delay in Issuance of Shares on Termination of Employment for Certain Officers. If, at the time of your Retirement or other Termination of Employment, you are a “specified employee” as that term is defined in Section 409A of the Internal Revenue Code of 1986, as amended, subject to the provisions of Paragraphs 8 and 11 of this Agreement, the RSU Shares to be issued to you as provided for in Paragraphs 5 or 6 above shall be issued and delivered to you or to your designated Beneficiary (as hereinafter defined) six (6) months following the day after the effective date of your Termination of Employment. |
|
8. Securities Law Compliance. Notwithstanding anything to the contrary contained herein, your RSU Shares may not be issued unless the RSU Shares are then registered under the Securities Act of 1933, as amended (the “Securities Act”) or, if such Shares are not then so registered, the Committee or the Board has determined that such issuance would be exempt from the registration requirements of the Securities Act. The issuance of your RSU Shares must also comply with other applicable laws and regulations governing your RSU Shares, and the issuance of your RSU Shares may be delayed if the Committee or the Board determines that such issuance would not be in material compliance with such laws and regulations. |
|
9. Transferability. Your RSUs are not transferable, except by will or by the laws of descent and distribution. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party (your “Beneficiary”) who, in the event of your death, shall then be entitled to receive the RSU Shares payable as of the date of your death. |
|
10. Agreement Not a Service Contract or Obligation to Continue Service. This Agreement is not an employment or service contract, and nothing in this Agreement shall be deemed to create in any way whatsoever any obligation on your part to continue in the service of the Company or Subsidiary as an employee for any period of time. In addition, nothing in this Agreement shall obligate the Company or a Subsidiary to continue your employment for any period of time. |
|
11. Withholding of RSU Shares to Cover Tax Withholding Obligations. |
|
(a) At the time of issuance of your RSU Shares, to the extent required by law or applicable regulation, the Company shall withhold from the RSU Shares otherwise issuable to you a number
2
|
of whole Shares having a Fair Market Value as of the date of vesting, or as of the date of issuance in the case of the issuance of RSU Shares following your Retirement, equal to the minimum amount of taxes required to be withheld by law. The Fair Market Value of the withheld whole number of RSU Shares that is in excess of the minimum amount of taxes required to be withheld shall be added to the deposit for your U.S. federal income tax withholding or, if you are an international taxpayer, such amount shall be added to the largest deposit of withheld tax required to be made by the Company on your behalf. |
|
(b) Your RSU Shares may not be issued unless the tax withholding obligations of the Company, if any, are satisfied. Accordingly, the RSU Shares may not be issued within the time specified in Paragraphs 4, 5, 6 or 7 above and the Company shall have no obligation to issue a certificate for such Shares until such tax withholding obligations are satisfied or otherwise provided for. |
|
12. Notices. Any notices provided for in the Plan or this Agreement shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company. |
|
13. Governing Plan Document. This Agreement is subject to all the provisions of the Plan, the provisions of which are incorporated by reference in this Agreement. This Agreement is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of this Agreement and those of the Plan, the provisions of the Plan shall control. |
END OF RESTRICTED STOCK UNIT AGREEMENT
(Refer to RSU Award Grant Notice and Acceptance for Specific Grant Information)
3
Exhibit 10(i)
WD-40 COMPANY
2007 STOCK INCENTIVE PLAN
FY 2017 MARKET SHARE UNIT AWARD GRANT NOTICE AND ACCEPTANCE
Target Number of MSU Shares: The “Vest Quantity” Shown Above
Performance Measurement Year End: August 31, 2019
Vesting Date: Compensation Committee Certification of Performance Achievement
Settlement Date: Not Later Than the “Vest Date” Shown Above (See Award Agreement)
FY 2017 MARKET SHARE UNIT AWARD AGREEMENT
EXECUTIVE OFFICER
Pursuant to your Market Share Unit Award Grant Notice and Acceptance (“Grant Notice”) and this Market Share Unit Award Agreement (“Agreement”), WD-40 Company, a Delaware corporation, (the “Company”) has awarded to you Performance Shares (referred to herein as Market Share Units or “MSUs”) under the WD-40 Company 2007 Stock Incentive Plan (the “Plan”) with respect to the “Target Number” of shares of the Company’s Common Stock indicated in your Grant Notice. Defined terms not explicitly defined in this Agreement but defined in the Plan shall have the same definitions as in the Plan.
The details of your MSUs are as follows:
|
1. Number of Shares. The number of Shares to be issued to you upon payment of your MSUs (your “MSU Shares”) as referenced in your Grant Notice will be determined under the performance vesting provisions in Paragraph 3 of this Agreement equal to a percentage (the “Applicable Percentage”) of the Target Number of MSU Shares set forth in your Grant Notice. The Target Number of MSU Shares may be adjusted from time to time upon changes in capitalization of the Company pursuant to Section 18 of the Plan. |
|
2. No Payment of Dividend Equivalents. Dividend Equivalents are not payable with respect to your MSUs. Upon issuance of your MSU Shares at the time of vesting or otherwise as provided for herein, you will then be entitled to receive dividends as and when declared upon the Shares by the Company. |
|
3. Performance Vesting. Your MSUs vest following a performance measurement period of three full fiscal years (the “Measurement Period”) ending as of the Company’s fiscal year end for the second full fiscal year following the Date of Grant (the “Measurement Year”). Following the conclusion of the Measurement Year, the Committee shall meet, either at its regularly scheduled quarterly meeting or at a special meeting of the Committee, but in all events within sixty (60) days following the end of the Measurement Year, to certify achievement of the performance measure set forth on Exhibit A attached hereto and the vesting of your MSUs and the Applicable Percentage of the Target Number of MSU Shares to be issued to you. Except as otherwise provided for herein, unless, prior to the effective date of the termination of your employment with the Company or a Subsidiary for any reason, including death, resignation or termination by the Company or Subsidiary (“Termination of Employment”), the Committee has certified the performance vesting of your MSUs, all of your MSUs shall be forfeited. In the event of
1
|
your Termination of Employment by reason of your death, disability or Retirement (as hereinafter defined), your MSUs will vest on a pro-rata monthly basis, including full credit for partial months elapsed through the effective date of your Termination of Employment, at the time of, and subject to, the Committee’s certification of achievement of the performance measure and determination of the Applicable Percentage following conclusion of the Measurement Year. For purposes of such pro-rata vesting, the Target Number of MSU Shares will be adjusted according to the pro-rata portion of the Measurement Period for which you were employed. “Retirement”, for purposes of this Agreement, means Termination of Employment (for any reason other than termination by the Company or a Subsidiary for Cause): (i) after attainment of age sixty-five (65), or (ii) after attainment of age fifty-five (55) provided that you have been in Continuous Service with the Company or a Subsidiary for not less than ten (10) years. In the event of your Termination of Employment prior to Retirement by reason of your voluntary resignation or termination by the Company or a Subsidiary for reasons other than Cause, the Committee shall have discretion to provide for pro-rata vesting as provided for hereinabove. |
|
4. Delivery of Shares upon Performance Vesting. The settlement date for delivery of your MSU Shares following certification of vesting by the Committee as provided for in Paragraph 3 above will be the earlier of the date that is the 3rd business day following the Company’s public release of its annual earnings for the Measurement Year or November 15 of the fiscal year immediately following the Measurement Year (the “Settlement Date”). Upon settlement of your MSUs, the Applicable Percentage of the Target Number of MSU Shares shall be paid in Shares. Subject to the provisions of Paragraphs 6 and 9 of this Agreement, the MSU Shares shall be issued and delivered to you or to your designated Beneficiary (as hereinafter defined) on the Settlement Date. Issuance of the MSU Shares may not be accelerated, deferred or otherwise claimed by you for any reason or at any time other than upon the Settlement Date or otherwise as provided for herein. |
|
5. Change in Control Vesting. Except as provided for herein, the provisions of Section 19 of the Plan shall apply to your MSUs in the event of a Change in Control of the Company (as defined in the Plan). In the event of a Change in Control prior to the end of the Measurement Year, for purposes of determining the level of performance achieved as of the date of the Change in Control, the Measurement Year shall be deemed to have ended immediately prior to the effective date of the Change in Control. In such event, the Measurement Share Value and the Measurement Index Value (as defined in Exhibit A) shall be determined based on the closing price for the Shares and the closing Index value as of the date of the Change in Control (not based on average amounts as provided for in Exhibit A). In addition, in the event of a Change in Control, the proportionate number of the Target Number of MSUs not subject to vesting based on the level of performance achieved as of the date of the Change in Control shall be treated as equivalent Restricted Stock Units having a Period of Restriction ending on the Settlement Date, subject to Section 5 of your Change of Control Severance Agreement with the Company. You will be entitled to receive your vested MSU Shares thirty (30) days following the date of the Change in Control. If a Change in Control occurs after the end of the Measurement Year, but before the Committee has certified achievement of the performance measure, and you were employed by the Company on the date of the Change in Control, you will have the right, on the Settlement Date, to receive your vested MSU Shares or the dollar value equivalent thereof, at the Company’s option, determined in accordance with the vesting provisions of Section 3 of this Agreement. For purposes of the preceding sentence, the Settlement Date shall be deemed to be the date three (3) business days following the date on which the company that survives the Change in Control publicly or privately issues audited financial statements that include results of the Company’s Measurement Year, but in no event shall the Settlement Date be later than ninety (90) days following the end of the Measurement Year. |
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6. Securities Law Compliance. Notwithstanding anything to the contrary contained herein, your MSU Shares may not be issued unless the MSU Shares are then registered under the Securities Act of 1933, as amended (the “Securities Act”) or, if such Shares are not then so registered, the Committee or the Board has determined that such issuance would be exempt from the registration requirements of the
2
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Securities Act. The issuance of your MSU Shares must also comply with other applicable laws and regulations governing your MSU Shares, and the issuance of your MSU Shares may be delayed if the Committee or the Board determines that such issuance would not be in material compliance with such laws and regulations. |
|
7. Transferability. Your MSUs are not transferable, except by will or by the laws of descent and distribution. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party (your “Beneficiary”) who, in the event of your death, shall then be entitled to receive the MSU Shares payable as of the date of your death, if any. |
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8. Agreement Not a Service Contract or Obligation to Continue Service. This Agreement is not an employment or service contract, and nothing in this Agreement shall be deemed to create in any way whatsoever any obligation on your part to continue in the service of the Company or Subsidiary as an employee for any period of time. In addition, nothing in this Agreement shall obligate the Company or a Subsidiary to continue your employment for any period of time. |
|
9. Withholding of MSU Shares to Cover Tax Withholding Obligations. |
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(a) At the time of issuance of your MSU Shares, to the extent required by law or applicable regulation, the Company shall withhold from the MSU Shares otherwise issuable to you a number of whole Shares having a Fair Market Value as of the Settlement Date equal to the minimum amount of taxes required to be withheld by law. The Fair Market Value of the withheld whole number of MSU Shares that is in excess of the minimum amount of taxes required to be withheld shall be added to the deposit for your U.S. federal income tax withholding or, if you are an international taxpayer, such amount shall be added to the largest deposit of withheld tax required to be made by the Company on your behalf. |
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(b) Your MSU Shares may not be issued unless the tax withholding obligations of the Company, if any, are satisfied. Accordingly, the MSU Shares may not be issued within the time specified in Paragraphs 4 and 5 above and the Company shall have no obligation to issue a certificate for such Shares until such tax withholding obligations are satisfied or otherwise provided for. |
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10. Notices. Any notices provided for in the Plan or this Agreement shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company. |
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11. Governing Plan Document. This Agreement is subject to all the provisions of the Plan, the provisions of which are incorporated by reference in this Agreement. This Agreement is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. Except as specifically provided for herein, in the event of any conflict between the provisions of this Agreement and those of the Plan, the provisions of the Plan shall control. |
END OF MARKET SHARE UNIT AGREEMENT
(Refer to MSU Award Grant Notice and Acceptance for Specific Grant Information)
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EXHIBIT A
PERFORMANCE VESTING
(Executive Officer)
Subject to Section 5 of the Market Share Unit Award Agreement, the MSUs shall vest with respect to the Applicable Percentage of the Target Number of MSU Shares set forth in the following table based on relative total stockholder return (“TSR”) for the Company over the Measurement Period as compared to the total return (“Return”) for the Russell 2000 Index (the “Index”) as reported for total return (with dividends reinvested) by Russell Investments. For purposes of computing the relative TSR for the Company as compared to the Return for the Index, dividends paid with respect to the Shares shall be treated as having been reinvested as of the ex-dividend date for each declared dividend, as further described below. TSR for the Company shall equal the percentage change (positive or negative) of the “Measurement Share Value” (as defined below) as compared to the “Base Share Value” (as defined below). The Return for the Index shall equal the percentage change (positive or negative) of the “Measurement Index Value” (as defined below) as compared to the “Base Index Value” (as defined below). The relative TSR (“Relative TSR”) represents the absolute percentage point difference between the TSR for the Company and the Return for the Index.
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Relative TSR (absolute percentage point difference) |
Applicable Percentage |
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> 20% |
200% |
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20% |
200% |
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15% |
175% |
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10% |
150% |
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5% |
125% |
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Equal |
100% |
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-5% |
75% |
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-10% |
50% |
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>-10% |
0% |
The Applicable Percentage will be determined on a straight line sliding scale from the minimum 50% Applicable Percentage achievement level to the maximum 200% Applicable Percentage achievement level. For purposes of determining relative achievement, actual results are to be rounded to the nearest tenth of one percent and rounded upward from the midpoint, in all events in a positive direction. For example, if the Relative TSR is 4.94% (the absolute difference between the TSR for the Company and the Return for the Index over the Measurement Period being 4.94 percentage points), Relative TSR will be 4.9% and the Applicable Percentage will be 124.5%. The number of MSU Shares to be issued on the Settlement Date is to be rounded to the nearest whole share and rounded upward from the midpoint.
“Base Share Value” shall represent the average computed value of one (1) share of the Company’s common stock (as increased, if applicable, by additional shares theoretically acquired with reinvested dividends, as further described below), determined with reference to the daily closing price for the Company’s Shares over a period of all market trading days within the ninety (90) calendar days ending on the last day of the Company’s fiscal year ended immediately prior to the Date of Grant (the “Base Value Averaging Period”).
i
For purposes of determining the Base Share Value, the daily value of one (1) share shall be computed based on the closing price for the Company’s Shares for each market trading day until the next following ex-dividend date, if any. On the ex-dividend date, if any, and thereafter through the end of the Base Value Averaging Period, the daily value shall be based on one (1) share plus a number of shares that would theoretically be acquired on the ex-dividend date, at the closing price for the Company’s Shares on the ex-dividend date, with the dividend declared with respect to the share. In the same manner, the number of shares shall be increased for computing the daily value on a compounded basis for each successive dividend, if any, declared prior to the end of the Base Value Averaging Period. A simple average of all of the daily values so computed shall represent the Base Share Value.
“Base Index Value” shall represent the average closing value of the Index over a period of all market trading days within the Base Value Averaging Period.
“Measurement Share Value” shall represent the average computed value of one (1) share of the Company’s common stock (as increased, if applicable, by additional shares theoretically acquired with reinvested dividends over the Measurement Period, including dividends reinvested for purposes of computing the Base Share Value, as further described below), determined with reference to the daily closing price for the Company’s Shares over a period of all market trading days within ninety (90) calendar days ending on the last day of the Measurement Year (the “Measurement Value Averaging Period”).
For purposes of determining the Measurement Share Value, the number of shares as of the first day of the Measurement Value Averaging Period shall first be determined by adding theoretically reinvested dividend shares over the entire Measurement Period to the number of shares used in computation of the Base Share Value as of the end of the Base Value Averaging Period. Such reinvested dividend shares shall be added on a compounded basis as of each successive ex-dividend date for dividends declared with respect to the Company’s Shares in the same manner as described for computation of the Base Share Value. Beginning on the first day of the Measurement Share Averaging Period, the daily value of the shares thus accumulated through dividend reinvestment shall be computed based on the closing price for the Company’s Shares for each market trading day until the next following ex-dividend date. On successive ex-dividend dates, if any, and thereafter through the end of the Measurement Share Averaging Period, the daily value shall be based on the increased number of shares accumulated as of each such ex-dividend date. A simple average of all of the daily values so computed shall represent the Measurement Share Value.
“Measurement Index Value” shall represent the average closing value of the Index over a period of all market trading days within the Measurement Value Averaging Period.
ii
WD-40 COMPANY
2007 STOCK INCENTIVE PLAN
FY 2017 DEFERRED PERFORMANCE UNIT AWARD GRANT NOTICE AND ACCEPTANCE
Maximum Number of DPU Shares: The “Vest Quantity” Shown Above
Performance Measurement Year End: August 31, 2017
Vesting Date: August 31, 2017, Subject To Compensation Committee Certification of Performance Achievement
Settlement Date: As Determined By the Compensation Committee at the Time of Certification of Performance Achievement, Pursuant To Paragraphs 3 and 5 of the FY 2017 Deferred Performance Unit Award Agreement Below
FY 2017 DEFERRED PERFORMANCE UNIT AWARD AGREEMENT
Pursuant to your Deferred Performance Unit Award Grant Notice and Acceptance (“Grant Notice”) and this Deferred Performance Unit Award Agreement (“Agreement”), WD-40 Company, a Delaware corporation, (the “Company”) has awarded to you Deferred Performance Units (“DPUs”) under the WD-40 Company 2007 Stock Incentive Plan (the “Plan”) with respect to the “Maximum Number” of shares of the Company’s Common Stock indicated in your Grant Notice. Defined terms not explicitly defined in this Agreement but defined in the Plan shall have the same definitions as in the Plan.
The details of your DPUs are as follows:
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1. Number of Shares. Subject to the alternative vesting payment provisions of Paragraph 3 of this Agreement, the number of Shares to be issued to you upon settlement of your DPUs (your “DPU Shares”) as referenced in your Grant Notice will be determined under the performance vesting provisions in Paragraph 2 of this Agreement equal to a percentage (the “Applicable Percentage”) of the Maximum Number of DPU Shares set forth in your Grant Notice. The Maximum Number of DPUs prior to performance vesting, or the resulting number of DPU Shares determined upon performance vesting, may be adjusted from time to time upon changes in capitalization of the Company pursuant to Section 18 of the Plan. |
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2. Performance Vesting. Your DPUs vest following a performance measurement period of one year that is the current fiscal year of the Company (the “Measurement Year”). Following the conclusion of the Measurement Year, the Committee shall meet, either at its regularly scheduled quarterly meeting or at a special meeting of the Committee called prior to the Company’s release of its annual earnings for the Measurement Year, to certify achievement of the performance measure set forth on Exhibit A attached hereto and determination of the Applicable Percentage of the Maximum Number of DPUs that will become vested (your “Vested DPUs”). Except as otherwise provided for herein, your DPUs will be forfeited if your employment with the Company or a Subsidiary is terminated for any reason, including death, resignation or termination by the Company or a Subsidiary (“Termination of Employment”) prior to August 31 of the Measurement Year. In the event of your Termination of Employment by reason of your death,
1
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disability or Retirement (as hereinafter defined), you may, as provided for herein, be eligible to receive Vested DPUs determined on a pro-rata monthly basis, including full credit for partial months elapsed through the effective date of your Termination of Employment, effective as of the last day of the Measurement Year and subject to the Committee’s certification of achievement of the performance measure and determination of the Applicable Percentage. If applicable for such pro-rata vesting, the Maximum Number of DPU Shares will be adjusted according to the pro-rata portion of the Measurement Year for which you were employed. In the case of your Termination of Employment due to death or disability, pro-rata vesting will occur at the discretion of the Committee. In the case of your Retirement (as hereinafter defined), you will receive the applicable pro-rata amount of Vested DPUs. “Retirement”, for purposes of this Agreement, means Termination of Employment (for any reason other than termination by the Company or a Subsidiary for Cause): (i) after attainment of age sixty-five (65), or (ii) after attainment of age fifty-five (55) provided that you have been in Continuous Service with the Company or a Subsidiary for not less than ten (10) years. |
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3. Alternative Vesting Payment in Cash for International Participants. If you are a resident of a jurisdiction other than the United States, the Committee may, as authorized under Sections 4(b) and 11(d) of the Plan, determine, at the time that the Committee certifies the performance vesting of your DPUs as provided for in Paragraph 2 above, that your Vested DPUs will be settled in cash in an amount equal to the number of Vested DPU Shares multiplied by the closing price of the Shares as of the date of such certification. In the event your Vested DPUs are settled in cash, the provisions of Paragraphs 4, 5, 6 and 9 of this Agreement shall not apply to your Vested DPUs. |
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4. Payment of Dividend Equivalents. Until issuance of your DPU Shares, you shall be entitled to receive Dividend Equivalents with respect to your Vested DPUs, payable in cash as and when dividends are declared upon the Shares by the Company. Dividend Equivalents may be accumulated by the Company but shall be paid no less often than annually. Such Dividend Equivalents shall constitute additional ordinary compensation income for the year in which the Dividend Equivalents are paid. Dividend Equivalents shall be paid with respect to your Vested DPUs held as of the record date for the dividend declared upon the Shares by the Company, provided that you will not be deemed to hold Vested DPUs prior to the Committee’s certification of performance vesting as provided for in Paragraph 2 above. |
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5. Delivery of Shares upon Termination of Employment – 6 Month Delay. Your Vested DPUs shall be settled solely in Shares upon Termination of Employment. Subject to the provisions of Paragraphs 6 and 9 of this Agreement, DPU Shares shall be issued and delivered to you or to your designated Beneficiary (as hereinafter defined) six (6) months following the day after the effective date of your Termination of Employment (the “Settlement Date”). Issuance of the DPU Shares may not be accelerated or otherwise claimed by you for any reason other than following Termination of Employment. |
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6. Securities Law Compliance. Notwithstanding anything to the contrary contained herein, your DPU Shares may not be issued unless the DPU Shares are then registered under the Securities Act of 1933, as amended (the “Securities Act”) or, if such Shares are not then so registered, the Committee or the Board has determined that such issuance would be exempt from the registration requirements of the Securities Act. The issuance of your DPU Shares must also comply with other applicable laws and regulations governing your DPU Shares, and the issuance of your DPU Shares may be delayed if the Committee or the Board determines that such issuance would not be in material compliance with such laws and regulations. |
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7. Transferability. Your DPUs are not transferable, except by will or by the laws of descent and distribution. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party (your “Beneficiary”) who, in the event of your death, shall then be entitled to receive the DPU Shares, if any, payable as of the date of your death. |
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8. Agreement Not a Service Contract or Obligation to Continue Service. This Agreement is not an employment or service contract, and nothing in this Agreement shall be deemed to create in any way whatsoever any obligation on your part to continue in the service of the Company or Subsidiary as an employee for any period of time. In addition, nothing in this Agreement shall obligate the Company or a Subsidiary to continue your employment for any period of time. |
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9. Satisfaction of Tax Withholding Obligations. |
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(a) At the time of the vesting of your DPUs as provided for in Paragraph 2 above, to the extent the Company or Subsidiary is required by law or applicable regulation to withhold and remit any tax on your behalf, whether representing payroll tax, income tax or other personal tax obligation, the Company or Subsidiary shall have the right to collect, directly from you or from other compensation amounts due to you from the Company or Subsidiary, amounts required to satisfy such tax withholding obligations. To the extent permitted by law or applicable regulation, the Company or Subsidiary may satisfy such withholding obligations at such time after the end of the Measurement Year and within the same calendar year as may be administratively convenient, such as the date you receive other incentive cash compensation under the Company’s performance incentive compensation programs. |
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(b) At the time of issuance of your DPU Shares, to the extent required by law or applicable regulation, the Company shall withhold from the DPU Shares otherwise issuable to you, a number of whole Shares having a Fair Market Value as of the Settlement Date equal to the minimum amount of taxes required to be withheld by law. The Fair Market Value of the withheld whole number of DPU Shares that is in excess of the minimum amount of taxes required to be withheld shall be added to the deposit for your U.S. federal income tax withholding or, if you are an international taxpayer, such amount shall be added to the largest deposit of withheld tax required to be made by the Company on your behalf. |
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(c) Your DPU Shares may not be issued unless the tax withholding obligations of the Company or Subsidiary, if any, are satisfied. Accordingly, the DPU Shares may not be issued within the time specified in Paragraph 5 above and the Company shall have no obligation to issue a certificate for such Shares until such tax withholding obligations are satisfied or otherwise provided for. Upon notice of the requirement for recovery from you of any amount due as a tax withholding obligation, you agree to promptly remit to the Company or Subsidiary the full amount due. |
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10. Notices. Any notices provided for in the Plan or this Agreement shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company. |
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11. Governing Plan Document. This Agreement is subject to all the provisions of the Plan, the provisions of which are incorporated by reference in this Agreement. This Agreement is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. Except as specifically provided for herein, in the event of any conflict between the provisions of this Agreement and those of the Plan, the provisions of the Plan shall control. |
END OF DEFERRED PERFORMANCE UNIT AGREEMENT
(Refer to DPU Award Grant Notice and Acceptance for Specific Grant Information)
3
EXHIBIT A
PERFORMANCE VESTING
In accordance with Paragraph 2 of the Deferred Performance Unit Award Agreement, the DPUs shall vest with respect to the Applicable Percentage of the Maximum Number of DPU Shares set forth in the following table, based on relative achievement within an established performance measure range of the Company’s reported earnings before interest, income taxes, depreciation (in operating departments) and amortization computed on a consolidated basis (“Global EBITDA”) for the Measurement Year, before deduction of the stock-based compensation expense for the Vested DPUs and excluding other non-operating income and expense amounts (“Adjusted Global EBITDA”) .
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Adjusted Global EBITDA |
Applicable Percentage |
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> $87,645,000 |
100% |
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$87,645,000 |
100% |
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$83,455,000 |
5% |
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< $83,455,000 |
0% |
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$83,234,000* |
0% |
* Implied zero percentage achievement level.
The Applicable Percentage will be determined on a straight line sliding scale from the implied zero percentage achievement level to the maximum 100% Applicable Percentage achievement level but the Applicable Percentage shall not be less than 5%. For purposes of determining the Applicable Percentage, the calculated percentage is to be rounded to the nearest tenth of one percent and rounded upward from the midpoint. The number of Vested DPUs is to be rounded to the nearest whole unit and rounded upward from the midpoint.
For purposes of computing Global EBITDA the Company’s earnings are to be determined in accordance with the Company’s then applicable Generally Accepted Accounting Principles (currently U.S. GAAP).
CHANGE OF CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT (“Agreement”) is made on this 14th day of February, 2006 (the “Effective Date”) between WD-40 COMPANY (hereinafter the “Company”) and GARRY O. RIDGE (hereinafter the “Executive”).
RECITALS:
Whereas, the Company has determined that the Executive is among that group of key managers whose services and participation in management may be critical in any period of transition, such as at the time of any change in control of the Company or in the face of any proposed corporate reorganization or acquisition, friendly or hostile, affecting the Company. Accordingly, the board of directors of the Company (the “Board”) has determined that it is appropriate and in the best interests of the Company and its stockholders that provisions be made to encourage the Executive’s continued attention and undistracted dedication to the Executive’s duties in the potentially disturbing circumstances of a possible change in control of the Company, by providing the Executive with some degree of personal financial security under such circumstances.
NOW THEREFORE, the parties agree as follows:
1.Change in Control: For purposes of this Agreement, Change in Control shall mean:
(a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (C) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in subclauses (i), (ii) and (iii) of subparagraph (c) of this sentence are satisfied; or
(b) if individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least two-thirds of the directors then constituting the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest subject to Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(c) approval by the stockholders of the Company of a reorganization, merger or consolidation, unless following such reorganization, merger or consolidation (i) more than 60% of, respectively, the then-outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger, or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be (for purposes of determining whether such percentage test is satisfied, there shall be excluded from the number of shares and voting securities of the resulting corporation owned by the Company's stockholders, but not from the total number of outstanding shares and voting securities of the resulting corporation, any shares or voting securities received by any such stockholder in respect of any consideration other than shares or voting securities of the Company); (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company, any qualified employee benefit plan of such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 30% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then-outstanding voting securities of such corporation entitled to vote generally in the election of directors; and (iii) at least
a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or
(d)(i) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company or (ii) the first to occur of (A) the sale or other disposition (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company, or (B) the approval by the stockholders of the Company of any such sale or disposition, other than, in each case, any such sale or disposition to a corporation, with respect to which immediately thereafter, (1) more than 60% of, respectively, the then-outstanding shares of common stock of such corporation and the combined voting power of the then-outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be (for purposes of determining whether such percentage test is satisfied, there shall be excluded from the number of shares and voting securities of the transferee corporation owned by the Company’s stockholders, but not from the total number of outstanding shares and voting securities of the transferee corporation, any shares or voting securities received by any such stockholder in respect of any consideration other than shares or voting securities of the Company); (2) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company, any qualified employee benefit plan of such transferee corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 30% or more of, respectively, the then-outstanding shares of common stock of such transferee corporation and the combined voting power of the then-outstanding voting securities of such transferee corporation entitled to vote generally in the election of directors; and (3) at least a majority of the members of the board of directors of such transferee corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the board providing for such sale or other disposition of assets of the Company.
2.Termination Following a Change in Control:
(a)The Executive shall be entitled to the compensation provided for in Paragraph 3 if all of the following conditions are satisfied:
(i) there is a Change in Control of the Company while the Executive is still an employee of the Company;
(ii) the Executive’s employment with the Company is terminated within two years after the Change in Control; and
(iii) the Executive's termination of employment is not a result of (A) the Executive's death; (B) the Executive’s Disability (as defined in subparagraph 2(b) below); (C) the Executive’s Retirement (as defined in subparagraph 2(c) below); (D) the Executive's termination by the Company for Cause (as defined in subparagraph 2(d) below); or (E) the Executive’s decision to terminate employment other than for Good Reason (as defined in subparagraph 2(e) below). Notwithstanding the foregoing, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or in anticipation of a Change of Control, then the Executive shall be entitled to the compensation provided for in Paragraph 3.
(b) If, as a result of the Executive’s incapacity due to physical or mental illness, the Executive shall have been unable, with or without a reasonable accommodation, to perform the Executive’s duties with the Company on a full time basis for six months and if, within 30 days after a Notice of Termination (as defined in subparagraph 2(f)) is thereafter given by the Company, the Executive shall not have returned to the full time performance of the Executive's duties, the Company may terminate the Executive's employment for “Disability”.
(c) The term “Retirement” as used in this Agreement shall mean termination by the Company or the Executive of the Executive’s employment under circumstances whereby the Executive is otherwise entitled to receive benefits payable under the presently existing Supplemental Retirement Benefit Plan entered into between the Company and the Executive or such other nonqualified retirement benefit plan providing substantially similar benefits.
(d) The Company may terminate the Executive's employment for Cause before or after a Change in Control. For purposes of this Agreement only, “Cause” shall mean: (i) the Executive’s commission of acts subject to prosecution as a felony involving moral turpitude; (ii) the Executive’s material breach of fiduciary duty as an executive officer of the Company which has resulted, or is likely to result, in material economic damage to the Company; or (iii) the Executive’s willful gross misconduct or willful gross neglect of duties (other than any such neglect resulting from the Executive's incapacity due to physical or mental illness or any such neglect after the issuance of a Notice of Termination by the Executive for Good Reason, as such terms are defined in subparagraphs (e) and (f)
below and as they may apply under this Paragraph 2); provided that no act or failure to act by the Executive will constitute “Cause” under clause (ii) if the Executive believed in good faith that such act or failure to act was in the best interest of the Company.
Any termination of the Executive’s employment by the Company for Cause shall be authorized by a vote of at least a majority of the independent members of the Board (as they may be determined by the Board from time to time) within 12 months of a majority of such independent members of the Board having actual knowledge of the event or circumstances providing a basis for such termination. In the case of clauses (i) and (ii) of the second sentence of this subparagraph (d), the Executive shall be given notice by the Board specifying in detail the particular act or failure to act on which the Board is relying in proposing to terminate the Executive for Cause and offering the Executive an opportunity, on a date at least 14 days after receipt of such notice, to have a hearing, with counsel, before a majority of the independent members of the Board, including each of the members of the Board who authorized the termination for Cause. The Executive shall not be terminated for Cause if, within 30 days after the date of the Executive’s hearing before the Board (or if the Executive waives a hearing, within 30 days after receiving notice of the proposed termination), the Executive has corrected the particular act or failure to act specified in the notice given under clause (ii) of the second sentence of this subparagraph (d), and by so correcting such act or failure to act the Executive has reduced the economic damage the act or failure to act has allegedly caused the Company to a level which is no longer material or has eliminated the probability that such act or failure to act is likely to result in material economic damage to the Company. No termination for Cause shall take effect until the expiration of the correction period described in the preceding sentence and the determination by a majority of the independent members of the Board that the Executive has failed to correct the act or failure to act in accordance with the terms of the preceding sentence. Other than as specified herein, the decision of a majority of the independent members of the Board of Directors with respect to any determination of the grounds for termination of the Executive’s employment for Cause shall be binding absent evidence of bad faith or manifest injustice.
(e) The Executive may terminate the Executive’s employment for Good Reason at any time following a Change in Control. For purposes of this Agreement, “Good Reason” shall mean, after any Change in Control and without the Executive’s express written consent, any of the following:
(i) a significant diminution in the Executive's duties and responsibilities, or the assignment to the Executive by the Company of duties inconsistent with the Executive's position, duties, responsibilities or status with the Company immediately prior to a Change in Control of the Company, or any removal of the Executive from or any failure to re-elect the Executive to any of such positions, except in connection with the termination of employment for Disability, Retirement or Cause or as a result of the Executive’s death or by the Executive other than for Good Reason;
(ii) a reduction by the Company in the Executive’s annual rate of base salary as in effect immediately prior to a Change of Control or the Company’s failure to increase (within 12 months of the Executive’s last adjustment in annual rate of base salary) the Executive's annual rate of base salary after a Change in Control of the Company in an amount which at least equals, on a percentage basis, the average percentage increase in the annual rate of base salary most recently or then currently being effected for all other executive officers of the Company;
(iii) (A) any failure by the Company to continue in effect any benefit plan or arrangement (including, without limitation, medical, dental, and other established benefit plans (“Welfare Benefit Plans”), group life insurance and retirement plans) in which the Executive is participating at the time of a Change in Control of the Company (all hereinafter referred to as “Benefit Plans”) unless the Executive receives benefits through another plan or arrangement providing the Executive with benefits, when considered in the aggregate, that are no less favorable than the benefits under all Benefit Plans available to the Executive at the time of a Change in Control, or (B) the taking of any action by the Company which would adversely affect the Executive’s participation in or materially reduce the Executive’s benefits under the Benefit Plans or otherwise deprive the Executive of any material fringe benefit or perquisite of office enjoyed by the Executive at the time of a Change in Control of the Company considered in the aggregate with all benefits so provided to the Executive;
(iv) (A) any failure by the Company to continue in effect any incentive plan or arrangement (including, without limitation, the Company’s incentive bonus and contingent bonus arrangements and credits and the right to receive performance awards and similar long and short-term incentive compensation benefits) in which the Executive is participating at the time of a Change in Control of the Company (hereinafter referred to as “Incentive Plans”), (B) the taking of any action by the Company which would adversely affect the Executive’s participation in any such Incentive Plan or reduce the Executive’s benefits under any such Incentive Plan, unless in the case of either subclause (A) or (B) above, there is substituted a comparable plan or program that is economically equivalent, in terms of the benefit offered to the Executive, to the Incentive Plan being altered, reduced, affected or ended, or (C) any failure by the Company with respect to any fiscal year to make an award to the Executive pursuant to each such Incentive Plan or such substituted comparable plan or program in accordance with its terms or otherwise in a manner consistent with awards or benefits provided to other executive officers of the Company;
(v) (A) any failure by the Company to continue in effect any plan or arrangement to receive securities of the Company (including, without limitation, the Company's stock option plans and other equity incentive plans as authorized by the Board for the senior executive officers) in which the Executive is participating at the time
of a Change in Control of the Company (hereinafter referred to as “Securities Plans”), or the taking of any action by the Company which would adversely affect the Executive's participation in or materially reduce the Executive’s benefits under any such Securities Plan or (B) any failure by the Company in any fiscal year to grant stock options, stock appreciation rights or securities awards to the Executive pursuant to such Securities Plans or otherwise in a manner consistent with awards or grants provided to other executive officers of the Company; and provided further that the material terms and conditions of such stock options, stock appreciation rights, and securities awards granted to the Executive after the Change in Control (including, but not limited to, the exercise price, vesting schedule, period and methods of exercise, expiration date, forfeiture provisions and other restrictions) are substantially similar to the material terms and conditions of the stock options, stock appreciation rights, and securities awards granted to the Executive under the Securities Plans immediately prior to the Change in Control of the Company;
(vi) a relocation of the Company’s principal executive offices to a location more than 100 miles outside of San Diego, California, or the Executive’s relocation more than 100 miles from the location at which the Executive performed the Executive's duties prior to a Change in Control of the Company, except for required travel by the Executive on the Company’s business to an extent substantially consistent with the Executive’s business travel obligations at the time of a Change in Control of the Company;
(vii) any failure by the Company to provide the Executive with the number of annual paid vacation days to which the Executive is entitled for the year in which a Change in Control of the Company occurs;
(viii) any material breach by the Company of any provision of this Agreement;
(ix) any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company;
(x) the Company or its successor no longer is required to have its common stock registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended; or
(xi) any purported termination of the Executive’s employment by the Company pursuant to subparagraphs 2(b), 2(c) or 2(d) which is not effected pursuant to a Notice of Termination satisfying the requirements of subparagraph 2(f) below (and, if applicable, subparagraph 2(d) above), and for purposes of this Agreement, no such purported termination shall be effective.
For purposes of this subparagraph (e), an isolated, immaterial, and inadvertent action not taken in bad faith by the Company in violation of clauses (i) - (v), (vii) or (xi) of this subparagraph that is remedied by the Company promptly after receipt of notice thereof given by the Executive shall not be considered Good Reason for the Executive’s termination of employment with the Company. In the event the Executive terminates the Executive’s employment for Good Reason hereunder, then notwithstanding that the Executive may also be considered retired for purposes of Benefit Plans (other than the Supplemental Retirement Benefit Plan or other non-qualified plan providing similar benefits), Incentive Plans or Securities Plans, the Executive shall be deemed to have terminated employment for Good Reason for purposes of this Agreement.
(f) Any termination of the Executive’s employment by the Company pursuant to subparagraphs 2(b), 2(c) or 2(d), or by the Executive pursuant to subparagraph 2(e) above, shall be communicated by a Notice of Termination to the other party hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall indicate those specific termination provisions in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated. For purposes of this Agreement, no such purported termination by the Company shall be effective without such Notice of Termination.
(g) “Date of Termination” shall mean (i) if the Executive’s employment is terminated by the Company for Disability, 30 days after Notice of Termination is given to the Executive (provided that the Executive shall not have returned to the performance of the Executive’s duties on a full time basis during such 30 day period), (ii) if the Executive’s employment is terminated by the Executive for Good Reason, the date specified in the Notice of Termination, and (iii) if the Executive’s employment is terminated by the Company for any other reason, the date on which a Notice of Termination is given; provided, however, that if within 30 days after any Notice of Termination is given to the Executive by the Company, the Executive notifies the Company that a dispute exists concerning the termination, the Date of Termination shall be a date no earlier than the date on which the Notice of Termination is given, but otherwise, if the termination is to be effective, as of the date so determined, whether by mutual written agreement of the parties or upon final judgment, order or decree of a court of competent jurisdiction.
3.Severance Compensation Upon Termination of Employment Following a Change in Control:
(a) If, pursuant to subparagraph 2(a), the Executive is entitled to the compensation provided for in this Paragraph 3, then, subject to the provisions of Paragraph 7 below, the Company shall pay to the Executive in a lump sum cash payment, the following:
(i) the Change in Control Severance Amount as defined in subparagraph 3(b) below within five days following, but not earlier than, the sixth month anniversary of the Date of Termination; plus
(ii) the Executive’s earned but unpaid base annual salary through the period ending on the Date of Termination within the time required by law for the payment of wages upon termination of employment; plus
(iii) interest, if any, on the amounts payable pursuant to clauses (i) and (ii) above calculated from the Date of Termination until paid (including interest calculated for the six month period from the Date of Termination to the date of payment pursuant to clause (i) or from the Date of Termination to the date of payment pursuant to clause (ii) if not paid when due) at a rate equal to the prime rate as published in the Wall Street Journal on the Date of Termination plus three percentage points, compounded annually.
(b) “Change in Control Severance Amount” shall mean an amount equal to the sum of (i) two times the greater of (A) the Executive’s base annual salary in effect as of the Date of Termination or (B) the average of the Executive’s base annual salary paid for the five fiscal years ending prior to the Date of Termination, plus (ii) two times the greater of (A) the annual cash bonus awarded by the Board to the Executive with respect to the Company's most recent fiscal year ending prior to the Date of Termination or (B) the average of the annual cash bonus amounts awarded by the Board to the Executive with respect to the Company's most recent five fiscal years ending prior to the Date of Termination.
(c)If, pursuant to subparagraph 2(a), the Executive is entitled to the compensation provided in this Paragraph 3, then the Executive will be entitled to continued participation in all Welfare Benefit Plans (as defined in subparagraph 2(e)(iii) above) in which the Executive was participating on the Date of Termination, such continued participation to be at Company cost and otherwise on the same basis as Company employees generally, until the earlier of (i) the date, or dates, the Executive receives equivalent coverage and benefits under the plans and programs of a subsequent employer (such coverages and benefits to be determined on a coverage-by-coverage or benefit-by-benefit basis) or (ii) two years from the Date of Termination; provided (A) if the Executive is precluded from continuing participation in any Welfare Benefit Plan as provided in this sentence, the Executive shall be paid, in a lump sum cash payment, within 30 days following the date it is determined the Executive is unable to participate in any Welfare Benefit Plan, the after-tax economic equivalent of the benefits provided under the plan or program in which the Executive is unable to participate for the period specified in this sentence, and (B) the economic equivalent of any benefit foregone shall be deemed to be the lowest cost that would be incurred by the Executive in obtaining such benefit (including family or dependent coverage, if applicable) on an individual basis. The Executive shall be eligible for group health plan continuation coverage under and in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, when the Executive ceases to be eligible for continued participation in the Company's group health plan under this subparagraph (c).
4.Company Right to Terminate Employment With or Without Cause; No Obligation of Executive to Mitigate Damages; No Effect On Other Contractual Rights:
(a)Notwithstanding anything to the contrary herein, the Executive shall serve the Company at the pleasure of the Board and the Board may terminate the Executive’s employment at any time, with our without Cause subject to the Executive’s right to payment of the severance compensation provided for herein, if applicable. The Executive hereby acknowledges that this agreement does not guarantee continued employment with the Company for any period of time and upon termination of the Executive’s employment, the Executive shall have no claim for compensation or other benefits pursuant to this agreement except as specifically set forth herein following a Change of Control.
(b) The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination or otherwise.
(c) The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive’s existing rights, or rights which would accrue solely as a result of the passage of time, under any Benefit Plan, Incentive Plan or Securities Plan, or other contract, plan or agreement with or of the Company.
5.Options, Securities Awards, And Incentive Awards:
(a) In the event of a Change in Control of the Company, then notwithstanding the terms and conditions of any Securities Plan or other plan, agreement or arrangement, (i) if any Securities Plan will not be continued as to the securities of the Company or as to substantially equivalent publicly traded securities of the Company or any successor entity, or (ii) if the Executive’s employment is terminated and the Executive is entitled to the compensation provided for in Paragraph 3, then the Company agrees to accelerate, vest, and make immediately exercisable in full all unexercisable installments of all options to acquire securities of the Company, to vest all unvested awards of securities of the Company and to waive any resale or other restrictions or rights of repurchase applicable to securities underlying such options or applicable to awards of securities of the Company in each case, which are held by the Executive on the date of such Change in Control, including without limitation any options or securities obtained by the Executive pursuant to any Securities Plan or securities obtained by the Executive pursuant to any discontinued Incentive Plan (as defined in subparagraph 2(e)) to the extent that the Executive may not otherwise be able to realize the expected benefits thereof upon continued employment by the Company or a publicly traded successor entity.
(b) If the provisions of subparagraph (a) of this Paragraph 5 are applicable with respect to any Securities Plan within six (6) months following a Change in Control, any options or securities obtained by the Executive pursuant to the discontinued Securities Plan or securities obtained by the Executive pursuant to any Incentive Plan as described in subparagraph (a) shall have a limited right of surrender allowing the Executive to surrender such options or securities within the 30 day period following the date on which the provisions of subparagraph (a) first become applicable and to receive a cash payment in exchange for the surrender of such options or securities. The amount of such payment shall be equal to the sum of (i) the product of the number of securities obtained by the Executive pursuant to such Securities Plan or Incentive Plan multiplied by the greater of (x) the fair market value of the securities of the Company on the date prior to the Change in Control or (y) the per share price paid to shareholders in connection with such Change in Control (alternatively, the “Securities Price”) and (ii) the product of (a) the number of securities covered by options multiplied by (b) the positive amount, if any, equal to the Securities Price minus the exercise price. Notwithstanding the foregoing, if any such payment would result in liability under Section 16 of the Exchange Act, the right of surrender shall commence upon the earliest date it can be exercised by the Executive without liability and continue for thirty days thereafter.
6.Termination: This Agreement shall continue in effect for a period of two (2) years and shall automatically renew for successive two (2) year periods from the earlier of (a) the next scheduled termination date, unless the Board provides the Executive with a notice of non-renewal at least 6 months before the next scheduled termination date, or (b) the effective date of a Change of Control.
7.Adjustment Related to Application of Excise Tax: If the Executive is entitled to receive the compensation provided for in Paragraph 3 and any payment received or to be received by the Executive is or will be subject to the tax (the “Excise Tax”) imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), the adjustment set forth in subparagraph (a) shall be made to the payments provided for in Paragraph 3 above.
(a)If the present value of all benefits and payments to the Executive included in the determination of “parachute payments” pursuant to Section 280G(b)(2) of the Code received by or to be received by the Executive (the “Parachute Payments”) is equal to or exceeds 3 times the “base amount” with respect to the Executive as determined pursuant to Section 280G(b)(3) of the Code (the “Base Amount”), then the amount payable to the Executive pursuant to Paragraph 3 above shall be reduced so that the present value of the Parachute Payments is equal to 3 times the Base Amount minus the sum of One Hundred Dollars ($100.00.)
(b)It is the intention of the parties to this Agreement that the compensation payable to the Executive pursuant to this Agreement contingent upon a Change of Control of the Company will not result in any “excess parachute payment” to the Executive as determined under Section 280G(b) of the Code or application of the Excise Tax to any such excess parachute payment. The provisions of this Paragraph 7 shall be applied so as to carry out the parties’ intention with respect to such tax treatment. Each party agrees to take such action as may be necessary or appropriate to carry out the provisions of this Paragraph 7 and to cooperate with the other as to all required determinations, including the payment or return of any payment determined to be due to the Executive or to the Company, respectively. The Company shall pay all costs of accounting to assure compliance with the intent of this Paragraph 7.
8.Successors: The Company will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly, absolutely and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. Any failure of the Company to obtain such agreement prior to the effectiveness of any such succession or assignment shall be a material breach of this Agreement and shall entitle the Executive to terminate the Executive’s employment for Good Reason and receive the compensation provided for in Paragraph 3 above. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor or assign to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Paragraph 8 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.
9.Survivorship: The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations and to the extent that any performance is required following termination of this Agreement.
10.Notices: Any notice, request, demand or other communication required or permitted hereunder shall be deemed to be properly given when personally served in writing, when deposited in the United States mail, postage prepaid, or when communicated to a public telegraph company for transmittal, addressed to the Company at its head office location or the Executive at the Executive’s last known address. Either party may change its address by written notice in accordance with this paragraph.
11.Benefit of Agreement: This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts are still payable to the Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee or other designee or, if there be no such designee, to the Executive’s estate.
12.Applicable Law: Except to the extent governed by the laws of the United States, this Agreement is to be governed by and construed under the laws of the State of California.
13.Captions and Paragraph Headings: Captions and paragraph headings used herein are for convenience only and are not a part of this Agreement and shall not be used in the interpretation of this Agreement.
14.Invalid Provisions: Should any provision of this Agreement for any reason be declared invalid, void or unenforceable by a court of competent jurisdiction, the validity and binding effect of any remaining portion shall not be affected, and the remaining portions of this Agreement shall remain in full force and effect as if this Agreement had been executed with said provision eliminated.
15.Entire Agreement: This Agreement contains the entire agreement of the parties. It supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the matters covered herein. and specifically, the Employment Agreement between the Company and the Executive dated August 2, 1999, as amended on May 20, 2002 is terminated as of the Effective Date of this Agreement. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement, or promise relating to the matters covered herein and not contained in this Agreement shall be valid or binding. This Agreement may not be modified or amended by oral agreement, but only by any agreement in writing signed by the Company and the Executive.
16.Attorney’s Fees: If any action, including arbitration, is brought to enforce this Agreement or to determine the relative rights and obligations of either of the parties and a ruling is obtained in favor of either party, regardless of which party institutes the action, the prevailing party will be entitled to reasonable attorney’s fees.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
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“COMPANY” |
“EXECUTIVE” |
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WD-40 COMPANY |
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By |
/s/ NEAL E. SCHMALE |
/s/ GARRY O. RIDGE |
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NEAL E. SCHMALE, Chairman |
GARRY O. RIDGE, Executive |
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By |
/s/ MARIA M. MITCHELL |
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MARIA M. MITCHELL, Secretary |
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CHANGE OF CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT (“Agreement”) is made on this 14th day of February, 2006 (the “Effective Date”) between WD-40 COMPANY (hereinafter the “Company”) and MICHAEL L. FREEMAN (hereinafter the “Executive”).
RECITALS:
Whereas, the Company has determined that the Executive is among that group of key managers whose services and participation in management may be critical in any period of transition, such as at the time of any change in control of the Company or in the face of any proposed corporate reorganization or acquisition, friendly or hostile, affecting the Company. Accordingly, the board of directors of the Company (the “Board”) has determined that it is appropriate and in the best interests of the Company and its stockholders that provisions be made to encourage the Executive’s continued attention and undistracted dedication to the Executive’s duties in the potentially disturbing circumstances of a possible change in control of the Company, by providing the Executive with some degree of personal financial security under such circumstances.
NOW THEREFORE, the parties agree as follows:
1.Change in Control: For purposes of this Agreement, Change in Control shall mean:
(a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (C) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in subclauses (i), (ii) and (iii) of subparagraph (c) of this sentence are satisfied; or
(b) if individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least two-thirds of the directors then constituting the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest subject to Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(c) approval by the stockholders of the Company of a reorganization, merger or consolidation, unless following such reorganization, merger or consolidation (i) more than 60% of, respectively, the then-outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger, or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be (for purposes of determining whether such percentage test is satisfied, there shall be excluded from the number of shares and voting securities of the resulting corporation owned by the Company's stockholders, but not from the total number of outstanding shares and voting securities of the resulting corporation, any shares or voting securities received by any such stockholder in respect of any consideration other than shares or voting securities of the Company); (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company, any qualified employee benefit plan of such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 30% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then-
outstanding voting securities of such corporation entitled to vote generally in the election of directors; and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or
(d)(i) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company or (ii) the first to occur of (A) the sale or other disposition (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company, or (B) the approval by the stockholders of the Company of any such sale or disposition, other than, in each case, any such sale or disposition to a corporation, with respect to which immediately thereafter, (1) more than 60% of, respectively, the then-outstanding shares of common stock of such corporation and the combined voting power of the then-outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be (for purposes of determining whether such percentage test is satisfied, there shall be excluded from the number of shares and voting securities of the transferee corporation owned by the Company’s stockholders, but not from the total number of outstanding shares and voting securities of the transferee corporation, any shares or voting securities received by any such stockholder in respect of any consideration other than shares or voting securities of the Company); (2) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company, any qualified employee benefit plan of such transferee corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 30% or more of, respectively, the then-outstanding shares of common stock of such transferee corporation and the combined voting power of the then-outstanding voting securities of such transferee corporation entitled to vote generally in the election of directors; and (3) at least a majority of the members of the board of directors of such transferee corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the board providing for such sale or other disposition of assets of the Company.
2.Termination Following a Change in Control:
(a)The Executive shall be entitled to the compensation provided for in Paragraph 3 if all of the following conditions are satisfied:
(i) there is a Change in Control of the Company while the Executive is still an employee of the Company;
(ii) the Executive’s employment with the Company is terminated within two years after the Change in Control; and
(iii) the Executive's termination of employment is not a result of (A) the Executive's death; (B) the Executive’s Disability (as defined in subparagraph 2(b) below); (C) the Executive’s Retirement (as defined in subparagraph 2(c) below); (D) the Executive's termination by the Company for Cause (as defined in subparagraph 2(d) below); or (E) the Executive’s decision to terminate employment other than for Good Reason (as defined in subparagraph 2(e) below). Notwithstanding the foregoing, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or in anticipation of a Change of Control, then the Executive shall be entitled to the compensation provided for in Paragraph 3.
(b) If, as a result of the Executive’s incapacity due to physical or mental illness, the Executive shall have been unable, with or without a reasonable accommodation, to perform the Executive’s duties with the Company on a full time basis for six months and if, within 30 days after a Notice of Termination (as defined in subparagraph 2(f)) is thereafter given by the Company, the Executive shall not have returned to the full time performance of the Executive's duties, the Company may terminate the Executive's employment for “Disability”.
(c) The term “Retirement” as used in this Agreement shall mean termination by the Company or the Executive of the Executive’s employment under circumstances whereby the Executive is otherwise entitled to receive benefits payable under the presently existing Supplemental Retirement Benefit Plan entered into between the Company and the Executive or such other nonqualified retirement benefit plan providing substantially similar benefits.
(d) The Company may terminate the Executive's employment for Cause before or after a Change in Control. For purposes of this Agreement only, “Cause” shall mean: (i) the Executive’s commission of acts subject to prosecution as a felony involving moral turpitude; (ii) the Executive’s material breach of fiduciary duty as an executive officer of the Company which has resulted, or is likely to result, in material economic damage to the Company; or (iii) the Executive’s willful gross misconduct or willful gross neglect of duties (other than any such neglect resulting from the Executive's incapacity due to physical or mental illness or any such neglect after the issuance
of a Notice of Termination by the Executive for Good Reason, as such terms are defined in subparagraphs (e) and (f) below and as they may apply under this Paragraph 2); provided that no act or failure to act by the Executive will constitute “Cause” under clause (ii) if the Executive believed in good faith that such act or failure to act was in the best interest of the Company.
Any termination of the Executive’s employment by the Company for Cause shall be authorized by a vote of at least a majority of the independent members of the Board (as they may be determined by the Board from time to time) within 12 months of a majority of such independent members of the Board having actual knowledge of the event or circumstances providing a basis for such termination. In the case of clauses (i) and (ii) of the second sentence of this subparagraph (d), the Executive shall be given notice by the Board specifying in detail the particular act or failure to act on which the Board is relying in proposing to terminate the Executive for Cause and offering the Executive an opportunity, on a date at least 14 days after receipt of such notice, to have a hearing, with counsel, before a majority of the independent members of the Board, including each of the members of the Board who authorized the termination for Cause. The Executive shall not be terminated for Cause if, within 30 days after the date of the Executive’s hearing before the Board (or if the Executive waives a hearing, within 30 days after receiving notice of the proposed termination), the Executive has corrected the particular act or failure to act specified in the notice given under clause (ii) of the second sentence of this subparagraph (d), and by so correcting such act or failure to act the Executive has reduced the economic damage the act or failure to act has allegedly caused the Company to a level which is no longer material or has eliminated the probability that such act or failure to act is likely to result in material economic damage to the Company. No termination for Cause shall take effect until the expiration of the correction period described in the preceding sentence and the determination by a majority of the independent members of the Board that the Executive has failed to correct the act or failure to act in accordance with the terms of the preceding sentence. Other than as specified herein, the decision of a majority of the independent members of the Board of Directors with respect to any determination of the grounds for termination of the Executive’s employment for Cause shall be binding absent evidence of bad faith or manifest injustice.
(e) The Executive may terminate the Executive’s employment for Good Reason at any time following a Change in Control. For purposes of this Agreement, “Good Reason” shall mean, after any Change in Control and without the Executive’s express written consent, any of the following:
(i) a significant diminution in the Executive's duties and responsibilities, or the assignment to the Executive by the Company of duties inconsistent with the Executive's position, duties, responsibilities or status with the Company immediately prior to a Change in Control of the Company, or any removal of the Executive from or any failure to re-elect the Executive to any of such positions, except in connection with the termination of employment for Disability, Retirement or Cause or as a result of the Executive’s death or by the Executive other than for Good Reason;
(ii) a reduction by the Company in the Executive’s annual rate of base salary as in effect immediately prior to a Change of Control or the Company’s failure to increase (within 12 months of the Executive’s last adjustment in annual rate of base salary) the Executive's annual rate of base salary after a Change in Control of the Company in an amount which at least equals, on a percentage basis, the average percentage increase in the annual rate of base salary most recently or then currently being effected for all other executive officers of the Company;
(iii) (A) any failure by the Company to continue in effect any benefit plan or arrangement (including, without limitation, medical, dental, and other established benefit plans (“Welfare Benefit Plans”), group life insurance and retirement plans) in which the Executive is participating at the time of a Change in Control of the Company (all hereinafter referred to as “Benefit Plans”) unless the Executive receives benefits through another plan or arrangement providing the Executive with benefits, when considered in the aggregate, that are no less favorable than the benefits under all Benefit Plans available to the Executive at the time of a Change in Control, or (B) the taking of any action by the Company which would adversely affect the Executive’s participation in or materially reduce the Executive’s benefits under the Benefit Plans or otherwise deprive the Executive of any material fringe benefit or perquisite of office enjoyed by the Executive at the time of a Change in Control of the Company considered in the aggregate with all benefits so provided to the Executive;
(iv) (A) any failure by the Company to continue in effect any incentive plan or arrangement (including, without limitation, the Company’s incentive bonus and contingent bonus arrangements and credits and the right to receive performance awards and similar long and short-term incentive compensation benefits) in which the Executive is participating at the time of a Change in Control of the Company (hereinafter referred to as “Incentive Plans”), (B) the taking of any action by the Company which would adversely affect the Executive’s participation in any such Incentive Plan or reduce the Executive’s benefits under any such Incentive Plan, unless in the case of either subclause (A) or (B) above, there is substituted a comparable plan or program that is economically equivalent, in terms of the benefit offered to the Executive, to the Incentive Plan being altered, reduced, affected or ended, or (C) any failure by the Company with respect to any fiscal year to make an award to the Executive pursuant to each such Incentive Plan or such substituted comparable plan or program in accordance with its terms or otherwise in a manner consistent with awards or benefits provided to other executive officers of the Company;
(v) (A) any failure by the Company to continue in effect any plan or arrangement to receive securities of the Company (including, without limitation, the Company's stock option plans and other equity incentive
plans as authorized by the Board for the senior executive officers) in which the Executive is participating at the time of a Change in Control of the Company (hereinafter referred to as “Securities Plans”), or the taking of any action by the Company which would adversely affect the Executive's participation in or materially reduce the Executive’s benefits under any such Securities Plan or (B) any failure by the Company in any fiscal year to grant stock options, stock appreciation rights or securities awards to the Executive pursuant to such Securities Plans or otherwise in a manner consistent with awards or grants provided to other executive officers of the Company; and provided further that the material terms and conditions of such stock options, stock appreciation rights, and securities awards granted to the Executive after the Change in Control (including, but not limited to, the exercise price, vesting schedule, period and methods of exercise, expiration date, forfeiture provisions and other restrictions) are substantially similar to the material terms and conditions of the stock options, stock appreciation rights, and securities awards granted to the Executive under the Securities Plans immediately prior to the Change in Control of the Company;
(vi) a relocation of the Company’s principal executive offices to a location more than 100 miles outside of San Diego, California, or the Executive’s relocation more than 100 miles from the location at which the Executive performed the Executive's duties prior to a Change in Control of the Company, except for required travel by the Executive on the Company’s business to an extent substantially consistent with the Executive’s business travel obligations at the time of a Change in Control of the Company;
(vii) any failure by the Company to provide the Executive with the number of annual paid vacation days to which the Executive is entitled for the year in which a Change in Control of the Company occurs;
(viii) any material breach by the Company of any provision of this Agreement;
(ix) any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company;
(x) the Company or its successor no longer is required to have its common stock registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended; or
(xi) any purported termination of the Executive’s employment by the Company pursuant to subparagraphs 2(b), 2(c) or 2(d) which is not effected pursuant to a Notice of Termination satisfying the requirements of subparagraph 2(f) below (and, if applicable, subparagraph 2(d) above), and for purposes of this Agreement, no such purported termination shall be effective.
For purposes of this subparagraph (e), an isolated, immaterial, and inadvertent action not taken in bad faith by the Company in violation of clauses (i) - (v), (vii) or (xi) of this subparagraph that is remedied by the Company promptly after receipt of notice thereof given by the Executive shall not be considered Good Reason for the Executive’s termination of employment with the Company. In the event the Executive terminates the Executive’s employment for Good Reason hereunder, then notwithstanding that the Executive may also be considered retired for purposes of Benefit Plans (other than the Supplemental Retirement Benefit Plan or other non-qualified plan providing similar benefits), Incentive Plans or Securities Plans, the Executive shall be deemed to have terminated employment for Good Reason for purposes of this Agreement.
(f) Any termination of the Executive’s employment by the Company pursuant to subparagraphs 2(b), 2(c) or 2(d), or by the Executive pursuant to subparagraph 2(e) above, shall be communicated by a Notice of Termination to the other party hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall indicate those specific termination provisions in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated. For purposes of this Agreement, no such purported termination by the Company shall be effective without such Notice of Termination.
(g) “Date of Termination” shall mean (i) if the Executive’s employment is terminated by the Company for Disability, 30 days after Notice of Termination is given to the Executive (provided that the Executive shall not have returned to the performance of the Executive’s duties on a full time basis during such 30 day period), (ii) if the Executive’s employment is terminated by the Executive for Good Reason, the date specified in the Notice of Termination, and (iii) if the Executive’s employment is terminated by the Company for any other reason, the date on which a Notice of Termination is given; provided, however, that if within 30 days after any Notice of Termination is given to the Executive by the Company, the Executive notifies the Company that a dispute exists concerning the termination, the Date of Termination shall be a date no earlier than the date on which the Notice of Termination is given, but otherwise, if the termination is to be effective, as of the date so determined, whether by mutual written agreement of the parties or upon final judgment, order or decree of a court of competent jurisdiction.
3.Severance Compensation Upon Termination of Employment Following a Change in Control:
(a) If, pursuant to subparagraph 2(a), the Executive is entitled to the compensation provided for in this Paragraph 3, then, subject to the provisions of Paragraph 7 below, the Company shall pay to the Executive in a lump sum cash payment, the following:
(i) the Change in Control Severance Amount as defined in subparagraph 3(b) below within five days following, but not earlier than, the sixth month anniversary of the Date of Termination; plus
(ii) the Executive’s earned but unpaid base annual salary through the period ending on the Date of Termination within the time required by law for the payment of wages upon termination of employment; plus
(iii) interest, if any, on the amounts payable pursuant to clauses (i) and (ii) above calculated from the Date of Termination until paid (including interest calculated for the six month period from the Date of Termination to the date of payment pursuant to clause (i) or from the Date of Termination to the date of payment pursuant to clause (ii) if not paid when due) at a rate equal to the prime rate as published in the Wall Street Journal on the Date of Termination plus three percentage points, compounded annually.
(b) “Change in Control Severance Amount” shall mean an amount equal to the sum of (i) two times the greater of (A) the Executive’s base annual salary in effect as of the Date of Termination or (B) the average of the Executive’s base annual salary paid for the five fiscal years ending prior to the Date of Termination, plus (ii) two times the greater of (A) the annual cash bonus awarded by the Board to the Executive with respect to the Company's most recent fiscal year ending prior to the Date of Termination or (B) the average of the annual cash bonus amounts awarded by the Board to the Executive with respect to the Company's most recent five fiscal years ending prior to the Date of Termination.
(c)If, pursuant to subparagraph 2(a), the Executive is entitled to the compensation provided in this Paragraph 3, then the Executive will be entitled to continued participation in all Welfare Benefit Plans (as defined in subparagraph 2(e)(iii) above) in which the Executive was participating on the Date of Termination, such continued participation to be at Company cost and otherwise on the same basis as Company employees generally, until the earlier of (i) the date, or dates, the Executive receives equivalent coverage and benefits under the plans and programs of a subsequent employer (such coverages and benefits to be determined on a coverage-by-coverage or benefit-by-benefit basis) or (ii) two years from the Date of Termination; provided (A) if the Executive is precluded from continuing participation in any Welfare Benefit Plan as provided in this sentence, the Executive shall be paid, in a lump sum cash payment, within 30 days following the date it is determined the Executive is unable to participate in any Welfare Benefit Plan, the after-tax economic equivalent of the benefits provided under the plan or program in which the Executive is unable to participate for the period specified in this sentence, and (B) the economic equivalent of any benefit foregone shall be deemed to be the lowest cost that would be incurred by the Executive in obtaining such benefit (including family or dependent coverage, if applicable) on an individual basis. The Executive shall be eligible for group health plan continuation coverage under and in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, when the Executive ceases to be eligible for continued participation in the Company's group health plan under this subparagraph (c).
4.Company Right to Terminate Employment With or Without Cause; No Obligation of Executive to Mitigate Damages; No Effect On Other Contractual Rights:
(a)Notwithstanding anything to the contrary herein, the Executive shall serve the Company at the pleasure of the Board and the Board may terminate the Executive’s employment at any time, with our without Cause subject to the Executive’s right to payment of the severance compensation provided for herein, if applicable. The Executive hereby acknowledges that this agreement does not guarantee continued employment with the Company for any period of time and upon termination of the Executive’s employment, the Executive shall have no claim for compensation or other benefits pursuant to this agreement except as specifically set forth herein following a Change of Control.
(b) The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination or otherwise.
(c) The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive’s existing rights, or rights which would accrue solely as a result of the passage of time, under any Benefit Plan, Incentive Plan or Securities Plan, or other contract, plan or agreement with or of the Company.
5.Options, Securities Awards, And Incentive Awards:
(a) In the event of a Change in Control of the Company, then notwithstanding the terms and conditions of any Securities Plan or other plan, agreement or arrangement, (i) if any Securities Plan will not be continued as to the securities of the Company or as to substantially equivalent publicly traded securities of the Company or any successor entity, or (ii) if the Executive’s employment is terminated and the Executive is entitled to the compensation provided for in Paragraph 3, then the Company agrees to accelerate, vest, and make immediately exercisable in full all unexercisable installments of all options to acquire securities of the Company, to vest all unvested awards of securities of the Company and to waive any resale or other restrictions or rights of repurchase applicable to securities underlying such options or applicable to awards of securities of the Company in each case, which are held by the Executive on the date of such Change in Control, including without limitation any options or securities obtained by the Executive pursuant to any Securities Plan or securities obtained by the Executive pursuant to any discontinued Incentive Plan (as defined in subparagraph 2(e)) to the extent that the Executive may not otherwise be able to realize the expected benefits thereof upon continued employment by the Company or a publicly traded successor entity.
(b) If the provisions of subparagraph (a) of this Paragraph 5 are applicable with respect to any Securities Plan within six (6) months following a Change in Control, any options or securities obtained by the Executive pursuant to the discontinued Securities Plan or securities obtained by the Executive pursuant to any Incentive Plan as described in subparagraph (a) shall have a limited right of surrender allowing the Executive to surrender such options or securities within the 30 day period following the date on which the provisions of subparagraph (a) first become applicable and to receive a cash payment in exchange for the surrender of such options or securities. The amount of such payment shall be equal to the sum of (i) the product of the number of securities obtained by the Executive pursuant to such Securities Plan or Incentive Plan multiplied by the greater of (x) the fair market value of the securities of the Company on the date prior to the Change in Control or (y) the per share price paid to shareholders in connection with such Change in Control (alternatively, the “Securities Price”) and (ii) the product of (a) the number of securities covered by options multiplied by (b) the positive amount, if any, equal to the Securities Price minus the exercise price. Notwithstanding the foregoing, if any such payment would result in liability under Section 16 of the Exchange Act, the right of surrender shall commence upon the earliest date it can be exercised by the Executive without liability and continue for thirty days thereafter.
6.Termination: This Agreement shall continue in effect for a period of two (2) years and shall automatically renew for successive two (2) year periods from the earlier of (a) the next scheduled termination date, unless the Board provides the Executive with a notice of non-renewal at least 6 months before the next scheduled termination date, or (b) the effective date of a Change of Control.
7.Adjustment Related to Application of Excise Tax: If the Executive is entitled to receive the compensation provided for in Paragraph 3 and any payment received or to be received by the Executive is or will be subject to the tax (the “Excise Tax”) imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), the adjustment set forth in subparagraph (a) shall be made to the payments provided for in Paragraph 3 above.
(a)If the present value of all benefits and payments to the Executive included in the determination of “parachute payments” pursuant to Section 280G(b)(2) of the Code received by or to be received by the Executive (the “Parachute Payments”) is equal to or exceeds 3 times the “base amount” with respect to the Executive as determined pursuant to Section 280G(b)(3) of the Code (the “Base Amount”), then the amount payable to the Executive pursuant to Paragraph 3 above shall be reduced so that the present value of the Parachute Payments is equal to 3 times the Base Amount minus the sum of One Hundred Dollars ($100.00.)
(b)It is the intention of the parties to this Agreement that the compensation payable to the Executive pursuant to this Agreement contingent upon a Change of Control of the Company will not result in any “excess parachute payment” to the Executive as determined under Section 280G(b) of the Code or application of the Excise Tax to any such excess parachute payment. The provisions of this Paragraph 7 shall be applied so as to carry out the parties’ intention with respect to such tax treatment. Each party agrees to take such action as may be necessary or appropriate to carry out the provisions of this Paragraph 7 and to cooperate with the other as to all required determinations, including the payment or return of any payment determined to be due to the Executive or to the Company, respectively. The Company shall pay all costs of accounting to assure compliance with the intent of this Paragraph 7.
8.Successors: The Company will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly, absolutely and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. Any failure of the Company to obtain such agreement prior to the effectiveness of any such succession or assignment shall be a material breach of this Agreement and shall entitle the Executive to terminate the Executive’s employment for Good Reason and receive the compensation provided for in Paragraph 3 above. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor or assign to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Paragraph 8 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.
9.Survivorship: The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations and to the extent that any performance is required following termination of this Agreement.
10.Notices: Any notice, request, demand or other communication required or permitted hereunder shall be deemed to be properly given when personally served in writing, when deposited in the United States mail, postage prepaid, or when communicated to a public telegraph company for transmittal, addressed to the Company at its head office location or the Executive at the Executive’s last known address. Either party may change its address by written notice in accordance with this paragraph.
11.Benefit of Agreement: This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts are still payable to the Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee or other designee or, if there be no such designee, to the Executive’s estate.
12.Applicable Law: Except to the extent governed by the laws of the United States, this Agreement is to be governed by and construed under the laws of the State of California.
13.Captions and Paragraph Headings: Captions and paragraph headings used herein are for convenience only and are not a part of this Agreement and shall not be used in the interpretation of this Agreement.
14.Invalid Provisions: Should any provision of this Agreement for any reason be declared invalid, void or unenforceable by a court of competent jurisdiction, the validity and binding effect of any remaining portion shall not be affected, and the remaining portions of this Agreement shall remain in full force and effect as if this Agreement had been executed with said provision eliminated.
15.Entire Agreement: This Agreement contains the entire agreement of the parties. It supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the matters covered herein. and specifically, the Employment Agreement between the Company and the Executive dated 9th day of July, 2001 is terminated as of the Effective Date of this Agreement. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement, or promise relating to the matters covered herein and not contained in this Agreement shall be valid or binding. This Agreement may not be modified or amended by oral agreement, but only by any agreement in writing signed by the Company and the Executive.
16.Attorney’s Fees: If any action, including arbitration, is brought to enforce this Agreement or to determine the relative rights and obligations of either of the parties and a ruling is obtained in favor of either party, regardless of which party institutes the action, the prevailing party will be entitled to reasonable attorney’s fees.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
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“COMPANY” |
“EXECUTIVE” |
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WD-40 COMPANY |
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By |
/s/ GARRY O. RIDGE |
/s/ MICHAEL L. FREEMAN |
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GARRY O. RIDGE, President & CEO |
MICHAEL L. FREEMAN, Executive |
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By |
/s/ MARIA M. MITCHELL |
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MARIA M. MITCHELL, Secretary |
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CHANGE OF CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT (“Agreement”) is made on this 14th day of February, 2006 (the “Effective Date”) between WD-40 COMPANY (hereinafter the “Company”) and GEOFF J. HOLDSWORTH (hereinafter the “Executive”).
RECITALS:
Whereas, the Company has determined that the Executive is among that group of key managers whose services and participation in management may be critical in any period of transition, such as at the time of any change in control of the Company or in the face of any proposed corporate reorganization or acquisition, friendly or hostile, affecting the Company. Accordingly, the board of directors of the Company (the “Board”) has determined that it is appropriate and in the best interests of the Company and its stockholders that provisions be made to encourage the Executive’s continued attention and undistracted dedication to the Executive’s duties in the potentially disturbing circumstances of a possible change in control of the Company, by providing the Executive with some degree of personal financial security under such circumstances.
NOW THEREFORE, the parties agree as follows:
1.Change in Control: For purposes of this Agreement, Change in Control shall mean:
(a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (C) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in subclauses (i), (ii) and (iii) of subparagraph (c) of this sentence are satisfied; or
(b) if individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least two-thirds of the directors then constituting the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest subject to Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(c) approval by the stockholders of the Company of a reorganization, merger or consolidation, unless following such reorganization, merger or consolidation (i) more than 60% of, respectively, the then-outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger, or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be (for purposes of determining whether such percentage test is satisfied, there shall be excluded from the number of shares and voting securities of the resulting corporation owned by the Company's stockholders, but not from the total number of outstanding shares and voting securities of the resulting corporation, any shares or voting securities received by any such stockholder in respect of any consideration other than shares or voting securities of the Company); (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company, any qualified employee benefit plan of such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 30% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then-
outstanding voting securities of such corporation entitled to vote generally in the election of directors; and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or
(d)(i) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company or (ii) the first to occur of (A) the sale or other disposition (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company, or (B) the approval by the stockholders of the Company of any such sale or disposition, other than, in each case, any such sale or disposition to a corporation, with respect to which immediately thereafter, (1) more than 60% of, respectively, the then-outstanding shares of common stock of such corporation and the combined voting power of the then-outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be (for purposes of determining whether such percentage test is satisfied, there shall be excluded from the number of shares and voting securities of the transferee corporation owned by the Company’s stockholders, but not from the total number of outstanding shares and voting securities of the transferee corporation, any shares or voting securities received by any such stockholder in respect of any consideration other than shares or voting securities of the Company); (2) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company, any qualified employee benefit plan of such transferee corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 30% or more of, respectively, the then-outstanding shares of common stock of such transferee corporation and the combined voting power of the then-outstanding voting securities of such transferee corporation entitled to vote generally in the election of directors; and (3) at least a majority of the members of the board of directors of such transferee corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the board providing for such sale or other disposition of assets of the Company.
2.Termination Following a Change in Control:
(a)The Executive shall be entitled to the compensation provided for in Paragraph 3 if all of the following conditions are satisfied:
(i) there is a Change in Control of the Company while the Executive is still an employee of the Company;
(ii) the Executive’s employment with the Company is terminated within two years after the Change in Control; and
(iii) the Executive's termination of employment is not a result of (A) the Executive's death; (B) the Executive’s Disability (as defined in subparagraph 2(b) below); (C) the Executive’s Retirement (as defined in subparagraph 2(c) below); (D) the Executive's termination by the Company for Cause (as defined in subparagraph 2(d) below); or (E) the Executive’s decision to terminate employment other than for Good Reason (as defined in subparagraph 2(e) below). Notwithstanding the foregoing, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or in anticipation of a Change of Control, then the Executive shall be entitled to the compensation provided for in Paragraph 3.
(b) If, as a result of the Executive’s incapacity due to physical or mental illness, the Executive shall have been unable, with or without a reasonable accommodation, to perform the Executive’s duties with the Company on a full time basis for six months and if, within 30 days after a Notice of Termination (as defined in subparagraph 2(f)) is thereafter given by the Company, the Executive shall not have returned to the full time performance of the Executive's duties, the Company may terminate the Executive's employment for “Disability”.
(c) The term “Retirement” as used in this Agreement shall mean termination by the Company or the Executive of the Executive’s employment under circumstances whereby the Executive is otherwise entitled to receive benefits payable under the presently existing Supplemental Retirement Benefit Plan entered into between the Company and the Executive or such other nonqualified retirement benefit plan providing substantially similar benefits.
(d) The Company may terminate the Executive's employment for Cause before or after a Change in Control. For purposes of this Agreement only, “Cause” shall mean: (i) the Executive’s commission of acts subject to prosecution as a felony involving moral turpitude; (ii) the Executive’s material breach of fiduciary duty as an executive officer of the Company which has resulted, or is likely to result, in material economic damage to the Company; or (iii) the Executive’s willful gross misconduct or willful gross neglect of duties (other than any such neglect resulting from the Executive's incapacity due to physical or mental illness or any such neglect after the issuance
of a Notice of Termination by the Executive for Good Reason, as such terms are defined in subparagraphs (e) and (f) below and as they may apply under this Paragraph 2); provided that no act or failure to act by the Executive will constitute “Cause” under clause (ii) if the Executive believed in good faith that such act or failure to act was in the best interest of the Company.
Any termination of the Executive’s employment by the Company for Cause shall be authorized by a vote of at least a majority of the independent members of the Board (as they may be determined by the Board from time to time) within 12 months of a majority of such independent members of the Board having actual knowledge of the event or circumstances providing a basis for such termination. In the case of clauses (i) and (ii) of the second sentence of this subparagraph (d), the Executive shall be given notice by the Board specifying in detail the particular act or failure to act on which the Board is relying in proposing to terminate the Executive for Cause and offering the Executive an opportunity, on a date at least 14 days after receipt of such notice, to have a hearing, with counsel, before a majority of the independent members of the Board, including each of the members of the Board who authorized the termination for Cause. The Executive shall not be terminated for Cause if, within 30 days after the date of the Executive’s hearing before the Board (or if the Executive waives a hearing, within 30 days after receiving notice of the proposed termination), the Executive has corrected the particular act or failure to act specified in the notice given under clause (ii) of the second sentence of this subparagraph (d), and by so correcting such act or failure to act the Executive has reduced the economic damage the act or failure to act has allegedly caused the Company to a level which is no longer material or has eliminated the probability that such act or failure to act is likely to result in material economic damage to the Company. No termination for Cause shall take effect until the expiration of the correction period described in the preceding sentence and the determination by a majority of the independent members of the Board that the Executive has failed to correct the act or failure to act in accordance with the terms of the preceding sentence. Other than as specified herein, the decision of a majority of the independent members of the Board of Directors with respect to any determination of the grounds for termination of the Executive’s employment for Cause shall be binding absent evidence of bad faith or manifest injustice.
(e) The Executive may terminate the Executive’s employment for Good Reason at any time following a Change in Control. For purposes of this Agreement, “Good Reason” shall mean, after any Change in Control and without the Executive’s express written consent, any of the following:
(i) a significant diminution in the Executive's duties and responsibilities, or the assignment to the Executive by the Company of duties inconsistent with the Executive's position, duties, responsibilities or status with the Company immediately prior to a Change in Control of the Company, or any removal of the Executive from or any failure to re-elect the Executive to any of such positions, except in connection with the termination of employment for Disability, Retirement or Cause or as a result of the Executive’s death or by the Executive other than for Good Reason;
(ii) a reduction by the Company in the Executive’s annual rate of base salary as in effect immediately prior to a Change of Control or the Company’s failure to increase (within 12 months of the Executive’s last adjustment in annual rate of base salary) the Executive's annual rate of base salary after a Change in Control of the Company in an amount which at least equals, on a percentage basis, the average percentage increase in the annual rate of base salary most recently or then currently being effected for all other executive officers of the Company;
(iii) (A) any failure by the Company to continue in effect any benefit plan or arrangement (including, without limitation, medical, dental, and other established benefit plans (“Welfare Benefit Plans”), group life insurance and retirement plans) in which the Executive is participating at the time of a Change in Control of the Company (all hereinafter referred to as “Benefit Plans”) unless the Executive receives benefits through another plan or arrangement providing the Executive with benefits, when considered in the aggregate, that are no less favorable than the benefits under all Benefit Plans available to the Executive at the time of a Change in Control, or (B) the taking of any action by the Company which would adversely affect the Executive’s participation in or materially reduce the Executive’s benefits under the Benefit Plans or otherwise deprive the Executive of any material fringe benefit or perquisite of office enjoyed by the Executive at the time of a Change in Control of the Company considered in the aggregate with all benefits so provided to the Executive;
(iv) (A) any failure by the Company to continue in effect any incentive plan or arrangement (including, without limitation, the Company’s incentive bonus and contingent bonus arrangements and credits and the right to receive performance awards and similar long and short-term incentive compensation benefits) in which the Executive is participating at the time of a Change in Control of the Company (hereinafter referred to as “Incentive Plans”), (B) the taking of any action by the Company which would adversely affect the Executive’s participation in any such Incentive Plan or reduce the Executive’s benefits under any such Incentive Plan, unless in the case of either subclause (A) or (B) above, there is substituted a comparable plan or program that is economically equivalent, in terms of the benefit offered to the Executive, to the Incentive Plan being altered, reduced, affected or ended, or (C) any failure by the Company with respect to any fiscal year to make an award to the Executive pursuant to each such Incentive Plan or such substituted comparable plan or program in accordance with its terms or otherwise in a manner consistent with awards or benefits provided to other executive officers of the Company;
(v) (A) any failure by the Company to continue in effect any plan or arrangement to receive securities of the Company (including, without limitation, the Company's stock option plans and other equity incentive
plans as authorized by the Board for the senior executive officers) in which the Executive is participating at the time of a Change in Control of the Company (hereinafter referred to as “Securities Plans”), or the taking of any action by the Company which would adversely affect the Executive's participation in or materially reduce the Executive’s benefits under any such Securities Plan or (B) any failure by the Company in any fiscal year to grant stock options, stock appreciation rights or securities awards to the Executive pursuant to such Securities Plans or otherwise in a manner consistent with awards or grants provided to other executive officers of the Company; and provided further that the material terms and conditions of such stock options, stock appreciation rights, and securities awards granted to the Executive after the Change in Control (including, but not limited to, the exercise price, vesting schedule, period and methods of exercise, expiration date, forfeiture provisions and other restrictions) are substantially similar to the material terms and conditions of the stock options, stock appreciation rights, and securities awards granted to the Executive under the Securities Plans immediately prior to the Change in Control of the Company;
(vi) a relocation of the Company’s principal executive offices to a location more than 100 miles outside of San Diego, California, or the Executive’s relocation more than 100 miles from the location at which the Executive performed the Executive's duties prior to a Change in Control of the Company, except for required travel by the Executive on the Company’s business to an extent substantially consistent with the Executive’s business travel obligations at the time of a Change in Control of the Company;
(vii) any failure by the Company to provide the Executive with the number of annual paid vacation days to which the Executive is entitled for the year in which a Change in Control of the Company occurs;
(viii) any material breach by the Company of any provision of this Agreement;
(ix) any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company;
(x) the Company or its successor no longer is required to have its common stock registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended; or
(xi) any purported termination of the Executive’s employment by the Company pursuant to subparagraphs 2(b), 2(c) or 2(d) which is not effected pursuant to a Notice of Termination satisfying the requirements of subparagraph 2(f) below (and, if applicable, subparagraph 2(d) above), and for purposes of this Agreement, no such purported termination shall be effective.
For purposes of this subparagraph (e), an isolated, immaterial, and inadvertent action not taken in bad faith by the Company in violation of clauses (i) - (v), (vii) or (xi) of this subparagraph that is remedied by the Company promptly after receipt of notice thereof given by the Executive shall not be considered Good Reason for the Executive’s termination of employment with the Company. In the event the Executive terminates the Executive’s employment for Good Reason hereunder, then notwithstanding that the Executive may also be considered retired for purposes of Benefit Plans (other than the Supplemental Retirement Benefit Plan or other non-qualified plan providing similar benefits), Incentive Plans or Securities Plans, the Executive shall be deemed to have terminated employment for Good Reason for purposes of this Agreement.
(f) Any termination of the Executive’s employment by the Company pursuant to subparagraphs 2(b), 2(c) or 2(d), or by the Executive pursuant to subparagraph 2(e) above, shall be communicated by a Notice of Termination to the other party hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall indicate those specific termination provisions in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated. For purposes of this Agreement, no such purported termination by the Company shall be effective without such Notice of Termination.
(g) “Date of Termination” shall mean (i) if the Executive’s employment is terminated by the Company for Disability, 30 days after Notice of Termination is given to the Executive (provided that the Executive shall not have returned to the performance of the Executive’s duties on a full time basis during such 30 day period), (ii) if the Executive’s employment is terminated by the Executive for Good Reason, the date specified in the Notice of Termination, and (iii) if the Executive’s employment is terminated by the Company for any other reason, the date on which a Notice of Termination is given; provided, however, that if within 30 days after any Notice of Termination is given to the Executive by the Company, the Executive notifies the Company that a dispute exists concerning the termination, the Date of Termination shall be a date no earlier than the date on which the Notice of Termination is given, but otherwise, if the termination is to be effective, as of the date so determined, whether by mutual written agreement of the parties or upon final judgment, order or decree of a court of competent jurisdiction.
3.Severance Compensation Upon Termination of Employment Following a Change in Control:
(a) If, pursuant to subparagraph 2(a), the Executive is entitled to the compensation provided for in this Paragraph 3, then, subject to the provisions of Paragraph 7 below, the Company shall pay to the Executive in a lump sum cash payment, the following:
(i) the Change in Control Severance Amount as defined in subparagraph 3(b) below within five days following, but not earlier than, the sixth month anniversary of the Date of Termination; plus
(ii) the Executive’s earned but unpaid base annual salary through the period ending on the Date of Termination within the time required by law for the payment of wages upon termination of employment; plus
(iii) interest, if any, on the amounts payable pursuant to clauses (i) and (ii) above calculated from the Date of Termination until paid (including interest calculated for the six month period from the Date of Termination to the date of payment pursuant to clause (i) or from the Date of Termination to the date of payment pursuant to clause (ii) if not paid when due) at a rate equal to the prime rate as published in the Wall Street Journal on the Date of Termination plus three percentage points, compounded annually.
(b) “Change in Control Severance Amount” shall mean an amount equal to the sum of (i) two times the greater of (A) the Executive’s base annual salary in effect as of the Date of Termination or (B) the average of the Executive’s base annual salary paid for the five fiscal years ending prior to the Date of Termination, plus (ii) two times the greater of (A) the annual cash bonus awarded by the Board to the Executive with respect to the Company's most recent fiscal year ending prior to the Date of Termination or (B) the average of the annual cash bonus amounts awarded by the Board to the Executive with respect to the Company's most recent five fiscal years ending prior to the Date of Termination.
(c)If, pursuant to subparagraph 2(a), the Executive is entitled to the compensation provided in this Paragraph 3, then the Executive will be entitled to continued participation in all Welfare Benefit Plans (as defined in subparagraph 2(e)(iii) above) in which the Executive was participating on the Date of Termination, such continued participation to be at Company cost and otherwise on the same basis as Company employees generally, until the earlier of (i) the date, or dates, the Executive receives equivalent coverage and benefits under the plans and programs of a subsequent employer (such coverages and benefits to be determined on a coverage-by-coverage or benefit-by-benefit basis) or (ii) two years from the Date of Termination; provided (A) if the Executive is precluded from continuing participation in any Welfare Benefit Plan as provided in this sentence, the Executive shall be paid, in a lump sum cash payment, within 30 days following the date it is determined the Executive is unable to participate in any Welfare Benefit Plan, the after-tax economic equivalent of the benefits provided under the plan or program in which the Executive is unable to participate for the period specified in this sentence, and (B) the economic equivalent of any benefit foregone shall be deemed to be the lowest cost that would be incurred by the Executive in obtaining such benefit (including family or dependent coverage, if applicable) on an individual basis. The Executive shall be eligible for group health plan continuation coverage under and in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, when the Executive ceases to be eligible for continued participation in the Company's group health plan under this subparagraph (c).
4.Company Right to Terminate Employment With or Without Cause; No Obligation of Executive to Mitigate Damages; No Effect On Other Contractual Rights:
(a)Notwithstanding anything to the contrary herein, the Executive shall serve the Company at the pleasure of the Board and the Board may terminate the Executive’s employment at any time, with our without Cause subject to the Executive’s right to payment of the severance compensation provided for herein, if applicable. The Executive hereby acknowledges that this agreement does not guarantee continued employment with the Company for any period of time and upon termination of the Executive’s employment, the Executive shall have no claim for compensation or other benefits pursuant to this agreement except as specifically set forth herein following a Change of Control.
(b) The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination or otherwise.
(c) The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive’s existing rights, or rights which would accrue solely as a result of the passage of time, under any Benefit Plan, Incentive Plan or Securities Plan, or other contract, plan or agreement with or of the Company.
5.Options, Securities Awards, And Incentive Awards:
(a) In the event of a Change in Control of the Company, then notwithstanding the terms and conditions of any Securities Plan or other plan, agreement or arrangement, (i) if any Securities Plan will not be continued as to the securities of the Company or as to substantially equivalent publicly traded securities of the Company or any successor entity, or (ii) if the Executive’s employment is terminated and the Executive is entitled to the compensation provided for in Paragraph 3, then the Company agrees to accelerate, vest, and make immediately exercisable in full all unexercisable installments of all options to acquire securities of the Company, to vest all unvested awards of securities of the Company and to waive any resale or other restrictions or rights of repurchase applicable to securities underlying such options or applicable to awards of securities of the Company in each case, which are held by the Executive on the date of such Change in Control, including without limitation any options or securities obtained by the Executive pursuant to any Securities Plan or securities obtained by the Executive pursuant to any discontinued Incentive Plan (as defined in subparagraph 2(e)) to the extent that the Executive may not otherwise be able to realize the expected benefits thereof upon continued employment by the Company or a publicly traded successor entity.
(b) If the provisions of subparagraph (a) of this Paragraph 5 are applicable with respect to any Securities Plan within six (6) months following a Change in Control, any options or securities obtained by the Executive pursuant to the discontinued Securities Plan or securities obtained by the Executive pursuant to any Incentive Plan as described in subparagraph (a) shall have a limited right of surrender allowing the Executive to surrender such options or securities within the 30 day period following the date on which the provisions of subparagraph (a) first become applicable and to receive a cash payment in exchange for the surrender of such options or securities. The amount of such payment shall be equal to the sum of (i) the product of the number of securities obtained by the Executive pursuant to such Securities Plan or Incentive Plan multiplied by the greater of (x) the fair market value of the securities of the Company on the date prior to the Change in Control or (y) the per share price paid to shareholders in connection with such Change in Control (alternatively, the “Securities Price”) and (ii) the product of (a) the number of securities covered by options multiplied by (b) the positive amount, if any, equal to the Securities Price minus the exercise price. Notwithstanding the foregoing, if any such payment would result in liability under Section 16 of the Exchange Act, the right of surrender shall commence upon the earliest date it can be exercised by the Executive without liability and continue for thirty days thereafter.
6.Termination: This Agreement shall continue in effect for a period of two (2) years and shall automatically renew for successive two (2) year periods from the earlier of (a) the next scheduled termination date, unless the Board provides the Executive with a notice of non-renewal at least 6 months before the next scheduled termination date, or (b) the effective date of a Change of Control.
7.Adjustment Related to Application of Excise Tax: If the Executive is entitled to receive the compensation provided for in Paragraph 3 and any payment received or to be received by the Executive is or will be subject to the tax (the “Excise Tax”) imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), the adjustment set forth in subparagraph (a) shall be made to the payments provided for in Paragraph 3 above.
(a)If the present value of all benefits and payments to the Executive included in the determination of “parachute payments” pursuant to Section 280G(b)(2) of the Code received by or to be received by the Executive (the “Parachute Payments”) is equal to or exceeds 3 times the “base amount” with respect to the Executive as determined pursuant to Section 280G(b)(3) of the Code (the “Base Amount”), then the amount payable to the Executive pursuant to Paragraph 3 above shall be reduced so that the present value of the Parachute Payments is equal to 3 times the Base Amount minus the sum of One Hundred Dollars ($100.00.)
(b)It is the intention of the parties to this Agreement that the compensation payable to the Executive pursuant to this Agreement contingent upon a Change of Control of the Company will not result in any “excess parachute payment” to the Executive as determined under Section 280G(b) of the Code or application of the Excise Tax to any such excess parachute payment. The provisions of this Paragraph 7 shall be applied so as to carry out the parties’ intention with respect to such tax treatment. Each party agrees to take such action as may be necessary or appropriate to carry out the provisions of this Paragraph 7 and to cooperate with the other as to all required determinations, including the payment or return of any payment determined to be due to the Executive or to the Company, respectively. The Company shall pay all costs of accounting to assure compliance with the intent of this Paragraph 7.
8.Successors: The Company will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly, absolutely and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. Any failure of the Company to obtain such agreement prior to the effectiveness of any such succession or assignment shall be a material breach of this Agreement and shall entitle the Executive to terminate the Executive’s employment for Good Reason and receive the compensation provided for in Paragraph 3 above. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor or assign to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Paragraph 8 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.
9.Survivorship: The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations and to the extent that any performance is required following termination of this Agreement.
10.Notices: Any notice, request, demand or other communication required or permitted hereunder shall be deemed to be properly given when personally served in writing, when deposited in the United States mail, postage prepaid, or when communicated to a public telegraph company for transmittal, addressed to the Company at its head office location or the Executive at the Executive’s last known address. Either party may change its address by written notice in accordance with this paragraph.
11.Benefit of Agreement: This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts are still payable to the Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee or other designee or, if there be no such designee, to the Executive’s estate.
12.Applicable Law: Except to the extent governed by the laws of the United States, this Agreement is to be governed by and construed under the laws of the State of California.
13.Captions and Paragraph Headings: Captions and paragraph headings used herein are for convenience only and are not a part of this Agreement and shall not be used in the interpretation of this Agreement.
14.Invalid Provisions: Should any provision of this Agreement for any reason be declared invalid, void or unenforceable by a court of competent jurisdiction, the validity and binding effect of any remaining portion shall not be affected, and the remaining portions of this Agreement shall remain in full force and effect as if this Agreement had been executed with said provision eliminated.
15.Entire Agreement: This Agreement contains the entire agreement of the parties. It supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the matters covered herein. and specifically, the Employment Agreement between the Company and the Executive dated 9th day of July, 2001 is terminated as of the Effective Date of this Agreement. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement, or promise relating to the matters covered herein and not contained in this Agreement shall be valid or binding. This Agreement may not be modified or amended by oral agreement, but only by any agreement in writing signed by the Company and the Executive.
16.Attorney’s Fees: If any action, including arbitration, is brought to enforce this Agreement or to determine the relative rights and obligations of either of the parties and a ruling is obtained in favor of either party, regardless of which party institutes the action, the prevailing party will be entitled to reasonable attorney’s fees.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
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“COMPANY” |
“EXECUTIVE” |
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WD-40 COMPANY |
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By |
/s/ GARRY O. RIDGE |
/s/ GEOFF J. HOLDSWORTH |
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GARRY O. RIDGE, President & CEO |
GEOFF J. HOLDSWORTH, Executive |
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By |
/s/ MARIA M. MITCHELL |
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MARIA M. MITCHELL, Secretary |
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CHANGE OF CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT (“Agreement”) is made on this 14th day of February, 2006 (the “Effective Date”) between WD-40 COMPANY (hereinafter the “Company”) and WILLIAM B. NOBLE (hereinafter the “Executive”).
RECITALS:
Whereas, the Company has determined that the Executive is among that group of key managers whose services and participation in management may be critical in any period of transition, such as at the time of any change in control of the Company or in the face of any proposed corporate reorganization or acquisition, friendly or hostile, affecting the Company. Accordingly, the board of directors of the Company (the “Board”) has determined that it is appropriate and in the best interests of the Company and its stockholders that provisions be made to encourage the Executive’s continued attention and undistracted dedication to the Executive’s duties in the potentially disturbing circumstances of a possible change in control of the Company, by providing the Executive with some degree of personal financial security under such circumstances.
NOW THEREFORE, the parties agree as follows:
1.Change in Control: For purposes of this Agreement, Change in Control shall mean:
(a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (C) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in subclauses (i), (ii) and (iii) of subparagraph (c) of this sentence are satisfied; or
(b) if individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least two-thirds of the directors then constituting the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest subject to Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(c) approval by the stockholders of the Company of a reorganization, merger or consolidation, unless following such reorganization, merger or consolidation (i) more than 60% of, respectively, the then-outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger, or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be (for purposes of determining whether such percentage test is satisfied, there shall be excluded from the number of shares and voting securities of the resulting corporation owned by the Company's stockholders, but not from the total number of outstanding shares and voting securities of the resulting corporation, any shares or voting securities received by any such stockholder in respect of any consideration other than shares or voting securities of the Company); (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company, any qualified employee benefit plan of such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 30% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then-outstanding voting securities of such corporation entitled to vote generally in the election of directors; and (iii) at least
a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or
(d)(i) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company or (ii) the first to occur of (A) the sale or other disposition (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company, or (B) the approval by the stockholders of the Company of any such sale or disposition, other than, in each case, any such sale or disposition to a corporation, with respect to which immediately thereafter, (1) more than 60% of, respectively, the then-outstanding shares of common stock of such corporation and the combined voting power of the then-outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be (for purposes of determining whether such percentage test is satisfied, there shall be excluded from the number of shares and voting securities of the transferee corporation owned by the Company’s stockholders, but not from the total number of outstanding shares and voting securities of the transferee corporation, any shares or voting securities received by any such stockholder in respect of any consideration other than shares or voting securities of the Company); (2) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company, any qualified employee benefit plan of such transferee corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 30% or more of, respectively, the then-outstanding shares of common stock of such transferee corporation and the combined voting power of the then-outstanding voting securities of such transferee corporation entitled to vote generally in the election of directors; and (3) at least a majority of the members of the board of directors of such transferee corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the board providing for such sale or other disposition of assets of the Company.
2.Termination Following a Change in Control:
(a)The Executive shall be entitled to the compensation provided for in Paragraph 3 if all of the following conditions are satisfied:
(i) there is a Change in Control of the Company while the Executive is still an employee of the Company;
(ii) the Executive’s employment with the Company is terminated within two years after the Change in Control; and
(iii) the Executive's termination of employment is not a result of (A) the Executive's death; (B) the Executive’s Disability (as defined in subparagraph 2(b) below); (C) the Executive’s Retirement (as defined in subparagraph 2(c) below); (D) the Executive's termination by the Company for Cause (as defined in subparagraph 2(d) below); or (E) the Executive’s decision to terminate employment other than for Good Reason (as defined in subparagraph 2(e) below). Notwithstanding the foregoing, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or in anticipation of a Change of Control, then the Executive shall be entitled to the compensation provided for in Paragraph 3.
(b) If, as a result of the Executive’s incapacity due to physical or mental illness, the Executive shall have been unable, with or without a reasonable accommodation, to perform the Executive’s duties with the Company on a full time basis for six months and if, within 30 days after a Notice of Termination (as defined in subparagraph 2(f)) is thereafter given by the Company, the Executive shall not have returned to the full time performance of the Executive's duties, the Company may terminate the Executive's employment for “Disability”.
(c) The term “Retirement” as used in this Agreement shall mean termination by the Company or the Executive of the Executive’s employment under circumstances whereby the Executive is otherwise entitled to receive benefits payable under the presently existing Supplemental Retirement Benefit Plan entered into between the Company and the Executive or such other nonqualified retirement benefit plan providing substantially similar benefits.
(d) The Company may terminate the Executive's employment for Cause before or after a Change in Control. For purposes of this Agreement only, “Cause” shall mean: (i) the Executive’s commission of acts subject to prosecution as a felony involving moral turpitude; (ii) the Executive’s material breach of fiduciary duty as an executive officer of the Company which has resulted, or is likely to result, in material economic damage to the Company; or (iii) the Executive’s willful gross misconduct or willful gross neglect of duties (other than any such neglect resulting from the Executive's incapacity due to physical or mental illness or any such neglect after the issuance of a Notice of Termination by the Executive for Good Reason, as such terms are defined in subparagraphs (e) and (f)
below and as they may apply under this Paragraph 2); provided that no act or failure to act by the Executive will constitute “Cause” under clause (ii) if the Executive believed in good faith that such act or failure to act was in the best interest of the Company.
Any termination of the Executive’s employment by the Company for Cause shall be authorized by a vote of at least a majority of the independent members of the Board (as they may be determined by the Board from time to time) within 12 months of a majority of such independent members of the Board having actual knowledge of the event or circumstances providing a basis for such termination. In the case of clauses (i) and (ii) of the second sentence of this subparagraph (d), the Executive shall be given notice by the Board specifying in detail the particular act or failure to act on which the Board is relying in proposing to terminate the Executive for Cause and offering the Executive an opportunity, on a date at least 14 days after receipt of such notice, to have a hearing, with counsel, before a majority of the independent members of the Board, including each of the members of the Board who authorized the termination for Cause. The Executive shall not be terminated for Cause if, within 30 days after the date of the Executive’s hearing before the Board (or if the Executive waives a hearing, within 30 days after receiving notice of the proposed termination), the Executive has corrected the particular act or failure to act specified in the notice given under clause (ii) of the second sentence of this subparagraph (d), and by so correcting such act or failure to act the Executive has reduced the economic damage the act or failure to act has allegedly caused the Company to a level which is no longer material or has eliminated the probability that such act or failure to act is likely to result in material economic damage to the Company. No termination for Cause shall take effect until the expiration of the correction period described in the preceding sentence and the determination by a majority of the independent members of the Board that the Executive has failed to correct the act or failure to act in accordance with the terms of the preceding sentence. Other than as specified herein, the decision of a majority of the independent members of the Board of Directors with respect to any determination of the grounds for termination of the Executive’s employment for Cause shall be binding absent evidence of bad faith or manifest injustice.
(e) The Executive may terminate the Executive’s employment for Good Reason at any time following a Change in Control. For purposes of this Agreement, “Good Reason” shall mean, after any Change in Control and without the Executive’s express written consent, any of the following:
(i) a significant diminution in the Executive's duties and responsibilities, or the assignment to the Executive by the Company of duties inconsistent with the Executive's position, duties, responsibilities or status with the Company immediately prior to a Change in Control of the Company, or any removal of the Executive from or any failure to re-elect the Executive to any of such positions, except in connection with the termination of employment for Disability, Retirement or Cause or as a result of the Executive’s death or by the Executive other than for Good Reason;
(ii) a reduction by the Company in the Executive’s annual rate of base salary as in effect immediately prior to a Change of Control or the Company’s failure to increase (within 12 months of the Executive’s last adjustment in annual rate of base salary) the Executive's annual rate of base salary after a Change in Control of the Company in an amount which at least equals, on a percentage basis, the average percentage increase in the annual rate of base salary most recently or then currently being effected for all other executive officers of the Company;
(iii) (A) any failure by the Company to continue in effect any benefit plan or arrangement (including, without limitation, medical, dental, and other established benefit plans (“Welfare Benefit Plans”), group life insurance and retirement plans) in which the Executive is participating at the time of a Change in Control of the Company (all hereinafter referred to as “Benefit Plans”) unless the Executive receives benefits through another plan or arrangement providing the Executive with benefits, when considered in the aggregate, that are no less favorable than the benefits under all Benefit Plans available to the Executive at the time of a Change in Control, or (B) the taking of any action by the Company which would adversely affect the Executive’s participation in or materially reduce the Executive’s benefits under the Benefit Plans or otherwise deprive the Executive of any material fringe benefit or perquisite of office enjoyed by the Executive at the time of a Change in Control of the Company considered in the aggregate with all benefits so provided to the Executive;
(iv) (A) any failure by the Company to continue in effect any incentive plan or arrangement (including, without limitation, the Company’s incentive bonus and contingent bonus arrangements and credits and the right to receive performance awards and similar long and short-term incentive compensation benefits) in which the Executive is participating at the time of a Change in Control of the Company (hereinafter referred to as “Incentive Plans”), (B) the taking of any action by the Company which would adversely affect the Executive’s participation in any such Incentive Plan or reduce the Executive’s benefits under any such Incentive Plan, unless in the case of either subclause (A) or (B) above, there is substituted a comparable plan or program that is economically equivalent, in terms of the benefit offered to the Executive, to the Incentive Plan being altered, reduced, affected or ended, or (C) any failure by the Company with respect to any fiscal year to make an award to the Executive pursuant to each such Incentive Plan or such substituted comparable plan or program in accordance with its terms or otherwise in a manner consistent with awards or benefits provided to other executive officers of the Company;
(v) (A) any failure by the Company to continue in effect any plan or arrangement to receive securities of the Company (including, without limitation, the Company's stock option plans and other equity incentive plans as authorized by the Board for the senior executive officers) in which the Executive is participating at the time
of a Change in Control of the Company (hereinafter referred to as “Securities Plans”), or the taking of any action by the Company which would adversely affect the Executive's participation in or materially reduce the Executive’s benefits under any such Securities Plan or (B) any failure by the Company in any fiscal year to grant stock options, stock appreciation rights or securities awards to the Executive pursuant to such Securities Plans or otherwise in a manner consistent with awards or grants provided to other executive officers of the Company; and provided further that the material terms and conditions of such stock options, stock appreciation rights, and securities awards granted to the Executive after the Change in Control (including, but not limited to, the exercise price, vesting schedule, period and methods of exercise, expiration date, forfeiture provisions and other restrictions) are substantially similar to the material terms and conditions of the stock options, stock appreciation rights, and securities awards granted to the Executive under the Securities Plans immediately prior to the Change in Control of the Company;
(vi) a relocation of the Company’s principal executive offices to a location more than 100 miles outside of San Diego, California, or the Executive’s relocation more than 100 miles from the location at which the Executive performed the Executive's duties prior to a Change in Control of the Company, except for required travel by the Executive on the Company’s business to an extent substantially consistent with the Executive’s business travel obligations at the time of a Change in Control of the Company;
(vii) any failure by the Company to provide the Executive with the number of annual paid vacation days to which the Executive is entitled for the year in which a Change in Control of the Company occurs;
(viii) any material breach by the Company of any provision of this Agreement;
(ix) any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company;
(x) the Company or its successor no longer is required to have its common stock registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended; or
(xi) any purported termination of the Executive’s employment by the Company pursuant to subparagraphs 2(b), 2(c) or 2(d) which is not effected pursuant to a Notice of Termination satisfying the requirements of subparagraph 2(f) below (and, if applicable, subparagraph 2(d) above), and for purposes of this Agreement, no such purported termination shall be effective.
For purposes of this subparagraph (e), an isolated, immaterial, and inadvertent action not taken in bad faith by the Company in violation of clauses (i) - (v), (vii) or (xi) of this subparagraph that is remedied by the Company promptly after receipt of notice thereof given by the Executive shall not be considered Good Reason for the Executive’s termination of employment with the Company. In the event the Executive terminates the Executive’s employment for Good Reason hereunder, then notwithstanding that the Executive may also be considered retired for purposes of Benefit Plans (other than the Supplemental Retirement Benefit Plan or other non-qualified plan providing similar benefits), Incentive Plans or Securities Plans, the Executive shall be deemed to have terminated employment for Good Reason for purposes of this Agreement.
(f) Any termination of the Executive’s employment by the Company pursuant to subparagraphs 2(b), 2(c) or 2(d), or by the Executive pursuant to subparagraph 2(e) above, shall be communicated by a Notice of Termination to the other party hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall indicate those specific termination provisions in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated. For purposes of this Agreement, no such purported termination by the Company shall be effective without such Notice of Termination.
(g) “Date of Termination” shall mean (i) if the Executive’s employment is terminated by the Company for Disability, 30 days after Notice of Termination is given to the Executive (provided that the Executive shall not have returned to the performance of the Executive’s duties on a full time basis during such 30 day period), (ii) if the Executive’s employment is terminated by the Executive for Good Reason, the date specified in the Notice of Termination, and (iii) if the Executive’s employment is terminated by the Company for any other reason, the date on which a Notice of Termination is given; provided, however, that if within 30 days after any Notice of Termination is given to the Executive by the Company, the Executive notifies the Company that a dispute exists concerning the termination, the Date of Termination shall be a date no earlier than the date on which the Notice of Termination is given, but otherwise, if the termination is to be effective, as of the date so determined, whether by mutual written agreement of the parties or upon final judgment, order or decree of a court of competent jurisdiction.
3.Severance Compensation Upon Termination of Employment Following a Change in Control:
(a) If, pursuant to subparagraph 2(a), the Executive is entitled to the compensation provided for in this Paragraph 3, then, subject to the provisions of Paragraph 7 below, the Company shall pay to the Executive in a lump sum cash payment, the following:
(i) the Change in Control Severance Amount as defined in subparagraph 3(b) below within five days following, but not earlier than, the sixth month anniversary of the Date of Termination; plus
(ii) the Executive’s earned but unpaid base annual salary through the period ending on the Date of Termination within the time required by law for the payment of wages upon termination of employment; plus
(iii) interest, if any, on the amounts payable pursuant to clauses (i) and (ii) above calculated from the Date of Termination until paid (including interest calculated for the six month period from the Date of Termination to the date of payment pursuant to clause (i) or from the Date of Termination to the date of payment pursuant to clause (ii) if not paid when due) at a rate equal to the prime rate as published in the Wall Street Journal on the Date of Termination plus three percentage points, compounded annually.
(b) “Change in Control Severance Amount” shall mean an amount equal to the sum of (i) two times the greater of (A) the Executive’s base annual salary in effect as of the Date of Termination or (B) the average of the Executive’s base annual salary paid for the five fiscal years ending prior to the Date of Termination, plus (ii) two times the greater of (A) the annual cash bonus awarded by the Board to the Executive with respect to the Company's most recent fiscal year ending prior to the Date of Termination or (B) the average of the annual cash bonus amounts awarded by the Board to the Executive with respect to the Company's most recent five fiscal years ending prior to the Date of Termination.
(c)If, pursuant to subparagraph 2(a), the Executive is entitled to the compensation provided in this Paragraph 3, then the Executive will be entitled to continued participation in all Welfare Benefit Plans (as defined in subparagraph 2(e)(iii) above) in which the Executive was participating on the Date of Termination, such continued participation to be at Company cost and otherwise on the same basis as Company employees generally, until the earlier of (i) the date, or dates, the Executive receives equivalent coverage and benefits under the plans and programs of a subsequent employer (such coverages and benefits to be determined on a coverage-by-coverage or benefit-by-benefit basis) or (ii) two years from the Date of Termination; provided (A) if the Executive is precluded from continuing participation in any Welfare Benefit Plan as provided in this sentence, the Executive shall be paid, in a lump sum cash payment, within 30 days following the date it is determined the Executive is unable to participate in any Welfare Benefit Plan, the after-tax economic equivalent of the benefits provided under the plan or program in which the Executive is unable to participate for the period specified in this sentence, and (B) the economic equivalent of any benefit foregone shall be deemed to be the lowest cost that would be incurred by the Executive in obtaining such benefit (including family or dependent coverage, if applicable) on an individual basis. The Executive shall be eligible for group health plan continuation coverage under and in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, when the Executive ceases to be eligible for continued participation in the Company's group health plan under this subparagraph (c).
4.Company Right to Terminate Employment With or Without Cause; No Obligation of Executive to Mitigate Damages; No Effect On Other Contractual Rights:
(a)Notwithstanding anything to the contrary herein, the Executive shall serve the Company at the pleasure of the Board and the Board may terminate the Executive’s employment at any time, with our without Cause subject to the Executive’s right to payment of the severance compensation provided for herein, if applicable. The Executive hereby acknowledges that this agreement does not guarantee continued employment with the Company for any period of time and upon termination of the Executive’s employment, the Executive shall have no claim for compensation or other benefits pursuant to this agreement except as specifically set forth herein following a Change of Control.
(b) The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination or otherwise.
(c) The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive’s existing rights, or rights which would accrue solely as a result of the passage of time, under any Benefit Plan, Incentive Plan or Securities Plan, or other contract, plan or agreement with or of the Company.
5.Options, Securities Awards, And Incentive Awards:
(a) In the event of a Change in Control of the Company, then notwithstanding the terms and conditions of any Securities Plan or other plan, agreement or arrangement, (i) if any Securities Plan will not be continued as to the securities of the Company or as to substantially equivalent publicly traded securities of the Company or any successor entity, or (ii) if the Executive’s employment is terminated and the Executive is entitled to the compensation provided for in Paragraph 3, then the Company agrees to accelerate, vest, and make immediately exercisable in full all unexercisable installments of all options to acquire securities of the Company, to vest all unvested awards of securities of the Company and to waive any resale or other restrictions or rights of repurchase applicable to securities underlying such options or applicable to awards of securities of the Company in each case, which are held by the Executive on the date of such Change in Control, including without limitation any options or securities obtained by the Executive pursuant to any Securities Plan or securities obtained by the Executive pursuant to any discontinued Incentive Plan (as defined in subparagraph 2(e)) to the extent that the Executive may not otherwise be able to realize the expected benefits thereof upon continued employment by the Company or a publicly traded successor entity.
(b) If the provisions of subparagraph (a) of this Paragraph 5 are applicable with respect to any Securities Plan within six (6) months following a Change in Control, any options or securities obtained by the Executive pursuant to the discontinued Securities Plan or securities obtained by the Executive pursuant to any Incentive Plan as described in subparagraph (a) shall have a limited right of surrender allowing the Executive to surrender such options or securities within the 30 day period following the date on which the provisions of subparagraph (a) first become applicable and to receive a cash payment in exchange for the surrender of such options or securities. The amount of such payment shall be equal to the sum of (i) the product of the number of securities obtained by the Executive pursuant to such Securities Plan or Incentive Plan multiplied by the greater of (x) the fair market value of the securities of the Company on the date prior to the Change in Control or (y) the per share price paid to shareholders in connection with such Change in Control (alternatively, the “Securities Price”) and (ii) the product of (a) the number of securities covered by options multiplied by (b) the positive amount, if any, equal to the Securities Price minus the exercise price. Notwithstanding the foregoing, if any such payment would result in liability under Section 16 of the Exchange Act, the right of surrender shall commence upon the earliest date it can be exercised by the Executive without liability and continue for thirty days thereafter.
6.Termination: This Agreement shall continue in effect for a period of two (2) years and shall automatically renew for successive two (2) year periods from the earlier of (a) the next scheduled termination date, unless the Board provides the Executive with a notice of non-renewal at least 6 months before the next scheduled termination date, or (b) the effective date of a Change of Control.
7.Adjustment Related to Application of Excise Tax: If the Executive is entitled to receive the compensation provided for in Paragraph 3 and any payment received or to be received by the Executive is or will be subject to the tax (the “Excise Tax”) imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), the adjustment set forth in subparagraph (a) shall be made to the payments provided for in Paragraph 3 above.
(a)If the present value of all benefits and payments to the Executive included in the determination of “parachute payments” pursuant to Section 280G(b)(2) of the Code received by or to be received by the Executive (the “Parachute Payments”) is equal to or exceeds 3 times the “base amount” with respect to the Executive as determined pursuant to Section 280G(b)(3) of the Code (the “Base Amount”), then the amount payable to the Executive pursuant to Paragraph 3 above shall be reduced so that the present value of the Parachute Payments is equal to 3 times the Base Amount minus the sum of One Hundred Dollars ($100.00.)
(b)It is the intention of the parties to this Agreement that the compensation payable to the Executive pursuant to this Agreement contingent upon a Change of Control of the Company will not result in any “excess parachute payment” to the Executive as determined under Section 280G(b) of the Code or application of the Excise Tax to any such excess parachute payment. The provisions of this Paragraph 7 shall be applied so as to carry out the parties’ intention with respect to such tax treatment. Each party agrees to take such action as may be necessary or appropriate to carry out the provisions of this Paragraph 7 and to cooperate with the other as to all required determinations, including the payment or return of any payment determined to be due to the Executive or to the Company, respectively. The Company shall pay all costs of accounting to assure compliance with the intent of this Paragraph 7.
8.Successors: The Company will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly, absolutely and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. Any failure of the Company to obtain such agreement prior to the effectiveness of any such succession or assignment shall be a material breach of this Agreement and shall entitle the Executive to terminate the Executive’s employment for Good Reason and receive the compensation provided for in Paragraph 3 above. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor or assign to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Paragraph 8 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.
9.Survivorship: The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations and to the extent that any performance is required following termination of this Agreement.
10.Notices: Any notice, request, demand or other communication required or permitted hereunder shall be deemed to be properly given when personally served in writing, when deposited in the United States mail, postage prepaid, or when communicated to a public telegraph company for transmittal, addressed to the Company at its head office location or the Executive at the Executive’s last known address. Either party may change its address by written notice in accordance with this paragraph.
11.Benefit of Agreement: This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts are still payable to the Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee or other designee or, if there be no such designee, to the Executive’s estate.
12.Applicable Law: Except to the extent governed by the laws of the United States, this Agreement is to be governed by and construed under the laws of the State of California.
13.Captions and Paragraph Headings: Captions and paragraph headings used herein are for convenience only and are not a part of this Agreement and shall not be used in the interpretation of this Agreement.
14.Invalid Provisions: Should any provision of this Agreement for any reason be declared invalid, void or unenforceable by a court of competent jurisdiction, the validity and binding effect of any remaining portion shall not be affected, and the remaining portions of this Agreement shall remain in full force and effect as if this Agreement had been executed with said provision eliminated.
15.Entire Agreement: This Agreement contains the entire agreement of the parties. It supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the matters covered herein. and specifically, the Employment Agreement between the Company and the Executive dated 9th day of July, 2001 is terminated as of the Effective Date of this Agreement. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement, or promise relating to the matters covered herein and not contained in this Agreement shall be valid or binding. This Agreement may not be modified or amended by oral agreement, but only by any agreement in writing signed by the Company and the Executive.
16.Attorney’s Fees: If any action, including arbitration, is brought to enforce this Agreement or to determine the relative rights and obligations of either of the parties and a ruling is obtained in favor of either party, regardless of which party institutes the action, the prevailing party will be entitled to reasonable attorney’s fees.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
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“COMPANY” |
“EXECUTIVE” |
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WD-40 COMPANY |
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By |
/s/ GARRY O. RIDGE |
/s/ WILLIAM B. NOBLE |
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GARRY O. RIDGE, President & CEO |
WILLIAM B. NOBLE, Executive |
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By |
/s/ MARIA M. MITCHELL |
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MARIA M. MITCHELL, Secretary |
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CREDIT AGREEMENT
Dated as of June 17, 2011
among
WD-40 COMPANY,
THE GUARANTORS IDENTIFIED HEREIN,
BANK OF AMERICA, N.A.,
as Lender
TABLE OF CONTENTS
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ARTICLE I DEFINITIONS AND ACCOUNTING TERMS |
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1 |
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1.01 |
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Defined Terms |
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1 |
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1.02 |
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Other Interpretive Provisions |
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17 |
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1.03 |
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Accounting Terms |
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17 |
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1.04 |
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Rounding |
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18 |
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1.05 |
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Times of Day |
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18 |
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1.06 |
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Letter of Credit Amounts |
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18 |
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1.07 |
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Exchange Rates; Currency Equivalents |
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18 |
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1.08 |
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Change of Currency |
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19 |
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ARTICLE II THE COMMITMENTS AND CREDIT EXTENSIONS |
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19 |
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2.01 |
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Loans |
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19 |
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2.02 |
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Borrowings, Conversions and Continuations of Loans |
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19 |
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2.03 |
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Letters of Credit |
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20 |
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2.04 |
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[Reserved] |
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25 |
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2.05 |
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Prepayments |
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25 |
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2.06 |
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Termination or Reduction of Revolving Commitment |
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26 |
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2.07 |
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Repayment of Loans |
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26 |
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2.08 |
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Interest |
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26 |
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2.09 |
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Fees |
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26 |
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2.10 |
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Computation of Interest and Fees |
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27 |
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2.11 |
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[Reserved] |
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27 |
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2.12 |
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Payments Generally |
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27 |
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2.13 |
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Designated Borrowers |
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28 |
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ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY |
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29 |
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3.01 |
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Taxes |
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29 |
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3.02 |
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Illegality |
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29 |
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3.03 |
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Inability to Determine Rates |
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30 |
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3.04 |
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Increased Costs |
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30 |
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3.05 |
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Compensation for Losses |
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31 |
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3.06 |
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Mitigation Obligations |
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32 |
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3.07 |
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Survival |
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32 |
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ARTICLE IV GUARANTY |
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32 |
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4.01 |
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The Guaranty |
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32 |
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4.02 |
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Obligations Unconditional |
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32 |
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4.03 |
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Reinstatement |
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33 |
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4.04 |
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Certain Additional Waivers |
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34 |
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4.05 |
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Remedies |
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34 |
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4.06 |
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Rights of Contribution |
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34 |
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4.07 |
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Guarantee of Payment; Continuing Guarantee |
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34 |
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4.08 |
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Waivers of Other Rights and Defenses |
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35 |
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4.09 |
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Subordination |
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35 |
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ARTICLE V CONDITIONS PRECEDENT TO CREDIT EXTENSIONS |
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35 |
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5.01 |
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Conditions of Initial Credit Extension |
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35 |
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5.02 |
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Conditions to all Credit Extensions |
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36 |
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ARTICLE VI REPRESENTATIONS AND WARRANTIES |
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37 |
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6.01 |
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Existence, Qualification and Power |
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37 |
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6.02 |
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Authorization; No Contravention |
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37 |
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6.03 |
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Governmental Authorization; Other Consents |
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37 |
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6.04 |
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Binding Effect |
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38 |
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6.05 |
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Financial Statements; No Material Adverse Effect |
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38 |
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6.06 |
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Litigation |
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38 |
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6.07 |
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No Default |
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39 |
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6.08 |
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Ownership of Property |
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39 |
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6.09 |
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Environmental Compliance |
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39 |
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6.10 |
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Insurance |
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39 |
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6.11 |
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Taxes |
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39 |
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6.12 |
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ERISA Compliance |
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40 |
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6.13 |
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Subsidiaries |
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40 |
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6.14 |
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Margin Regulations; Investment Company Act |
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40 |
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6.15 |
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Disclosure |
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41 |
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6.16 |
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Compliance with Laws |
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41 |
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6.17 |
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Intellectual Property; Licenses, Etc. |
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41 |
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6.18 |
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Solvency |
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41 |
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6.19 |
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Business Locations; Taxpayer Identification Number |
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41 |
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6.20 |
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Labor Matters |
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42 |
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ARTICLE VII AFFIRMATIVE COVENANTS |
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42 |
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7.01 |
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Financial Statements |
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42 |
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7.02 |
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Certificates; Other Information |
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42 |
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7.03 |
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Notices |
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43 |
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7.04 |
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Payment of Taxes |
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44 |
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7.05 |
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Preservation of Existence, Etc. |
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44 |
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7.06 |
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Maintenance of Properties |
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44 |
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7.07 |
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Maintenance of Insurance |
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44 |
|
|
7.08 |
|
Compliance with Laws |
|
|
45 |
|
|
7.09 |
|
Books and Records |
|
|
45 |
|
|
7.10 |
|
Inspection Rights |
|
|
45 |
|
|
7.11 |
|
Use of Proceeds |
|
|
45 |
|
|
7.12 |
|
ERISA Compliance |
|
|
45 |
|
|
7.13 |
|
Additional Subsidiaries |
|
|
45 |
|
|
7.14 |
|
Release of Liens |
|
|
46 |
|
|
|
||||||
|
ARTICLE VIII NEGATIVE COVENANTS |
|
|
46 |
|
||
|
8.01 |
|
Liens |
|
|
46 |
|
|
8.02 |
|
Investments |
|
|
47 |
|
|
8.03 |
|
Indebtedness |
|
|
48 |
|
|
8.04 |
|
Fundamental Changes |
|
|
48 |
|
|
8.05 |
|
Dispositions |
|
|
48 |
|
|
8.06 |
|
Restricted Payments |
|
|
49 |
|
|
8.07 |
|
Change in Nature of Business |
|
|
49 |
|
|
|
|
|
|
|
|
|
|
8.08 |
|
Transactions with Affiliates and Insiders |
|
|
49 |
|
|
8.09 |
|
Burdensome Agreements |
|
|
50 |
|
|
8.10 |
|
Use of Proceeds |
|
|
50 |
|
|
8.11 |
|
Financial Covenants |
|
|
50 |
|
|
8.12 |
|
Prepayment of Other Indebtedness, Etc. |
|
|
50 |
|
|
8.13 |
|
Organization Documents; Fiscal Year; Legal Name, State of Formation and Form of Entity |
|
|
51 |
|
|
8.14 |
|
Ownership of Subsidiaries |
|
|
51 |
|
|
8.15 |
|
Capital Expenditures |
|
|
51 |
|
|
8.16 |
|
Synthetic Leases and Securitization Transactions |
|
|
51 |
|
|
|
||||||
|
ARTICLE IX EVENTS OF DEFAULT AND REMEDIES |
|
|
51 |
|
||
|
9.01 |
|
Events of Default |
|
|
51 |
|
|
9.02 |
|
Remedies Upon Event of Default |
|
|
53 |
|
|
9.03 |
|
Application of Funds |
|
|
54 |
|
|
|
||||||
|
ARTICLE X [RESERVED] |
|
|
54 |
|
||
|
|
||||||
|
ARTICLE XI MISCELLANEOUS |
|
|
54 |
|
||
|
11.01 |
|
Amendments, Etc. |
|
|
54 |
|
|
11.02 |
|
Notices; Effectiveness; Electronic Communications |
|
|
54 |
|
|
11.03 |
|
No Waiver; Cumulative Remedies; Enforcement |
|
|
55 |
|
|
11.04 |
|
Expenses; Indemnity; and Damage Waiver |
|
|
55 |
|
|
11.05 |
|
Payments Set Aside |
|
|
57 |
|
|
11.06 |
|
Successors and Assigns |
|
|
57 |
|
|
11.07 |
|
Treatment of Certain Information; Confidentiality |
|
|
57 |
|
|
11.08 |
|
Set-off |
|
|
58 |
|
|
11.09 |
|
Interest Rate Limitation |
|
|
58 |
|
|
11.10 |
|
Counterparts; Integration; Effectiveness |
|
|
58 |
|
|
11.11 |
|
Survival of Representations and Warranties |
|
|
59 |
|
|
11.12 |
|
Severability |
|
|
59 |
|
|
11.13 |
|
Service of Process on the Designated Borrowers |
|
|
59 |
|
|
11.14 |
|
Governing Law |
|
|
60 |
|
|
11.15 |
|
Dispute Resolution; Waiver of Right to Trial by Jury. |
|
|
60 |
|
|
11.16 |
|
Electronic Execution of Assignments and Certain Other Documents |
|
|
62 |
|
|
11.17 |
|
USA PATRIOT Act Notice |
|
|
62 |
|
|
11.18 |
|
Judgment Currency |
|
|
62 |
|
SCHEDULES
1.01Mandatory Cost
6.13 Subsidiaries
6.19Loan Party Information
8.01Liens Existing on the Closing Date
8.02Investments Existing on the Closing Date
8.03Indebtedness Existing on the Closing Date
11.02Certain Addresses for Notices
EXHIBITS
2.02Form of Loan Notice
2.13AForm of Designated Borrower Request
2.13BForm of Designated Borrower Joinder Agreement
7.02Form of Compliance Certificate
7.13Form of Joinder Agreement
8.11Note Purchase Agreement Financial Covenants
CREDIT AGREEMENT
This CREDIT AGREEMENT is entered into as of June 17, 2011 among WD-40 COMPANY, a Delaware corporation (the "Company"), certain Foreign Subsidiaries of the Company party hereto pursuant to Section 2.13 (each a "Designated Borrower" and together with the Company, each a "Borrower" and collectively the "Borrowers"), the Guarantors (defined herein), and BANK OF AMERICA, N.A., as Lender.
The Company has requested that the Lender provide $75,000,000 in credit facilities for the purposes set forth herein, and the Lender is willing to do so on the terms and conditions set forth herein.
In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
As used in this Agreement, the following terms shall have the meanings set forth below:
"Acquisition", by any Person, means the acquisition by such Person, in a single transaction or in a series of related transactions, of either (a) all or any substantial portion of the property of, or a line of business or division of, another Person or (b) at least a majority of the Voting Stock of another Person, in each case whether or not involving a merger or consolidation with such other Person.
"Affiliate" means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
"Agreement" means this Credit Agreement.
"Alternative Currency" means each currency (other than Dollars) that is agreed to by the Lender and the Company.
"Alternative Currency Equivalent" means, at any time, with respect to any amount denominated in Dollars, the equivalent amount thereof in the applicable Alternative Currency as determined by the Lender at such time on the basis of the Spot Rate (determined in respect of the most recent Revaluation Date) for the purchase of such Alternative Currency with Dollars.
"Applicable Rate" means the following percentages per annum:
|
|
||||||
|
Letter of Credit Fee |
Prime Rate Loans |
LIBOR Rate Loans |
Commitment Fee |
|||
|
0.90% |
0.00% |
0.90% |
0.15% |
|||
|
|
"Applicable Time" means, with respect to any borrowings and payments in any Alternative Currency, the local time in the place of settlement for such Alternative Currency as may be determined by the Lender to be necessary for timely settlement on the relevant date in accordance with normal banking procedures in the place of payment.
"Approved Fund" means any Fund that is administered or managed by (a) the Lender, (b) an Affiliate of the Lender or (c) an entity or an Affiliate of an entity that administers or manages the Lender.
"Attributable Indebtedness" means, with respect to any Person on any date, in respect of any Capital Lease, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP.
"Availability Period" means the period from and including the Closing Date to the earliest of (a) the Maturity Date, (b) the date of termination of the Revolving Commitment pursuant to Section 2.06, and (c) the date of termination of the Revolving Commitment pursuant to Section 9.02.
"Borrowers" means the Company and the Designated Borrowers, and "Borrower" means any one of them.
"Borrowing" means a borrowing of Loans made by the Lender pursuant to Section 2.01.
"Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, New York, New York or the state where the Lender’s Office with respect to Obligations denominated in Dollars is located and: (a) if such day relates to any interest rate settings as to a LIBOR Rate Loan denominated in Dollars, any fundings, disbursements, settlements and payments in Dollars in respect of any such LIBOR Rate Loan, or any other dealings in Dollars to be carried out pursuant to this Agreement in respect of any such LIBOR Rate Loan, means any such day that is also a London Banking Day; (b) if such day relates to any interest rate settings as to a LIBOR Rate Loan denominated in Euro, any fundings, disbursements, settlements and payments in Euro in respect of any such LIBOR Rate Loan, or any other dealings in Euro to be carried out pursuant to this Agreement in respect of any such LIBOR Rate Loan, means a TARGET Day; (c) if such day relates to any interest rate settings as to a LIBOR Rate Loan denominated in a currency other than Dollars or Euro, means any such day on which dealings in deposits in the relevant currency are conducted by and between banks in the London or other applicable offshore interbank market for such currency; and (d) if such day relates to any fundings, disbursements, settlements and payments in a currency other than Dollars or Euro in respect of a LIBOR Rate Loan denominated in a currency other than Dollars or Euro, or any other dealings in any currency other than Dollars or Euro to be carried out pursuant to this Agreement in respect of any such LIBOR Rate Loan (other than any interest rate settings), means any such day on which banks are open for foreign exchange business in the principal financial center of the country of such currency.
"Capital Lease" means, as applied to any Person, any lease of any property by that Person as lessee which, in accordance with GAAP, is required to be accounted for as a capital lease on the balance sheet of that Person.
"Cash Collateralize" has the meaning specified in Section 2.03(f)(ii).
"Cash Equivalents" means, as at any date, investments made subject to the investment policy of the Company as in effect on the Closing Date or a subsequent investment policy of the Company as approved by the Lender.
2
"Change in Law" means the occurrence, after the Closing Date, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a "Change in Law", regardless of the date enacted, adopted or issued.
"Change of Control" means an event or series of events by which:
(a)any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have "beneficial ownership" of all Equity Interests that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an "option right")), directly or indirectly, of 25% or more of the Equity Interests of the Company entitled to vote for members of the board of directors or equivalent governing body of the Company on a fully diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right);
(b)during any period of 24 consecutive months, a majority of the members of the board of directors or other equivalent governing body of the Company cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body (excluding, in the case of both clause (ii) and clause (iii), any individual whose initial nomination for, or assumption of office as, a member of that board or equivalent governing body occurs as a result of an actual or threatened solicitation of proxies or consents for the election or removal of one or more directors by any person or group other than a solicitation for the election of one or more directors by or on behalf of the board of directors);
(c)the passage of thirty days from the date upon which any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation thereof, will result in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Company, or control over the Voting Stock of the Company on a fully-diluted basis (and taking into account all such Voting Stock that such Person or group has the right to acquire pursuant to any option right) representing 25% or more of the combined voting power of such Voting Stock; or
3
(d)the Company fails to own and control, directly or indirectly, 100% of the outstanding Equity Interests (other than (i) directors' qualifying shares and (ii) shares issued to foreign nationals to the extent required by applicable Law) of the Designated Borrowers.
"Closing Date" means June 17, 2011.
"Commitment" means the Revolving Commitment.
"Company" has the meaning specified in the introductory paragraph hereto.
"Compliance Certificate" means a certificate substantially in the form of Exhibit 7.02.
"Consolidated Capital Expenditures" means, for any period, for the Company and its Subsidiaries on a consolidated basis, all capital expenditures but excluding expenditures to the extent made with the proceeds of any Involuntary Disposition used to purchase property that is useful in the business of the Company and its Subsidiaries.
"Consolidated EBITDA" means, for any period, for the Company and its Subsidiaries on a consolidated basis, an amount equal to Consolidated Net Income for such period plus the following to the extent deducted in calculating such Consolidated Net Income: (a) Consolidated Interest Charges for such period, (b) the provision for federal, state, local and foreign income taxes payable for such period, (c) the amount of depreciation and amortization expense for such period and (d) any impairment charges related to goodwill and other intangible assets.
"Consolidated Interest Charges" means, for any period, for the Company and its Subsidiaries on a consolidated basis, an amount equal to the sum of (a) all interest, premium payments, debt discount, fees, charges and related expenses in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, plus (b) the portion of rent expense with respect to such period under Capital Leases that is treated as interest in accordance with GAAP.
"Consolidated Net Income" means, for any period, for the Company and its Subsidiaries on a consolidated basis, the net income (excluding extraordinary gains) for that period.
"Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.
"Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. Without limiting the generality of the foregoing, a Person shall be deemed to be Controlled by another Person if such other Person possesses, directly or indirectly, power to vote 10% or more of the securities having ordinary voting power for the election of directors, managing general partners or the equivalent.
"Credit Extension" means each of the following: (a) a Borrowing and (b) an L/C Credit Extension.
"Debtor Relief Laws" means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
4
"Default" means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.
"Default Rate" means (a) with respect to Obligations other than Letter of Credit Fees, a rate which is 4.0% per annum higher than the rate of interest (including any Mandatory Cost) otherwise provided under this Agreement and (b) when used with respect to Letter of Credit Fees, a rate which is 4.0% per annum higher than the Applicable Rate.
"Designated Borrower" has the meaning specified in the introductory paragraph hereto.
"Designated Borrower Joinder Agreement" has the meaning specified in Section 2.13.
"Designated Borrower Request" has the meaning specified in Section 2.13.
"Disposition" or "Dispose" means the sale, transfer, license, lease or other disposition of any property by the Company or any Subsidiary, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith, but excluding any Involuntary Disposition.
"Dollar" and "$" mean lawful money of the United States.
"Dollar Equivalent" means, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in any Alternative Currency, the equivalent amount thereof in Dollars as determined by the Lender at such time on the basis of the Spot Rate (determined in respect of the most recent Revaluation Date) for the purchase of Dollars with such Alternative Currency.
"Domestic Subsidiary" means any Subsidiary that is organized under the laws of any state of the United States or the District of Columbia.
"Eligible Assignee" means (a) an Affiliate of the Lender; (b) an Approved Fund; and (c) any other Person (other than a natural person) approved by the Company (such approval not to be unreasonably withheld or delayed); provided that no such approval shall be required if an Event of Default has occurred and is continuing.
"EMU Legislation" means the legislative measures of the European Council for the introduction of, changeover to or operation of a single or unified European currency.
"Environmental Laws" means any and all federal, state, local, foreign and other applicable statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.
"Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Company or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into
5
the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
"Equity Interests" means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA Affiliate" means any trade or business (whether or not incorporated) under common control with the Company within the meaning of Section 414(b) or (c) of the Internal Revenue Code (and Sections 414(m) and (o) of the Internal Revenue Code for purposes of provisions relating to Section 412 of the Internal Revenue Code).
"ERISA Event" means (a) a Reportable Event with respect to a Pension Plan; (b) the withdrawal of the Company or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which such entity was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Company or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Pension Plan amendment as a termination under Section 4041 or 4041A of ERISA, (e) the institution by the PBGC of proceedings to terminate a Pension Plan; (f) any event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (g) the determination that any Pension Plan is considered an at-risk plan or a plan in endangered or critical status within the meaning of Sections 430, 431 and 432 of the Internal Revenue Code or Sections 303, 304 and 305 of ERISA or (h) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Company or any ERISA Affiliate.
"Euro" and "EUR" mean the lawful currency of the Participating Member States introduced in accordance with the EMU Legislation.
"Event of Default" has the meaning specified in Section 9.01.
"Foreign Subsidiary" means any Subsidiary that is not a Domestic Subsidiary.
"FRB" means the Board of Governors of the Federal Reserve System of the United States.
"Fund" means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its activities.
"GAAP" means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified
6
Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, consistently applied and as in effect from time to time.
"Governmental Authority" means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
"Guarantee" means, as to any Person, (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term "Guarantee" as a verb has a corresponding meaning.
"Guarantors" means each Domestic Subsidiary of the Company identified as a "Guarantor" on the signature pages hereto and each other Person that joins as a Guarantor pursuant to Section 7.13 or otherwise, together with their successors and permitted assigns and, with respect to Obligations owing by the Designated Borrowers, the Company.
"Guaranty" means the Guaranty made by the Guarantors in favor of the Lender and the other holders of the Obligations pursuant to Article IV.
"Hazardous Materials" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
"Honor Date" has the meaning set forth in Section 2.03(c).
"Indebtedness" means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:
(a)all obligations for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;
7
(b)the maximum amount available to be drawn under letters of credit (including standby and commercial), bankers' acceptances, bank guaranties, surety bonds and similar instruments;
(c)the Swap Termination Value of any Swap Contract;
(d)all obligations to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business;
(e)indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;
(f)all Attributable Indebtedness;
(g)all Guarantees of such Person in respect of any of the foregoing; and
(h)all Indebtedness of the types referred to in clauses (a) through (g) above of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or joint venturer, unless such Indebtedness is expressly made non-recourse to such Person.
"Indemnitees" has the meaning specified in Section 11.04(b).
"Information" has the meaning specified in Section 11.07.
"Interest Payment Date" means (a) as to any LIBOR Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date; provided, however, that if any Interest Period for a LIBOR Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Prime Rate Loan, the last Business Day of each March, June, September and December and the Maturity Date.
"Interest Period" means, as to each LIBOR Rate Loan, the period commencing on the date such LIBOR Rate Loan is disbursed or converted to or continued as a LIBOR Rate Loan and ending on the date two weeks, or one, two, three, six or twelve months thereafter, as selected by the applicable Borrower in its Loan Notice. The first day of an Interest Period must be a Business Day. The last day of the Interest Period and the actual number of days during the Interest Period will be determined by the Lender using the practices of the London inter-bank market.
"Internal Revenue Code" means the Internal Revenue Code of 1986.
"Investment" means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of Equity Interests of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or equity participation or interest in, another Person, or (c) an Acquisition. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.
"Involuntary Disposition" means any loss of, damage to or destruction of, or any condemnation or other taking for public use of, any property of the Company or any Subsidiary.
8
"IP Rights" has the meaning specified in Section 6.17.
"IRS" means the United States Internal Revenue Service.
"ISP" means, with respect to any Letter of Credit, the "International Standby Practices 1998" published by the Institute of International Banking Law & Practice, Inc. (or such later version thereof as may be in effect at the time of issuance).
"Issuer Documents" means with respect to any Letter of Credit, the Letter of Credit Application, and any other document, agreement and instrument entered into by the Lender and the Company (or any Subsidiary) or in favor of the Lender and relating to such Letter of Credit.
"Joinder Agreement" means a joinder agreement substantially in the form of Exhibit 7.13 executed and delivered by a Subsidiary in accordance with the provisions of Section 7.13.
"Laws" means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.
"L/C Credit Extension" means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the increase of the amount thereof.
"L/C Obligations" means, as at any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including all unreimbursed drawings under all Letters of Credit. For purposes of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be "outstanding" in the amount so remaining available to be drawn.
"Lender" means Bank of America, N.A. and its successors and assigns.
"Lender's Office" means, with respect to any currency, the Lender’s address and, as appropriate, account as set forth on Schedule 11.02 with respect to such currency, or such other address or account with respect to such currency as the Lender may from time to time notify to the Company.
"Letter of Credit" means any standby letter of credit issued hereunder. Letters of Credit may be denominated in Dollars or in an Alternative Currency.
"Letter of Credit Application" means an application and agreement for the issuance or amendment of a letter of credit in the form from time to time in use by the Lender.
"Letter of Credit Expiration Date" means the date that is twelve months after the Maturity Date.
"Letter of Credit Fee" has the meaning specified in Section 2.03(h).
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"Letter of Credit Sublimit" means an amount equal to the lesser of (a) the Revolving Commitment and (b) $10,000,000. The Letter of Credit Sublimit is part of, and not in addition to, the Revolving Commitment.
"LIBOR Rate" means for any Interest Period with respect to any LIBOR Rate Loan, a rate per annum determined by the Lender to be equal to the quotient obtained by dividing (i) the London Interbank Offered Rate for such LIBOR Rate Loan for such Interest Period by (ii) one minus the LIBOR Reserve Percentage for such LIBOR Rate Loan for such Interest Period.
"LIBOR Rate Loan" means a Loan that bears interest at a rate based on the LIBOR Rate. LIBOR Rate Loans may be denominated in Dollars or in an Alternative Currency. All Loans denominated in an Alternative Currency must be LIBOR Rate Loans.
"LIBOR Reserve Percentage" means, for any day during any Interest Period, the reserve percentage (expressed as a decimal, carried out to five decimal places) in effect on such day, whether or not applicable to the Lender, under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to London Interbank Offered Rate funding (currently referred to as "LIBOR liabilities"). The LIBOR Rate for each outstanding LIBOR Rate Loan shall be adjusted automatically as of the effective date of any change in the LIBOR Reserve Percentage.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).
"Loan" means an extension of credit by the Lender to a Borrower under Article II in the form of a Revolving Loan.
"Loan Documents" means (a) this Agreement, (b) each Note, (c) each Issuer Document, (d) each Joinder Agreement, (e)each Designated Borrower Joinder Agreement; and (f) any agreement creating or perfecting rights in Cash Collateral.
"Loan Notice" means a notice of (a) a Borrowing of Revolving Loans, (b) a conversion of Revolving Loans from one Type to the other, or (c) a continuation of LIBOR Rate Loans, in each case pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of Exhibit 2.02.
"Loan Parties" means, collectively, each Borrower and each Guarantor.
"London Banking Day" means a day on which banks in London are open for business and dealing in offshore Dollars.
"London Interbank Offered Rate" means for any Interest Period with respect to a LIBOR Rate Loan, the rate per annum equal to (i) the British Bankers Association LIBOR Rate ("BBA LIBOR"), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Lender from time to time) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, for deposits in the relevant currency (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period or (ii) if such published rate is not available at such time for any reason, the rate determined by the Lender to be the rate at which
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deposits in the relevant currency for delivery on the first day of such Interest Period in Same Day Funds in the approximate amount of the LIBOR Rate Loan being made, continued or converted by the Lender and with a term equivalent to such Interest Period would be offered by the Lender's London Branch (or other branch or Affiliate) to major banks in the London or other offshore interbank market for such currency at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period.
"Mandatory Cost" means, with respect to any period, the percentage rate per annum determined in accordance with Schedule 1.01.
"Material Adverse Effect" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole; (b) a material impairment of the ability of any Loan Party to perform its obligations under any Loan Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party.
"Maturity Date" means June 17, 2014; provided, however, that if such date is not a Business Day, the Maturity Date shall be the next preceding Business Day.
"Moody's" means Moody's Investors Service, Inc. and any successor thereto.
"Multiemployer Plan" means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.
"Multiple Employer Plan" means a Plan which has two or more contributing sponsors (including the Company or any ERISA Affiliate) at least two of whom are not under common control, as such a plan is described in Section 4064 of ERISA.
"Note" means any promissory note made by a Borrower in favor of the Lender to evidence the Loans.
"Note Purchase Agreement" means the Note Purchase and Private Shelf Agreement dated October 18, 2001 executed by the Company as accepted by The Prudential Insurance Company of America.
"Note Purchase Agreement Termination Date" means the earlier to occur of (a) October 18, 2011 and (b) the date that (i) all outstanding notes and other obligations arising under the Note Purchase Agreement have been paid-in-full, (ii) the Note Purchase Agreement has been terminated and (iii) all collateral securing the Company's obligations with respect to the Note Purchase Agreement) have been released.
"Obligations" means all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding. The foregoing shall also include (a) all obligations under any Swap Contract between any Loan Party or any Subsidiary and the Lender or any Affiliate of the Lender and (b) all obligations under any Treasury Management Agreement between any Loan Party or any Subsidiary and the Lender or any Affiliate of the Lender.
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"Organization Documents" means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating or limited liability company agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.
"Outstanding Amount" means (a) with respect to any Loans on any date, the Dollar equivalent of the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of any Loans occurring on such date; and (b) with respect to any L/C Obligations on any date, the Dollar equivalent of the amount of such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements by a Borrower of drawings under Letters of Credit.
"Participating Member State" means each state so described in any EMU Legislation.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto.
"Pension Act" means the Pension Protection Act of 2006.
"Pension Funding Rules" means the rules of the Internal Revenue Code and ERISA regarding minimum required contributions (including any installment payment thereof) to Pension Plans and set forth in, with respect to plan years ending prior to the effective date of the Pension Act, Section 412 of the Internal Revenue Code and Section 302 of ERISA, each as in effect prior to the Pension Act and, thereafter, Section 412, 430, 431, 432 and 436 of the Internal Revenue Code and Sections 302, 303, 304 and 305 of ERISA.
"Pension Plan" means any employee pension benefit plan (including a Multiple Employer Plan or a Multiemployer Plan) that is maintained or is contributed to by the Company and any ERISA Affiliate and is either covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Internal Revenue Code.
"Permitted Acquisition" means an Investment consisting of an Acquisition by any Loan Party, provided that (a) the property acquired (or the property of the Person acquired) in such Acquisition is used or useful in the same or a similar line of business as the Company and its Subsidiaries were engaged in on the Closing Date (or any reasonable extensions or expansions thereof), (b) in the case of an Acquisition of the Equity Interests of another Person, the board of directors (or other comparable governing body) of such other Person shall have duly approved such Acquisition, (c) the Company shall have delivered to the Lender a Pro Forma Compliance Certificate demonstrating that, upon giving effect to such Acquisition, the Loan Parties would be in compliance with the financial covenants set forth in Section 8.11 on a Pro Forma Basis, (d) the representations and warranties made by the Loan Parties in each Loan Document shall be true and correct in all material respects at and as if made as of the date of such Acquisition (after giving effect thereto), (e) if such transaction involves the purchase of an interest in a partnership between any Loan Party as a general partner and entities unaffiliated with the Company as the other partners, such transaction shall be effected by having such equity interest acquired by a corporate holding company directly or indirectly wholly‑owned by such Loan Party newly formed for the sole purpose of effecting such transaction, (f) immediately after giving effect to such Acquisition, there shall be at least $10,000,000 of the sum of (i) availability existing under the Revolving
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Commitment and (ii) unrestricted cash and Cash Equivalents of the Company, and (g) such Person or property being acquired in such Acquisition had positive EBITDA for the most recently ended twelve (12) month period preceding the closing of such Acquisition.
"Permitted Liens" means, at any time, Liens in respect of property of the Company or any Subsidiary permitted to exist at such time pursuant to the terms of Section 8.01.
"Permitted Transfers" means (a) Dispositions of inventory in the ordinary course of business; (b) Dispositions of property to the Company or any Subsidiary; provided, that if the transferor of such property is a Loan Party then the transferee thereof must be a Loan Party; (c) Dispositions of accounts receivable in connection with the collection or compromise thereof; (d) licenses, sublicenses, leases or subleases granted to others not interfering in any material respect with the business of the Company and its Subsidiaries; and (e) the sale or disposition of Cash Equivalents for fair market value.
"Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
"Plan" means any employee benefit plan within the meaning of Section 3(3) of ERISA (including a Pension Plan), maintained for employees of the Company or any ERISA Affiliate or any such Plan to which the Company or any ERISA Affiliate is required to contribute on behalf of any of its employees.
"Prime Rate" means the rate of interest publicly announced from time to time by the Lender as its Prime Rate. The Prime Rate is set by the Lender based on various factors, including the Lender's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans. The Lender may price loans to its customers at, above, or below the Prime Rate. Any change in the Prime Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Lender's Prime Rate.
"Prime Rate Loan" means a Loan that bears interest based on the Prime Rate. Prime Rate Loans shall be denominated in Dollars.
"Pro Forma Basis" means, with respect to any transaction, that for purposes of calculating the financial covenants set forth in Section 8.11, such transaction shall be deemed to have occurred as of the first day of the most recent four fiscal quarter period preceding the date of such transaction for which financial statements were required to be delivered pursuant to Section 7.01(a) or (b). In connection with the foregoing, (a) with respect to any Disposition or Involuntary Disposition, (i) income statement and cash flow statement items (whether positive or negative) attributable to the property disposed of shall be excluded to the extent relating to any period occurring prior to the date of such transaction and (ii) Indebtedness which is retired shall be excluded and deemed to have been retired as of the first day of the applicable period and (b) with respect to any Acquisition, (i) income statement and cash flow statement items attributable to the Person or property acquired shall be included to the extent relating to any period applicable in such calculations to the extent (A) such items are not otherwise included in such income statement and cash flow statement items for the Company and its Subsidiaries in accordance with GAAP or in accordance with any defined terms set forth in Section 1.01 and (B) such items are supported by financial statements or other information reasonably satisfactory to the Lender and (ii) any Indebtedness incurred or assumed by the Company or any Subsidiary (including the Person or property acquired) in connection with such transaction and any Indebtedness of the Person or property acquired which is not retired in connection with such transaction (A) shall be deemed to have been incurred as of the first day of the applicable period and (B) if such Indebtedness has a floating or formula rate, shall have an implied rate of interest for the applicable period for purposes of this definition determined by utilizing the rate which is or would be in effect with respect to such Indebtedness as at the relevant date of determination.
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"Pro Forma Compliance Certificate" means a certificate of a Responsible Officer of the Company containing reasonably detailed calculations of the financial covenants set forth in Section 8.11 as of the end of the period of the four fiscal quarters most recently ended for which the Company has delivered financial statements pursuant to Section 7.01(a) or (b) after giving effect to the applicable transaction on a Pro Forma Basis.
"Related Parties" means, with respect to any Person, such Person's Affiliates and the partners, directors, officers, employees, agents, trustees and advisors of such Person and of such Person's Affiliates.
"Reportable Event" means any of the events set forth in Section 4043(c) of ERISA, other than events for which the thirty-day notice period has been waived.
"Request for Credit Extension" means (a) with respect to a Borrowing, conversion or continuation of Loans, a Loan Notice, and (b) with respect to an L/C Credit Extension, a Letter of Credit Application.
"Responsible Officer" means the chief executive officer, president, chief financial officer, treasurer, assistant treasurer or controller of a Loan Party and any other officer of the applicable Loan Party so designated by any of the foregoing officers in a notice to the Lender. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.
"Restricted Payment" means any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests of any Person, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, defeasance, acquisition, cancellation or termination of any such Equity Interests or on account of any return of capital to such Person's stockholders, partners or members (or the equivalent Person thereof), or any option, warrant or other right to acquire any such dividend or other distribution or payment.
"Revaluation Date" means (a) with respect to any Loan, each of the following: (i) each date of a Borrowing of a LIBOR Rate Loan denominated in an Alternative Currency, (ii) each date of a continuation of a LIBOR Rate Loan denominated in an Alternative Currency pursuant to Section 2.02, and (iii) such additional dates as the Lender shall require; and (b) with respect to any Letter of Credit, each of the following: (i) each date of issuance of a Letter of Credit denominated in an Alternative Currency, (ii) each date of an amendment of any such Letter of Credit having the effect of increasing the amount thereof (solely with respect to the increased amount), (iii) each date of any payment by the Lender under any Letter of Credit denominated in an Alternative Currency and (iv) such additional dates as the Lender shall require.
"Revolving Commitment" means the Lender's obligation to (a) make Revolving Loans to the Borrowers pursuant to Section 2.01, and (b) issue Letters of Credit, in an aggregate principal amount at any one time outstanding not to exceed SEVENTY-FIVE MILLION DOLLARS ($75,000,000).
"Revolving Loan" has the meaning specified in Section 2.01.
"S&P" means Standard & Poor's Financial Services LLC, a subsidiary of The McGraw‑Hill Companies, Inc. and any successor thereto.
"Same Day Funds" means (a) with respect to disbursements and payments in Dollars, immediately available funds, and (b) with respect to disbursements and payments in an Alternative Currency, same day
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or other funds as may be determined by the Lender to be customary in the place of disbursement or payment for the settlement of international banking transactions in the relevant Alternative Currency.
"SEC" means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.
"Securitization Transaction" means, with respect to any Person, any financing transaction or series of financing transactions (including factoring arrangements) pursuant to which such Person or any Subsidiary of such Person may sell, convey or otherwise transfer, or grant a security interest in, accounts, payments, receivables, rights to future lease payments or residuals or similar rights to payment to a special purpose subsidiary or affiliate of such Person.
"Solvent" or "Solvency" means, with respect to any Person as of a particular date, that on such date (a) such Person is able to pay its debts and other liabilities, contingent obligations and other commitments as they mature in the ordinary course of business, (b) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay such debts and liabilities as they mature in the ordinary course of business, (c) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person's property would constitute unreasonably small capital, (d) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person and (e) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
"Special Notice Currency" means at any time an Alternative Currency, other than the currency of a country that is a member of the Organization for Economic Cooperation and Development at such time located in North America or Europe.
"Spot Rate" for a currency means the rate quoted by the Lender as the spot rate for the purchase by the Lender of such currency with another currency through its principal foreign exchange trading office at approximately 11:00 a.m. on the date two Business Days prior to the date as of which the foreign exchange computation is made; provided that the Lender may obtain such spot rate from another financial institution designated by the Lender if the Lender does not have as of the date of determination a spot buying rate for any such currency; and provided further that the Lender may use such spot rate quoted on the date as of which the foreign exchange computation is made in the case of any Letter of Credit denominated in an Alternative Currency.
"Subsidiary" of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of Voting Stock is at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a "Subsidiary" or to "Subsidiaries" shall refer to a Subsidiary or Subsidiaries of the Company.
"Swap Contract" means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the
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foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a "Master Agreement"), including any such obligations or liabilities under any Master Agreement.
"Swap Termination Value" means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s) and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include the Lender or any Affiliate of the Lender).
"Synthetic Lease" means any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing arrangement whereby the arrangement is considered borrowed money indebtedness for tax purposes but is classified as an operating lease or does not otherwise appear on a balance sheet under GAAP.
"TARGET Day" means any day on which the Trans-European Automated Real-time Gross Settlement Express Transfer (TARGET) payment system (or, if such payment system ceases to be operative, such other payment system (if any) determined by the Lender to be a suitable replacement) is open for the settlement of payments in Euro.
"Taxes" means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
"Threshold Amount" means $1,000,000.
"Total Revolving Outstandings" means the aggregate Outstanding Amount of all Revolving Loans and all L/C Obligations.
"Treasury Management Agreement" means any agreement governing the provision of treasury or cash management services, including deposit accounts, overnight draft, credit or debit cards, funds transfer, automated clearinghouse, zero balance accounts, returned check concentration, controlled disbursement, lockbox, account reconciliation and reporting and trade finance services and other cash management services.
"Type" means, with respect to any Loan, its character as a Prime Rate Loan or a LIBOR Rate Loan.
"United States" and "U.S." mean the United States of America.
"Unreimbursed Amount" has the meaning specified in Section 2.03(c).
"Voting Stock" means, with respect to any Person, Equity Interests issued by such Person the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even though the right so to vote has been suspended by the happening of such a contingency.
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1.02Other Interpretive Provisions.
With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:
(a)The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation." The word "will" shall be construed to have the same meaning and effect as the word "shall." Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person's successors and assigns, (iii) the words "herein," "hereof" and "hereunder," and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.
(b)In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including;" the words "to" and "until" each mean "to but excluding;" and the word "through" means "to and including."
(c)Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.
(a)Generally. Except as otherwise specifically prescribed herein, all accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time.
(b)Changes in GAAP. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Company or the Lender shall so request, the Lender and the Company shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Lender and the Company); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Company shall provide to the Lender financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.
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(c)Calculations. Notwithstanding the above, the parties hereto acknowledge and agree that all calculations of the financial covenants in Section 8.11 shall be made on a Pro Forma Basis with respect to (i) any Disposition of all of the Equity Interests of, or all or substantially all of the assets of, a Subsidiary, (ii) any Disposition of a line of business or division of the Company or Subsidiary, or (iii) any Acquisition, in each case, occurring during the applicable period.
Any financial ratios required to be maintained by the Company pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).
Unless otherwise specified, all references herein to times of day shall be references to Pacific time (daylight or standard, as applicable).
Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the Dollar Equivalent of the stated amount of such Letter of Credit in effect at such time; provided, however, that with respect to any Letter of Credit that, by its terms or the terms of any Issuer Document related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the Dollar Equivalent of the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.
1.07Exchange Rates; Currency Equivalents.
(a)The Lender shall determine the Spot Rates as of each Revaluation Date to be used for calculating Dollar Equivalent amounts of Credit Extensions and Outstanding Amounts denominated in Alternative Currencies. Such Spot Rates shall become effective as of such Revaluation Date and shall be the Spot Rates employed in converting any amounts between the applicable currencies until the next Revaluation Date to occur. Except for purposes of financial statements delivered by Loan Parties hereunder or calculating financial covenants hereunder or except as otherwise provided herein, the applicable amount of any currency (other than Dollars) for purposes of the Loan Documents shall be such Dollar Equivalent amount as so determined by the Lender.
(b)Wherever in this Agreement in connection with a Borrowing, conversion, continuation or prepayment of a LIBOR Rate Loan or the issuance, amendment or extension of a Letter of Credit, an amount, such as a required minimum or multiple amount, is expressed in Dollars, but such Borrowing, LIBOR Rate Loan or Letter of Credit is denominated in an Alternative Currency, such amount shall be the relevant Alternative Currency Equivalent of such Dollar amount (rounded to the nearest unit of such Alternative Currency, with 0.5 of a unit being rounded upward), as determined by the Lender.
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(a)Each obligation of a Borrower to make a payment denominated in the national currency unit of any member state of the European Union that adopts the Euro as its lawful currency after the date hereof shall be redenominated into Euro at the time of such adoption (in accordance with the EMU Legislation). If, in relation to the currency of any such member state, the basis of accrual of interest expressed in this Agreement in respect of that currency shall be inconsistent with any convention or practice in the London interbank market for the basis of accrual of interest in respect of the Euro, such expressed basis shall be replaced by such convention or practice with effect from the date on which such member state adopts the Euro as its lawful currency; provided that if any Borrowing in the currency of such member state is outstanding immediately prior to such date, such replacement shall take effect, with respect to such Borrowing, at the end of the then current Interest Period.
(b)Each provision of this Agreement shall be subject to such reasonable changes of construction as the Lender may from time to time specify to be appropriate to reflect the adoption of the Euro by any member state of the European Union and any relevant market conventions or practices relating to the Euro.
(c)Each provision of this Agreement also shall be subject to such reasonable changes of construction as the Lender may from time to time specify to be appropriate to reflect a change in currency of any other country and any relevant market conventions or practices relating to the change in currency.
ARTICLE II
THE COMMITMENTS AND CREDIT EXTENSIONS
Subject to the terms and conditions set forth herein, the Lender agrees to make loans (each such loan, a "Revolving Loan") to the Borrowers in Dollars or in one or more Alternative Currencies from time to time on any Business Day during the Availability Period; provided, however, that after giving effect to any Borrowing of Revolving Loans, (i) the Total Revolving Outstandings shall not exceed the Revolving Commitment. Within the limits of the Revolving Commitment, and subject to the other terms and conditions hereof, the Borrowers may borrow under this Section 2.01, prepay under Section 2.05, and reborrow under this Section 2.01. Revolving Loans may be Prime Rate Loans or LIBOR Rate Loans, as further provided herein.
2.02Borrowings, Conversions and Continuations of Loans.
(a)Each Borrowing, each conversion of Loans from one Type to the other, and each continuation of LIBOR Rate Loans shall be made upon the applicable Borrower's irrevocable notice to the Lender, which may be given by telephone. Each such notice must be received by the Lender not later than 11:00 a.m. (i) three Business Days prior to the requested date of any Borrowing of, conversion to or continuation of, LIBOR Rate Loans denominated in Dollars or of any conversion of LIBOR Rate Loans denominated in Dollars to Prime Rate Loans, (ii) four Business Days (or five Business Days in the case of a Special Notice Currency) prior to the requested date of any Borrowing or continuation of any LIBOR Rate Loans denominated in Alternative Currencies, and (iii) on the requested date of any Borrowing of Prime Rate Loans. Each telephonic notice by a Borrower pursuant to this Section 2.02(a) must be confirmed promptly by delivery to the Lender of a written Loan Notice, appropriately completed and signed by a Responsible Officer of such Borrower. Each Borrowing of, conversion to or continuation of LIBOR Rate
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Loans shall be in a principal amount of $250,000 or a whole multiple of $50,000 in excess thereof. Each Borrowing of or conversion to Prime Rate Loans shall be in a principal amount of $100,000 or a whole multiple of $50,000 in excess thereof. Each Loan Notice (whether telephonic or written) shall specify (i) whether the applicable Borrower is requesting a Borrowing, a conversion of Loans from one Type to the other, or a continuation of LIBOR Rate Loans, (ii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Loans to be borrowed, converted or continued, (iv) the Type of Loans to be borrowed or to which existing Loans are to be converted, (v) if applicable, the duration of the Interest Period with respect thereto, (vi) the currency of the Loans to be borrowed and (vii) if applicable, the Designated Borrower. If a Borrower fails to specify a currency in a Loan Notice requesting a Borrowing, then the Loans so requested shall be made in Dollars. If a Borrower fails to specify a Type of a Loan in a Loan Notice or if such Borrower fails to give a timely notice requesting a conversion or continuation, then the applicable Loans shall be made as, or converted to, Prime Rate Loans; provided, however, that in the case of a failure to timely request of a continuation of Loans denominated in Alternative Currency, such Loans shall be continued as LIBOR Rate Loans in their original currency with an Interest Period of one month. Any such automatic conversion to Prime Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable LIBOR Rate Loans. If a Borrower requests a Borrowing of, conversion to, or continuation of LIBOR Rate Loans in any Loan Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month. No Loan may be converted into or continued as a Loan denominated in a different currency, but instead must be prepaid in the original currency of such Loan and reborrowed in other currency.
(b)Upon satisfaction of the applicable conditions set forth in Section 5.02 (and, if such Borrowing is the initial Credit Extension, Section 5.01), the Lender shall make all funds so received available to the applicable Borrower either by (i) crediting the account of such Borrower on the books of the Lender with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Lender by such Borrower; provided, however, that if, on the date of a Borrowing of Revolving Loans, there are Unreimbursed Amounts, then the proceeds of such Borrowing, first, shall be applied to the payment in full of such Unreimbursed Amounts and second, shall be made available to such Borrower as provided above.
(c)Except as otherwise provided herein, a LIBOR Rate Loan may be continued or converted only on the last day of the Interest Period for such LIBOR Rate Loan. During the existence of an Event of Default, no Loans denominated in Dollars may be converted to or continued as LIBOR Rate Loans without the consent of the Lender and the Lender may demand that any or all of the then outstanding LIBOR Rate Loans denominated in Dollars be converted immediately to Prime Rate Loans.
(a)The Letter of Credit Commitment.
(i)Subject to the terms and conditions set forth herein, the Lender agrees (1) from time to time on any Business Day during the period from the Closing Date until the date that is ten days before the Maturity Date, to issue Letters of Credit denominated in Dollars or in one or more Alternative Currencies for the account of the Company or any of its Subsidiaries, and to amend or extend Letters of Credit previously issued by it, in accordance with subsection (b) below, and (2) to honor drawings under the Letters of Credit; provided that after giving effect to any L/C Credit Extension with respect to any Letter of Credit, (y) the Total Revolving Outstandings shall not exceed the Revolving Commitment, and (z) the Outstanding Amount of the L/C Obligations shall not exceed the Letter of Credit Sublimit. Each request by the Company for the issuance or amendment of a Letter of Credit shall be deemed to be a representation by the Company that the
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L/C Credit Extension so requested complies with the conditions set forth in the proviso to the preceding sentence. Within the foregoing limits, and subject to the terms and conditions hereof, the Company's ability to obtain Letters of Credit shall be fully revolving, and accordingly the Company may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed.
(ii)The Lender shall not be under any obligation to issue any Letter of Credit if:
(A) subject to Section 2.03(b)(iii), the expiry date of such requested Letter of Credit would occur more than twelve months after the date of issuance or last extension; or
(B)the expiry date of such requested Letter of Credit would occur after the Letter of Credit Expiration Date;
(C) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Lender from issuing such Letter of Credit, or any Law applicable to the Lender or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Lender shall prohibit, or request that the Lender refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Lender with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the Lender is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the Lender any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the Lender in good faith deems material to it;
(D)the issuance of such Letter of Credit would violate one or more policies of the Lender applicable to borrowers generally;
(E)except as otherwise agreed by the Lender, such Letter of Credit is to be denominated in a currency other than Dollars or an Alternative Currency;
(F)the Lender does not as of the issuance date of such requested Letter of Credit issue Letters of Credit in the requested currency; or
(G)such Letter of Credit contains any provisions for automatic reinstatement of the stated amount after any drawing thereunder.
(iii)The Lender shall be under no obligation to amend any Letter of Credit if (A) the Lender would have no obligation at such time to issue such Letter of Credit in its amended form under the terms hereof, or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit.
(b)Procedures for Issuance and Amendment of Letters of Credit; Auto-Extension Letters of Credit.
(i)Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Company delivered to the Lender in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of the Company. Such Letter of Credit Application must be received by the Lender not later than 11:00 a.m. at least three (3) Business Days (or such later date and time as the Lender may agree in a particular instance in its
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sole discretion) prior to the proposed issuance date or date of amendment, as the case may be. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the Lender: (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day); (B) the amount, currency and expiry date thereof; (C) the name and address of the beneficiary thereof; (D) the documents to be presented by such beneficiary in case of any drawing thereunder; (E) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; (F) the purpose and nature of the requested Letter of Credit; and (G) such other matters as the Lender may require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the Lender (A) the Letter of Credit to be amended; (B) the proposed date of amendment thereof (which shall be a Business Day); (C) the nature of the proposed amendment; and (D) such other matters as the Lender may require. Additionally, the Company shall furnish to the Lender such other documents and information pertaining to such requested Letter of Credit issuance or amendment, including any Issuer Documents, as the Lender may require.
(ii)Upon the Lender's determination that the requested issuance or amendment is permitted in accordance with the terms hereof, then, subject to the terms and conditions hereof, the Lender shall, on the requested date, issue a Letter of Credit for the account of the Company or the applicable Subsidiary or enter into the applicable amendment, as the case may be, in each case in accordance with the Lender's usual and customary business practices.
(iii)If the Company so requests in any applicable Letter of Credit Application, the Lender may, in its sole and absolute discretion, agree to issue a Letter of Credit that has automatic extension provisions (each, an "Auto-Extension Letter of Credit"); provided that any such Auto-Extension Letter of Credit must permit the Lender to prevent any such extension at least once in each twelve-month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day (the "Non-Extension Notice Date") in each such twelve-month period to be agreed upon at the time such Letter of Credit is issued. Unless otherwise directed by the Lender, the Company shall not be required to make a specific request to the Lender for any such extension.
(iv)Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, the Lender will also deliver to the Company a true and complete copy of such Letter of Credit or amendment.
(c)Drawings and Reimbursements. Upon receipt from the beneficiary of any Letter of Credit of any notice of drawing under such Letter of Credit, the Lender shall notify the Company thereof. In the case of a Letter of Credit denominated in an Alternative Currency, the Company shall reimburse the Lender in such Alternative Currency, unless (A) the Lender (at its option) shall have specified in such notice that it will require reimbursement in Dollars, or (B) in the absence of any such requirement for reimbursement in Dollars, the Company shall have notified the Lender promptly following receipt of the notice of drawing that the Company will reimburse the Lender in Dollars. In the case of any such reimbursement in Dollars of a drawing under a Letter of Credit denominated in an Alternative Currency, the Lender shall notify the Company of the Dollar Equivalent of the amount of the drawing promptly following the determination thereof. Not later than 11:00 a.m. on the date of any payment by the Lender under a Letter of Credit to be reimbursed in Dollars, or the Applicable Time on the date of any payment by the Lender under a Letter of Credit to be reimbursed in an Alternative Currency (each such date, an "Honor Date"), the Company shall reimburse the Lender in an amount equal to the amount of such drawing and in the applicable currency. Any notice given by the Lender pursuant to this Section 2.03(c) may be given by telephone if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the
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conclusiveness or binding effect of such notice. If the Company fails to reimburse (whether by means of a Borrowing or otherwise) the Lender for any drawing (expressed in Dollars in an amount of the Dollar Equivalent thereof in the case of a Letter of Credit denominated in an Alternative Currency) under any Letter of Credit (each such unreimbursed drawing, an “Unreimbursed Amount”), then the Unreimbursed Amount shall be due and payable on demand (together with interest) and shall bear interest at the Default Rate. Any Unreimbursed Amount may, at the option of the Lender, be added to the Outstanding Amount with respect to a Revolving Loan.
(d)Obligations Absolute. The obligation of the Company to reimburse the Lender for each drawing under each Letter of Credit shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following:
(i)any lack of validity or enforceability of such Letter of Credit, this Agreement or any other Loan Document;
(ii)the existence of any claim, counterclaim, setoff, defense or other right that the Company or any Subsidiary may have at any time against any beneficiary or any transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the Lender or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction;
(iii)any draft, demand, certificate or other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit;
(iv)any payment by the Lender under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; or any payment made by the Lender under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any Debtor Relief Law;
(v)any adverse change in the relevant exchange rates or in the availability of the relevant Alternative Currency to the Company or any Subsidiary or in the relevant currency markets generally; or
(vi)any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Company or any Subsidiary.
The Company shall immediately examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance with the Company's instructions or other irregularity, the Company will promptly notify the Lender. The Company shall be conclusively deemed to have waived any such claim against the Lender and its correspondents unless such notice is given as aforesaid.
(e)Role of the Lender. The Lender and the Company agree that, in paying any drawing under a Letter of Credit, the Lender shall not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by such Letter of Credit) or to ascertain or inquire as
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to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. The Company hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided, however, that this assumption is not intended to, and shall not, preclude the Company from pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of the Lender, any of its Related Parties nor any correspondent, participant or assignee of the Lender shall be liable or responsible for any of the matters described in clauses (i) through (vi) of Section 2.03(d); provided, however, that anything in such clauses to the contrary notwithstanding, the Company may have a claim against the Lender, and the Lender may be liable to the Company, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Company which the Company proves were caused by the Lender's willful misconduct or gross negligence or the Lender's willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing, the Lender may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary, and the Lender shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason.
(f)Cash Collateral. (i) If, as of the date that is ten days prior to the Maturity Date, any Letter of Credit for any reason remains outstanding, the Company shall immediately Cash Collateralize the then Outstanding Amount of all L/C Obligations by an amount equal to 100% of such Outstanding Amount.
(ii)Sections 2.05 and 9.02(c) set forth certain additional requirements to deliver Cash Collateral hereunder. For purposes of this Section 2.03(f), Section 2.05 and Section 9.02(c), "Cash Collateralize" means to pledge and deposit with or deliver to the Lender, as collateral for the L/C Obligations, cash or deposit account balances pursuant to documentation in form and substance reasonably satisfactory to the Lender. Derivatives of such term have corresponding meanings. The Company hereby grants to the Lender, a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing. Cash Collateral shall be maintained in blocked, non-interest bearing deposit accounts at the Lender.
(g)Applicability of ISP. Unless otherwise expressly agreed by the Lender and the Company when a Letter of Credit is issued, the rules of the ISP shall apply to each Letter of Credit.
(h)Letter of Credit Fees. The Company shall pay to the Lender, in Dollars, a Letter of Credit fee (the "Letter of Credit Fee") for each Letter of Credit equal to the Applicable Rate times the Dollar Equivalent of the daily amount available to be drawn under such Letter of Credit. For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06. Letter of Credit Fees shall be (i) due and payable on the first Business Day after the end of each March, June, September and December, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand and (ii) computed on a quarterly basis in arrears. If there is any change in the Applicable Rate during any quarter, the daily amount available to be drawn under each Letter of Credit shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect.
(i)Documentary and Processing Charges. The Company shall pay to the Lender, in Dollars, the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of the Lender relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.
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(j)Conflict with Issuer Documents. In the event of any conflict between the terms hereof and the terms of any Issuer Document, the terms hereof shall control.
(k)Letters of Credit Issued for Subsidiaries. Notwithstanding that a Letter of Credit issued or outstanding hereunder is in support of any obligations of, or is for the account of, a Subsidiary, the Company shall be obligated to reimburse the Lender hereunder for any and all drawings under such Letter of Credit. The Company hereby acknowledges that the issuance of Letters of Credit for the account of Subsidiaries inures to the benefit of the Company, and that the Company's business derives substantial benefits from the businesses of such Subsidiaries.
(a)Voluntary Prepayments of Loans.
Any Borrower may, upon notice from such Borrower to the Lender, at any time or from time to time voluntarily prepay Loans in whole or in part without premium or penalty; provided that (A) such notice must be received by the Lender not later than 11:00 a.m. (1) three Business Days prior to any date of prepayment of LIBOR Rate Loans denominated in Dollars, (2) four Business Days (or five, in the case of prepayment of Loans denominated in Special Notice Currencies) prior to any date of prepayment of LIBOR Rate Loans denominated in Alternative Currencies, and (3) on the date of prepayment of Prime Rate Loans; (B) any such prepayment of LIBOR Rate Loans shall be in a principal amount of $250,000 or a whole multiple of $50,000 in excess thereof (or, if less, the entire principal amount thereof then outstanding); and (C) any prepayment of Prime Rate Loans shall be in a principal amount of $100,000 or a whole multiple of $50,000 in excess thereof (or, if less, the entire principal amount thereof then outstanding). Each such notice shall specify the date and amount of such prepayment and the Type(s) and currencies of Loans to be prepaid and, if LIBOR Rate Loans are to be prepaid, the Interest Period(s) of such Loans. If such notice is given by a Borrower, such Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment of a LIBOR Rate Loan shall be accompanied by all accrued interest on the amount prepaid, together with any additional amounts required pursuant to Section 3.05.
(b)Mandatory Prepayments of Loans.
If the Lender notifies the Company at any time that the Total Revolving Outstandings at such time exceed the Revolving Commitment then in effect, then, upon receipt of such notice, the Borrowers shall first prepay Revolving Loans and second Cash Collateralize the L/C Obligations in an aggregate amount sufficient to reduce such excess. The Lender may, at any time and from time to time after the initial deposit of such Cash Collateral, request that additional Cash Collateral be provided in order to protect against the results of further exchange rate fluctuations.
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2.06Termination or Reduction of Revolving Commitment.
The Company may, upon notice to the Lender, terminate the Revolving Commitment, or from time to time permanently reduce the Revolving Commitment; provided that (i) any such notice shall be received by the Lender not later than 12:00 noon five (5) Business Days prior to the date of termination or reduction, (ii) any such partial reduction shall be in an aggregate amount of $1,000,000 or any whole multiple of $1,000,000 in excess thereof, (iii) the Company shall not terminate or reduce the Revolving Commitment if, after giving effect thereto and to any concurrent prepayments hereunder, the Total Revolving Outstandings would exceed the Revolving Commitment and (iv) if, after giving effect to any reduction of the Revolving Commitment the Letter of Credit Sublimit exceeds the amount of the Revolving Commitment, such sublimit shall be automatically reduced by the amount of such excess. The amount of any such Revolving Commitment reduction shall not be applied to the Letter of Credit Sublimit unless otherwise specified by the Company. All fees accrued with respect thereto until the effective date of any termination of the Revolving Commitment shall be paid on the effective date of such termination.
The Borrowers shall repay to the Lender on the Maturity Date the aggregate principal amount of all Revolving Loans outstanding on such date.
(a)Subject to the provisions of subsection (b) below, (i) each LIBOR Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the sum of the LIBOR Rate for such Interest Period plus the Applicable Rate plus (in the case of a LIBOR Rate Loan which is lent from the applicable Lender’s Office in the United Kingdom or a Participating Member State) the Mandatory Cost; and (ii) each Prime Rate Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Prime Rate plus the Applicable Rate plus (in the case of a LIBOR Rate Loan which is lent from the applicable Lender’s Office in the United Kingdom or a Participating Member State) the Mandatory Cost.
(b)Upon the occurrence of any Event of Default, all amounts outstanding under this Agreement, including any interest, fees, or costs which are not paid when due, will at the option of the Lender bear interest at the Default Rate. This may result in compounding of interest. This will not constitute a waiver of any Default. Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.
(c)Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.
In addition to certain fees described in subsections (h) and (i) of Section 2.03, the Company shall pay to the Lender a commitment fee in Dollars equal to the product of (i) the Applicable Rate times (ii) the actual daily amount by which the Revolving Commitment exceeds the Total Revolving Outstandings. The commitment fee shall accrue at all times during the Availability Period, including at any time during which one or more of the conditions in Article V is not met, and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Closing Date, and on the last day of the Availability Period. The commitment fee shall be
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calculated quarterly in arrears, and if there is any change in the Applicable Rate during any quarter, the actual daily amount shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect. Notwithstanding the foregoing, the Company shall not owe the Lender a commitment fee for any day where the Total Revolving Outstandings at the end of such day exceeds the unfunded Commitment for such day.
2.10Computation of Interest and Fees.
Except as otherwise stated in this Agreement, all computations of interest for Prime Rate Loans shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year), or, in the case of interest in respect of Loans denominated in Alternative Currencies as to which market practice differs from the foregoing, in accordance with such market practice. Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid, provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.12(a), bear interest for one day. Each determination by the Lender of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.
(a)Each payment by a Borrower will be without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein and except with respect to principal of and interest on Loans denominated in an Alternative Currency, all payments shall be made in Dollars and Same Day Funds and will be made by debit to a deposit account, if direct debit is provided for in this Agreement or is otherwise authorized by the Company or the applicable Borrower. Payments of principal and interest on Loans denominated in Alternative Currencies shall be made at the applicable Lender's Office in such Alternative Currency in Same Day Funds not later than the Applicable Time specified by the Lender or may be made by debit to a deposit account, if direct debit is provided for in this Agreement or is otherwise authorized by the Company or the applicable Borrower. For payments not made by direct debit, payments will be made by mail to the address shown on the statement furnished by the Lender to the Company, or by such other method as may be permitted by the Lender. Without limiting the foregoing, the Lender may require that any payments due under this Agreement be made in the United States. If, for any reason, a Borrower is prohibited by any Law from making any required payment hereunder in an Alternative Currency, such Borrower shall make such payment in Dollars in the Dollar Equivalent of the Alternative Currency payment amount. All payments and disbursements which would be due on a day which is not a banking day will be due on the next banking day. All payments received on a day which is not a banking day will be applied to the credit on the next banking day.
(b)For any payment under this Agreement made by debit to a deposit account, each applicable Borrower will maintain sufficient immediately available funds in the deposit account to cover each debit. If there are insufficient immediately available funds in the deposit account on the date the Lender enters any such debit authorized by this Agreement, the Lender may reverse the debit.
(c)Each disbursement by the Lender and each payment by a Borrower will be evidenced by records kept by the Lender. In addition, the Lender may, at its discretion, require the Borrowers to sign one or more promissory notes.
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(d)No less than five Business Days prior to the date each payment of principal and interest and any fees from the Borrowers becomes due (the "Due Date"), the Lender will send to the Company a statement of the amounts that will be due on that Due Date (the "Billed Amount"). The calculations in the bill will be made on the assumption that no new extensions of credit or payments will be made between the date of the billing statement and the Due Date, and that there will be no changes in the applicable interest rate. If the Billed Amount differs from the actual amount due on the Due Date (the "Accrued Amount"), the discrepancy will be treated as follows:
(i)If the Billed Amount is less than the Accrued Amount, the Billed Amount for the following Due Date will be increased by the amount of the discrepancy. The Borrowers will not be in Default by reason of any such discrepancy.
(ii)If the Billed Amount is more than the Accrued Amount, the Billed Amount for the following Due Date will be decreased by the amount of the discrepancy.
Regardless of any such discrepancy, interest will continue to accrue based on the actual amount of principal outstanding without compounding. The Lender will not pay the Borrowers interest on any overpayment.
(e)The Company agrees that on the Due Date the Lender will debit the Billed Amount from a deposit account with the Lender owned by the Company or another Borrower which has been designated in writing by the Company or the applicable Borrower.
(a) The Company may at any time, upon not less than 15 Business Days' notice from the Company to the Lender (or such shorter period as may be agreed by the Lender in its sole discretion), request the designation of any wholly-owned Foreign Subsidiary (an "Applicant Borrower") as a Designated Borrower to receive Loans hereunder by delivering to the Lender a duly executed notice in substantially the form of Exhibit 2.13A (a "Designated Borrower Request"). If the Lender agrees that an Applicant Borrower shall be entitled to receive Loans hereunder, then the Lender shall send an agreement in substantially the form of Exhibit 2.13B (a "Designated Borrower Joinder Agreement") to the Company specifying (x) the additional terms and conditions applicable to extensions of credit to such Applicant Borrower due to applicable Laws with respect to the jurisdiction of organization for such Applicant Borrower and (y) the effective date upon which the Applicant Borrower shall constitute a Designated Borrower for purposes hereof. Upon the execution of such Designated Borrower Joinder Agreement by the Company and such Applicant Borrower, such Applicant Borrower shall be a Designated Borrower and permitted to receive Loans hereunder, on the terms and conditions set forth herein and therein, and such Applicant Borrower otherwise shall be a Borrower for all purposes of this Agreement; provided that no Loan Notice may be submitted by or on behalf of such Designated Borrower until the date five Business Days after such effective date. The parties hereto acknowledge and agree that prior to any Designated Borrower becoming entitled to utilize the credit facilities provided for in this Agreement the Lender shall have received such supporting resolutions, incumbency certificates, opinions of counsel and other documents or information, in form, content and scope reasonably satisfactory to the Lender, as may be required by the Lender in its reasonable discretion.
(b) The Obligations of each of the Designated Borrowers shall be several in nature.
(c) Each Subsidiary of the Company that is or becomes a "Designated Borrower" pursuant to this Section 2.13 hereby irrevocably appoints the Company as its agent for all purposes relevant to this Agreement and each of the other Loan Documents, including (i) the giving and receipt of notices, (ii) the
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execution and delivery of all documents, instruments and certificates contemplated herein and all modifications hereto, and (iii) the receipt of the proceeds of any Loans made by the Lender, to any such Designated Borrower hereunder. Any acknowledgment, consent, direction, certification or other action which might otherwise be valid or effective only if given or taken by all Borrowers, or by each Borrower acting singly, shall be valid and effective if given or taken only by the Company, whether or not any such other Borrower joins therein. Any notice, demand, consent, acknowledgement, direction, certification or other communication delivered to the Company in accordance with the terms of this Agreement shall be deemed to have been delivered to each Designated Borrower; provided that if such communication is directed to a specific Designated Borrower, it shall indicate to which Designated Borrower it is directed.
(d)The Company may from time to time, upon not less than 15 Business Days' notice from the Company to the Lender (or such shorter period as may be agreed by the Lender in its sole discretion), terminate a Designated Borrower's status as such, provided that there are no outstanding Loans payable by such Designated Borrower, or other amounts payable by such Designated Borrower on account of any Loans made to it, as of the effective date of such termination.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
If any payments to the Lender under this Agreement or any Loan Document are made from outside the United States or by a Designated Borrower, no Borrower will deduct any non-United States Taxes from any payments it makes to the Lender. If any such Taxes are imposed on any payments made by a Borrower under this Agreement or any Loan Document, such Borrower will pay such Taxes and will also pay to the Lender, at the time interest is paid, any additional amount which the Lender specifies as necessary to preserve the after-tax yield the Lender would have received if such Taxes had not been imposed. The applicable Borrower will confirm that it has paid such Taxes by giving the Lender official tax receipts (or notarized copies) within thirty (30) days after the due date
If the Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for the Lender or its applicable Lender's Office to make, maintain or fund LIBOR Rate Loans or to determine or charge interest rates based upon the LIBOR Rate (whether denominated in Dollars or an Alternative Currency), or any Governmental Authority has imposed material restrictions on the authority of the Lender to purchase or sell, or to take deposits of, Dollars or any Alternative Currency in the applicable offshore interbank market, then, on notice thereof by the Lender to the Company, any obligation of the Lender to make or continue LIBOR Rate Loans in the affected currency or currencies or to convert Prime Rate Loans to LIBOR Rate Loans shall be suspended until the Lender notifies the Company that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrowers shall, upon demand from the Lender, prepay or, if applicable and such LIBOR Rate Loans are denominated in Dollars, convert all of the LIBOR Rate Loans to Prime Rate Loans, either on the last day of the Interest Period therefor, if the Lender may lawfully continue to maintain such LIBOR Rate Loans to such day, or immediately, if the Lender may not lawfully continue to maintain such LIBOR Rate Loans. Upon any such prepayment or conversion, the Borrowers shall also pay accrued interest on the amount so prepaid or converted.
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3.03Inability to Determine Rates.
If the Lender determines that for any reason in connection with any request for a LIBOR Rate Loan or a conversion to or continuation thereof that (a) deposits (whether in Dollars or an Alternative Currency) are not being offered to banks in the applicable offshore interbank market for such currency for the applicable amount and Interest Period of such LIBOR Rate Loan, (b) adequate and reasonable means do not exist for determining the London Interbank Offered Rate for any requested Interest Period with respect to a proposed LIBOR Rate Loan (whether in Dollars or an Alternative Currency), or (c) the London Interbank Offered Rate for any requested Interest Period with respect to a proposed LIBOR Rate Loan or in connection with a LIBOR Rate Loan does not adequately and fairly reflect the cost to the Lender of funding such Loan, the Lender will promptly notify the Company. Thereafter the obligation of the Lender to make or maintain LIBOR Rate Loans in the affected currency or currencies shall be suspended until the Lender revokes such notice. Upon receipt of such notice, a Borrower may revoke any pending request for a Borrowing of, conversion to or continuation of LIBOR Rate Loans in the affected currency or currencies or, failing that, will be deemed to have converted such request into a request for a Borrowing of Prime Rate Loans in the amount specified therein to the extent available (or, in the case of a pending request for a Loan denominated in an Alternative Currency, the Company and the Lender may establish a mutually acceptable alternative rate).
(a)Increased Costs Generally. If any Change in Law shall:
(i)impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, the Lender (except (A) any reserve requirement reflected in the LIBOR Rate and (B) the requirements of the Bank of England and the Financial Services Authority or the European Central Bank reflected in the Mandatory Cost, other than as set forth below);
(ii)subject the Lender to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit or any Loan, or change the basis of taxation of payments to the Lender in respect thereof;
(iii)result in the failure of the Mandatory Cost, as calculated hereunder, to represent the cost to the Lender of complying with the requirements of the Bank of England and/or the Financial Services Authority or the European Central Bank in relation to making, funding or maintaining LIBOR Rate Loans; or
(iv)impose on the Lender or the applicable offshore interbank market any other condition, cost or expense affecting this Agreement or Loans or any Letter of Credit;
and the result of any of the foregoing shall be to increase the cost to the Lender of making or maintaining any LIBOR Rate Loan (or of maintaining its obligation to make any such Loan), or to increase the cost to the Lender of issuing or maintaining any Letter of Credit, or to reduce the amount of any sum received or receivable by the Lender hereunder (whether of principal, interest or any other amount) then, upon request of the Lender, the Borrowers will pay to the Lender such additional amount or amounts as will compensate the Lender for such additional costs incurred or reduction suffered.
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(b)Capital Requirements. If the Lender determines that any Change in Law affecting the Lender or any Lender's Office of the Lender or its holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on the Lender's capital or on the capital of the Lender's holding company, if any, as a consequence of this Agreement, the Commitment, Loans or Letters of Credit, to a level below that which the Lender or the Lender's holding company could have achieved but for such Change in Law (taking into consideration the Lender's policies and the policies of the Lender's holding company with respect to capital adequacy), then from time to time the Borrowers will pay to the Lender such additional amount or amounts as will compensate the Lender or the Lender's holding company for any such reduction suffered.
(c)Certificates for Reimbursement. A certificate of the Lender setting forth the amount or amounts necessary to compensate the Lender or its holding company, as the case may be, as specified in subsection (a) or (b) of this Section and delivered to the Company shall be conclusive absent manifest error. The Company shall pay (or cause the applicable Designated Borrower to pay) the Lender the amount shown as due on any such certificate within 10 days after receipt thereof.
(d)Delay in Requests. Failure or delay on the part of the Lender to demand compensation pursuant to the foregoing provisions of this Section shall not constitute a waiver of the Lender's right to demand such compensation.
Upon demand of the Lender from time to time, the Company shall promptly compensate (or cause the applicable Designated Borrower to compensate) the Lender for and hold the Lender harmless from any loss, cost or expense incurred by it as a result of:
(a)any continuation, conversion, payment or prepayment of any LIBOR Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);
(b)any failure by a Borrower (for a reason other than the failure of the Lender to make a Loan) to prepay, borrow, continue or convert any LIBOR Rate Loan on the date or in the amount notified by the Company or the applicable Designated Borrower; or
(c)any failure by a Borrower to make payment of any Loan or drawing under any Letter of Credit (or interest due thereon) denominated in an Alternative Currency on its scheduled due date or any payment any Loan or drawing under any Letter of Credit (or interest due thereon) in a different currency from such Loan or Letter of Credit drawing;
including any loss of anticipated profits, for foreign exchange losses or any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan, from fees payable to terminate the deposits from which such funds were obtained or from the performance of any foreign exchange contract. The Borrowers shall also pay any customary administrative fees charged by the Lender in connection with the foregoing.
For purposes of calculating amounts payable by the Borrowers to the Lender under this Section 3.05, the Lender shall be deemed to have funded each LIBOR Rate Loan at the London Interbank Offered Rate used in determining the LIBOR Rate for such Loan by a matching deposit or other borrowing in the applicable offshore interbank market for such currency for a comparable amount and for a comparable period, whether or not such LIBOR Rate Loan was in fact so funded.
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If the Lender requests compensation under Section 3.04, or a Borrower is required to pay any additional amount to the Lender or any Governmental Authority for the account of the Lender pursuant to Section 3.01, or if the Lender gives a notice pursuant to Section 3.02, then the Lender shall use reasonable efforts to designate a different Lender's Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of the Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.01 or 3.04, as the case may be, in the future, or eliminate the need for the notice pursuant to Section 3.02, as applicable, and (ii) in each case, would not subject the Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to the Lender. The Borrowers hereby agree to pay all reasonable costs and expenses incurred by the Lender in connection with any such designation or assignment.
All of the Loan Parties' obligations under this Article III shall survive termination of the Commitment and repayment of all other Obligations hereunder.
(a)Each of the Guarantors hereby jointly and severally guarantees to the Lender and each of the holders of the Obligations as hereinafter provided, as primary obligor and not as surety, the prompt payment of the Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) strictly in accordance with the terms thereof. The Guarantors hereby further agree that if any of the Obligations are not paid in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise), the Guarantors will, jointly and severally, promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Obligations, the same will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) in accordance with the terms of such extension or renewal.
(b)Notwithstanding any provision to the contrary contained herein or in any other of the Loan Documents, Swap Contracts or Treasury Management Agreements, the obligations of each Guarantor under this Agreement and the other Loan Documents shall not exceed an aggregate amount equal to the largest amount that would not render such obligations subject to avoidance under applicable Debtor Relief Laws.
4.02Obligations Unconditional.
(a)The obligations of the Guarantors under Section 4.01 are joint and several, absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of any of the Loan Documents, Swap Contracts or Treasury Management Agreements, or any other agreement or instrument referred to therein, or any substitution, compromise, release, impairment or exchange of any other guarantee of or security for any of the Obligations, and, to the fullest extent permitted by applicable Law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 4.02 that the obligations of the Guarantors hereunder shall be absolute and unconditional under any and all circumstances. Each Guarantor agrees that such Guarantor shall have no right of subrogation, indemnity, reimbursement or contribution against any Borrower or any other
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Guarantor for amounts paid under this Article IV until such time as the Obligations have been paid in full and the Commitments have expired or terminated.
(b)Without limiting the generality of the foregoing subsection (a), it is agreed that, to the fullest extent permitted by Law, the occurrence of any one or more of the following shall not alter or impair the liability of any Guarantor hereunder, which shall remain absolute and unconditional as described above:
(i)at any time or from time to time, without notice to any Guarantor, the time for any performance of or compliance with any of the Obligations shall be extended, or such performance or compliance shall be waived;
(ii)any of the acts mentioned in any of the provisions of any of the Loan Documents, any Swap Contract or Treasury Management Agreement between any Loan Party and the Lender, or any Affiliate of the Lender, or any other agreement or instrument referred to in the Loan Documents, such Swap Contracts or such Treasury Management Agreements shall be done or omitted;
(iii)the maturity of any of the Obligations shall be accelerated, or any of the Obligations shall be modified, supplemented or amended in any respect, or any right under any of the Loan Documents or any other documents relating to the Obligations or any other agreement or instrument referred to therein shall be waived or any other guarantee of any of the Obligations or any security therefor shall be released, impaired or exchanged in whole or in part or otherwise dealt with;
(iv)any Lien granted to, or in favor of, the Lender or any holder of Obligations as security for any of the Obligations shall fail to attach or be perfected; or
(v)any of the Obligations shall be determined to be void or voidable (including, without limitation, for the benefit of any creditor of any Guarantor) or shall be subordinated to the claims of any Person (including, without limitation, any creditor of any Guarantor).
(c)With respect to its obligations hereunder, each Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Lender or any holder of the Obligations exhaust any right, power or remedy or proceed against any Person under any of the Loan Documents, any Swap Contract or any Treasury Management Agreement between any Loan Party and the Lender, or any Affiliate of the Lender, or any other agreement or instrument referred to in the Loan Documents, such Swap Contracts or such Treasury Management Agreements, or against any other Person under any other guarantee of, or security for, any of the Obligations.
The obligations of each Guarantor under this Article IV shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Person in respect of the Obligations is rescinded or must be otherwise restored by any holder of any of the Obligations, whether as a result of any Debtor Relief Law or otherwise, and each Guarantor agrees that it will indemnify the Lender and each holder of the Obligations on demand for all reasonable costs and expenses (including, without limitation, the fees, charges and disbursements of counsel) incurred by the Lender or such holder of the Obligations in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any Debtor Relief Law.
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4.04Certain Additional Waivers.
Each Guarantor acknowledges and agrees that (a) the guaranty given hereby may be enforced without the necessity of resorting to or otherwise exhausting remedies in respect of any other security or collateral interests, and without the necessity at any time of having to take recourse against any Borrower hereunder or against any collateral securing the Obligations or otherwise, and (b) it will not assert any right to require that action first be taken against any Borrower or any other Person (including any co‑guarantor) or pursuit of any other remedy or enforcement any other right, and (c) nothing contained herein shall prevent or limit action being taken against any Borrower hereunder, under the other Loan Documents or the other documents and agreements relating to the Obligations or, foreclosure on any security or collateral interests relating hereto or thereto, or the exercise of any other rights or remedies available in respect thereof, if neither the Borrowers nor the Guarantors shall timely perform their obligations, and the exercise of any such rights and completion of any such foreclosure proceedings shall not constitute a discharge of the Guarantors' obligations hereunder unless as a result thereof, the Obligations shall have been paid in full and the commitments relating thereto shall have expired or terminated, it being the purpose and intent that the Guarantors' obligations hereunder be absolute, irrevocable, independent and unconditional under all circumstances. Each Guarantor agrees that such Guarantor shall have no right of recourse to security for the Obligations, except through the exercise of rights of subrogation pursuant to Section 4.02 and through the exercise of rights of contribution pursuant to Section 4.06.
The Guarantors agree that, to the fullest extent permitted by Law, as between the Guarantors, on the one hand, and holders of the Obligations, on the other hand, the Obligations may be declared to be forthwith due and payable as provided in Section 9.02 (and shall be deemed to have become automatically due and payable in the circumstances specified in Section 9.02) for purposes of Section 4.01 notwithstanding any stay, injunction or other prohibition preventing such declaration (or preventing the Obligations from becoming automatically due and payable) as against any other Person and that, in the event of such declaration (or the Obligations being deemed to have become automatically due and payable), the Obligations (whether or not due and payable by any other Person) shall forthwith become due and payable by the Guarantors for purposes of Section 4.01.
The Guarantors hereby agree as among themselves that, in connection with payments made hereunder, each Guarantor shall have a right of contribution from each other Guarantor in accordance with applicable Law. Such contribution rights shall be subordinate and subject in right of payment to the Obligations until such time as the Obligations have been irrevocably paid in full and the commitments relating thereto shall have expired or been terminated, and none of the Guarantors shall exercise any such contribution rights until the Obligations have been irrevocably paid in full and the Commitments shall have expired or been terminated.
4.07Guarantee of Payment; Continuing Guarantee.
The guarantee in this Article IV is a guaranty of payment and not of collection, is a continuing guarantee, and shall apply to all Obligations whenever arising.
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4.08Waivers of Other Rights and Defenses.
(a)Each Guarantor waives any rights and defenses that are or may become available to Guarantor by reason of Sections 2787 to 2855, inclusive, of the California Civil Code.
(b)Each Guarantor waives any right or defense it may have at law or equity, including California Code of Civil Procedure Section 580a, to a fair market value hearing or action to determine a deficiency judgment after a foreclosure.
4.09Subordination.
Each Guarantor hereby subordinates the payment of all obligations and indebtedness of each other Loan Party owing to such Guarantor, whether now existing or hereafter arising, including but not limited to any obligation of such other Loan Party to such Guarantor as subrogee of the Lender or resulting from such Guarantor’s performance under this Article IV, to the indefeasible payment in full of all Obligations. If the Lender so requests, any such obligation or indebtedness of the applicable Loan Party to any Guarantor shall be enforced and performance received by such Guarantor as trustee for the Lender and the proceeds thereof shall be paid over to the Lender on account of the Obligations, but without reducing or affecting in any manner the liability of such Guarantor under this Article IV.
ARTICLE V
CONDITIONS PRECEDENT TO CREDIT EXTENSIONS
5.01Conditions of Initial Credit Extension.
The obligation of the Lender to make its initial Credit Extension hereunder is subject to satisfaction of the following conditions precedent:
(a)Loan Documents. Receipt by the Lender of executed counterparts of this Agreement and the other Loan Documents, each properly executed by a Responsible Officer of the signing Loan Party and, as applicable, by the Lender.
(b)Opinions of Counsel. Receipt by the Lender of favorable opinions of legal counsel to the Loan Parties, addressed to the Lender, dated as of the Closing Date, and in form and substance satisfactory to the Lender.
(c)No Material Adverse Change. Since August 31, 2010, there has not occurred an event or condition that has had or could reasonably be expected to have a Material Adverse Effect.
(d)Organization Documents, Resolutions, Etc. Receipt by the Lender of the following, in form and substance satisfactory to the Lender:
(i)copies of the Organization Documents of each Loan Party certified to be true and complete as of a recent date by the appropriate Governmental Authority of the state or other jurisdiction of its incorporation or organization, where applicable, and certified by a secretary or assistant secretary of such Loan Party to be true and correct as of the Closing Date;
(ii)such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each Loan Party as the Lender may require evidencing
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the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Loan Party is a party; and
(iii)such documents and certifications as the Lender may reasonably require to evidence that each Loan Party is duly organized or formed, and is validly existing, in good standing and qualified to engage in business in its state of organization or formation, the state of its principal place of business and each other jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.
(e)Closing Certificate. Receipt by the Lender of a certificate signed by a Responsible Officer of the Company certifying that the conditions specified in Section 5.01(c) and Sections 5.02(a) and (b) have been satisfied.
(f)Fees. Receipt by the Lender of any fees required to be paid on or before the Closing Date.
(g)Attorney Costs. The Company shall have paid all reasonable fees, charges and disbursements of counsel to the Lender (directly to such counsel if requested by the Lender) to the extent invoiced prior to or on the Closing Date, plus such additional amounts of such fees, charges and disbursements as shall constitute its reasonable estimate of such fees, charges and disbursements incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude a final settling of accounts between the Company and the Lender).
(h)Union Bank Line of Credit. Receipt of evidence satisfactory to the Lender that the Company’s line of credit with Union Bank has been repaid in full and terminated.
5.02Conditions to all Credit Extensions.
The obligation of the Lender to honor any Request for Credit Extension is subject to the following conditions precedent:
(a)The representations and warranties of the Loan Parties contained in Article VI or any other Loan Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, shall be true and correct on and as of the date of such Credit Extension, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date.
(b)No Default shall exist, or would result from such proposed Credit Extension or from the application of the proceeds thereof.
(c)The Lender shall have received a Request for Credit Extension in accordance with the requirements hereof.
(d)In the case of a Credit Extension to be denominated in an Alternative Currency, there shall not have occurred any change in national or international financial, political or economic conditions or currency exchange rates or exchange controls which in the reasonable opinion of the Lender would make it impracticable for such Credit Extension to be denominated in the relevant Alternative Currency.
(e)If the applicable Borrower is a Designated Borrower, such Borrower shall have been designated as a Designated Borrower pursuant to Section 2.13.
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(f)Prior to the earlier of (i) 30 days after the Closing Date and (ii) the first Credit Extension, the Lender shall have received evidence satisfactory to the Lender that the Company’s line of credit with Union Bank has been repaid in full and terminated.
Each Request for Credit Extension submitted by a Borrower shall be deemed to be a representation and warranty that the conditions specified in Sections 5.02(a) and (b) have been satisfied on and as of the date of the applicable Credit Extension.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Each Loan Party represents and warrants to the Lender that:
6.01Existence, Qualification and Power.
The Company and each Subsidiary (a) is duly organized or formed, validly existing and, as applicable, in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all requisite governmental licenses, authorizations, consents and approvals to (i) own or lease its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents to which it is a party, and (c) is duly qualified and is licensed and, as applicable, in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license; except in each case referred to in clause (b)(i) or (c), to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.
6.02Authorization; No Contravention.
The execution, delivery and performance by each Loan Party of each Loan Document to which such Person is party have been duly authorized by all necessary corporate or other organizational action, and do not (a) contravene the terms of any of such Person's Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any Contractual Obligation to which such Person is a party or affecting such Person or the properties of such Person or any of its Subsidiaries or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject; or (c) violate any Law.
6.03Governmental Authorization; Other Consents.
No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against, any Loan Party of this Agreement or any other Loan Document other than those that have already been obtained and are in full force and effect.
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Each Loan Document has been duly executed and delivered by each Loan Party that is party thereto. Each Loan Document constitutes a legal, valid and binding obligation of each Loan Party that is party thereto, enforceable against each such Loan Party in accordance with its terms.
6.05Financial Statements; No Material Adverse Effect.
(a)The financial statements delivered pursuant to Sections 7.01(a) and 7.01(b) (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present the financial condition of the Company and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein (subject, in the case of unaudited financial statements, to the absence of footnotes and to normal year-end audit adjustments); and (iii) show all material indebtedness and other liabilities, direct or contingent, of the Company and its Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Indebtedness.
(b)The audited consolidated financial statements of the Company and its Subsidiaries for the fiscal year ending August 31, 2010 and the unaudited consolidated financial statements of the Company and its Subsidiaries for the fiscal quarter ending February 28, 2011 (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present the financial condition of the Company and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby (subject, in the case of unaudited financial statements, to the absence of footnotes and to normal year-end audit adjustments); and (iii) show all material indebtedness and other liabilities, direct or contingent, of the Company and its Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Indebtedness.
(c)From August 31, 2010 to and including the Closing Date, there has been no Disposition or any Involuntary Disposition of any material part of the business or property of the Company and its Subsidiaries, taken as a whole, and no purchase or other acquisition by any of them of any business or property (including any Equity Interests of any other Person) material in relation to the consolidated financial condition of the Company and its Subsidiaries, taken as a whole, in each case, which is not reflected in the foregoing financial statements or in the notes thereto and has not otherwise been disclosed in writing to the Lender on or prior to the Closing Date.
(d)Since August 31, 2010, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.
There are no actions, suits, proceedings, claims or disputes pending or, to the actual knowledge of the Responsible Officers of the Loan Parties after due and diligent investigation or threatened, at law, in equity, in arbitration or before any Governmental Authority, by or against the Company or any Subsidiary or against any of their properties or revenues that (a) purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby or (b) could reasonably be expected to have a Material Adverse Effect.
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(a)Neither the Company nor any Subsidiary is in default under or with respect to any Contractual Obligation that individually or in the aggregate could reasonably be expected to have a Material Adverse Effect.
(b)No Default has occurred and is continuing.
The Company and each of its Subsidiaries has good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(a)The Company and its Subsidiaries conduct in the ordinary course of business a review of the effect of existing Environmental Laws and claims alleging potential liability or responsibility for violation of any Environmental Law on their respective businesses, operations and properties, and as a result thereof the Loan Parties have reasonably concluded that such Environmental Laws and claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(b)Except as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, Hazardous Materials have not been released, discharged or disposed of on any property currently or formerly owned or operated by the Company or any Subsidiary.
(c)Neither the Company nor any Subsidiary is undertaking, and has not completed, either individually or together with other potentially responsible parties, any investigation or assessment or remedial or response action relating to any actual or threatened release, discharge or disposal of Hazardous Materials at any site, location or operation, either voluntarily or pursuant to the order of any Governmental Authority or the requirements of any Environmental Law; and all Hazardous Materials generated, used, treated, handled or stored at, or transported to or from, any property currently or formerly owned or operated by the Company or any Subsidiary have been disposed of in a manner not reasonably expected to result in a Material Adverse Effect.
The properties of the Company and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Company, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Company or the applicable Subsidiary operates.
The Company and its Subsidiaries have filed all federal, state and other material tax returns and reports required to be filed, and have paid all federal, state and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against the Company or any Subsidiary that would, if made, have a Material Adverse Effect. Neither the Company nor any Subsidiary thereof is party to any tax sharing agreement.
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(a)Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Internal Revenue Code and other federal or state Laws. Each Plan that is intended to be a qualified plan under Section 401(a) of the Internal Revenue Code has received a favorable determination letter from the IRS to the effect that the form of such Plan is qualified under Section 401(a) of the Internal Revenue Code and the trust related thereto has been determined by the IRS to be exempt from federal income tax under Section 501(a) of the Internal Revenue Code, or an application for such a letter is currently being processed by the IRS. To the best knowledge of the Loan Parties, nothing has occurred that would prevent or cause the loss of such tax-qualified status.
(b)There are no pending or, to the best knowledge of the Loan Parties, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could be reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect.
(c)(i) No ERISA Event has occurred, and no Loan Party nor any ERISA Affiliate is aware of any fact, event or circumstance that could reasonably be expected to constitute or result in an ERISA Event with respect to any Pension Plan; (ii) each Loan Party and each ERISA Affiliate has met all applicable requirements under the Pension Funding Rules in respect of each Pension Plan, and no waiver of the minimum funding standards under the Pension Funding Rules has been applied for or obtained; (iii) as of the most recent valuation date for any Pension Plan, the funding target attainment percentage (as defined in Section 430(d)(2) of the Internal Revenue Code) is 60% or higher and no Loan Party nor any ERISA Affiliate knows of any facts or circumstances that could reasonably be expected to cause the funding target attainment percentage for any such plan to drop below 60% as of the most recent valuation date; (iv) no Loan Party nor any ERISA Affiliate has incurred any liability to the PBGC other than for the payment of premiums, and there are no premium payments which have become due that are unpaid; (v) no Loan Party nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or Section 4212(c) of ERISA; and (vi) no Pension Plan has been terminated by the plan administrator thereof nor by the PBGC, and no event or circumstance has occurred or exists that could reasonably be expected to cause the PBGC to institute proceedings under Title IV of ERISA to terminate any Pension Plan.
Set forth on Schedule 6.13 is a complete and accurate list as of the Closing Date of each Subsidiary of the Company, together with (i) jurisdiction of organization, (ii) number of shares of each class of Equity Interests outstanding, and (iii) number and percentage of outstanding shares of each class owned (directly or indirectly) by the Company or any Subsidiary. The outstanding Equity Interests of each Subsidiary of the Company are validly issued, fully paid and non‑assessable.
6.14Margin Regulations; Investment Company Act.
(a)No Borrower is engaged and no Borrower will engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the FRB), or extending credit for the purpose of purchasing or carrying margin stock. Following the application of the proceeds of each Borrowing or drawing under each Letter of Credit, not more than 25% of the value of the assets (either of a Borrower only or of the Company and its Subsidiaries on a consolidated basis) subject to the provisions of Section 8.01 or Section 8.05 or subject to any restriction
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contained in any agreement or instrument between any Borrower and the Lender or any Affiliate of the Lender relating to Indebtedness and within the scope of Section 9.01(e) will be margin stock.
(b)No Borrower, any Person Controlling a Borrower, or any Subsidiary is or is required to be registered as an "investment company" under the Investment Company Act of 1940.
Each Loan Party has disclosed to the Lender all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. No report, financial statement, certificate or other information furnished (whether in writing or orally) by or on behalf of any Loan Party to the Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder or under any other Loan Document (in each case, as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Loan Parties represent only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.
The Company and each Subsidiary is in compliance with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted or (b) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.
6.17Intellectual Property; Licenses, Etc.
Each of the Company and each Subsidiary owns, or possesses the legal right to use, all of the trademarks, service marks, trade names, copyrights, patents, patent rights, franchises, licenses and other intellectual property rights (collectively, "IP Rights") that are reasonably necessary for the operation of their respective businesses. Except for such claims and infringements that could not reasonably be expected to have a Material Adverse Effect, no claim has been asserted and is pending by any Person challenging or questioning the use of any IP Rights or the validity or effectiveness of any IP Rights, nor does any Loan Party know of any such claim, and, to the knowledge of the Responsible Officers of the Loan Parties, the use of any IP Rights by the Company or any Subsidiary or the granting of a right or a license in respect of any IP Rights from the Company or any Subsidiary does not infringe on the rights of any Person.
Each Borrower is Solvent, and the Loan Parties are Solvent on a consolidated basis.
6.19Business Locations; Taxpayer Identification Number.
Set forth on Schedule 6.19 is the chief executive office, exact legal name, U.S. tax payer identification number and organizational identification number of each Loan Party as of the Closing Date.
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There are no collective bargaining agreements or Multiemployer Plans covering the employees of the Company or any Subsidiary as of the Closing Date. Neither the Company nor any Subsidiary has suffered any strikes, walkouts, work stoppages due to labor issues or other material labor difficulty in the five years preceding the Closing Date.
ARTICLE VII
AFFIRMATIVE COVENANTS
So long as the Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, each Loan Party shall, and shall cause each Subsidiary to:
Deliver to the Lender, in form and detail satisfactory to the Lender
(a)as soon as available, but in any event within ninety days after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its Subsidiaries as at the end of such fiscal year, and the related consolidated statements of income or operations, changes in shareholders' equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, audited and accompanied by a report and opinion of an independent certified public accountant of nationally recognized standing reasonably acceptable to the Lender, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any "going concern" or like qualification or exception or any qualification or exception as to the scope of such audit; and
(b)as soon as available, but in any event within forty-five days after the end of each of the first three fiscal quarters of each fiscal year of the Company, a consolidated balance sheet of the Company and its Subsidiaries as at the end of such fiscal quarter, the related consolidated statements of income or operations for such fiscal quarter and for the portion of the Company's fiscal year then ended, and the related consolidated statements of changes in shareholders' equity, and cash flows for such fiscal quarter and the portion of the Company's fiscal year then ended, in each case setting forth in comparative form, as applicable, the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail and certified by the chief executive officer, chief financial officer, treasurer or controller of the Company as fairly presenting the financial condition, results of operations, shareholders' equity and cash flows of the Company and its Subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes.
As to any information contained in materials furnished pursuant to Section 7.02(c), the Company shall not be separately required to furnish such information under Section 7.01(a) or (b) above, but the foregoing shall not be in derogation of the obligation of the Company to furnish the information and materials described in Section 7.01(a) or (b) above at the times specified therein.
7.02Certificates; Other Information.
Deliver to the Lender, in form and detail satisfactory to the Lender:
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(a)concurrently with the delivery of the financial statements referred to in Sections 7.01(a) and (b), a duly completed Compliance Certificate signed by the chief executive officer, chief financial officer, treasurer or controller of the Company;
(b)not later than 30 days after the beginning of each fiscal year of the Company, commencing with the fiscal year beginning September 1, 2011, an annual business plan and budget of the Company and its Subsidiaries on a consolidated basis;
(c)promptly upon transmission thereof, copies of all such financial statements, proxy statements, notices and reports as it shall send to its public stockholders and copies of all registration statements (without exhibits) and all reports which it files with the SEC:
(d)promptly upon receipt thereof, a copy of each other report submitted to any Loan Party by independent accountants in connection with any annual, interim or special audit made by them of the books of the any Loan Party;
(e)promptly after the furnishing thereof, copies of any statement or report furnished to any holder of debt securities of the Company or any Subsidiary pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Lender pursuant to Section 7.01 or any other clause of this Section 7.02;
(f)promptly, and in any event within five Business Days after receipt thereof by any Loan Party, copies of each notice or other correspondence received from the SEC (or comparable agency in any applicable non-U.S. jurisdiction) concerning any investigation or possible investigation by such agency regarding financial or other operational results of any Loan Party; and
(g)promptly, such additional information regarding the business, financial or corporate affairs of the Company or any Subsidiary, or compliance with the terms of the Loan Documents, as the Lender may from time to time reasonably request.
Documents required to be delivered pursuant to Section 7.01(a) or (b) or Section 7.02(c) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and shall be deemed to have been delivered electronically on the date (i) on which the Company posts such documents, or provides a link thereto on the Company’s website on the Internet at the website address listed on Schedule 11.02; or (ii) on which such documents are posted on the Company’s behalf on an Internet or intranet website, if any, to which the Lender has access (whether a commercial, third‑party website or whether sponsored by the Lender); provided that the Company shall notify the Lender (by telecopier or electronic mail) of the posting of any such documents (which notice shall be deemed satisfied if the Company has included the Lender on the Company's electronic distribution list on the Company's investor relations website for SEC filings).
Upon a Responsible Officer of a Loan Party acquiring knowledge thereof, promptly notify the Lender of:
(a)the occurrence of any Default.
(b)any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect.
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(c)the occurrence of any ERISA Event.
Each notice pursuant to this Section 7.03 shall be accompanied by a statement of a Responsible Officer of the Company setting forth details of the occurrence referred to therein and stating what action the Company has taken and proposes to take with respect thereto. Each notice pursuant to Section 7.03(a) shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.
Pay and discharge, as the same shall become due and payable, all its tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary.
7.05Preservation of Existence, Etc.
(a)Preserve, renew and maintain in full force and effect its legal existence and good standing under the Laws of the jurisdiction of its organization except in a transaction permitted by Section 8.04 or 8.05.
(b)Take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect.
(c)Preserve or renew all of its IP Rights, the non-preservation of which could reasonably be expected to have a Material Adverse Effect.
7.06Maintenance of Properties.
(a)Maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted.
(b)Make all necessary repairs thereto and renewals and replacements thereof, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect.
(c)Use the standard of care typical in the industry in the operation and maintenance of its facilities.
Maintain in full force and effect insurance (including worker's compensation insurance, liability insurance, casualty insurance and business interruption insurance) with financially sound and reputable insurance companies not Affiliates of the Company, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Company or such Subsidiary operates.
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Comply with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted; or (b) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.
Maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Company or such Subsidiary, as the case may be.
Permit representatives and independent contractors of the Lender to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, all at the expense of the Company and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Company; provided, however, that when an Event of Default exists the Lender (or any of their respective representatives or independent contractors) may do any of the foregoing at the expense of the Company at any time during normal business hours and without advance notice.
Use the proceeds of the Credit Extensions (a) to finance working capital, capital expenditures and other lawful corporate purposes, and (b) to refinance certain existing Indebtedness, provided that in no event shall the proceeds of the Credit Extensions be used in contravention of any Law or of any Loan Document.
Do, and cause each of its ERISA Affiliates to do, each of the following: (a) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Internal Revenue Code and other federal or state law; (b) cause each Plan that is qualified under Section 401(a) of the Internal Revenue Code to maintain such qualification; and (c) make all required contributions to any Plan subject to Section 412, Section 430 or Section 431 of the Internal Revenue Code.
Within thirty days after the acquisition or formation of any Domestic Subsidiary, cause such Person to (i) become a Guarantor by executing and delivering to the Lender a Joinder Agreement or such other documents as the Lender shall deem appropriate for such purpose, and (ii) upon the request of the Lender in its sole discretion, deliver to the Lender such Organization Documents, resolutions and favorable opinions of counsel, all in form, content and scope reasonably satisfactory to the Lender. Notwithstanding anything in any Loan Document to the contrary, WD-40 Direct LLC shall not be required to become a Guarantor until such time, if any, as it has material assets and engages in business.
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On or prior to the Note Purchase Agreement Termination Date, deliver a satisfactory payoff letter evidencing the repayment in full of and release of Liens securing the Note Purchase Agreement. No later than thirty days after the Note Purchase Agreement Termination Date, provide the Lender satisfactory evidence of the termination of all Liens securing the Note Purchase Agreement.
ARTICLE VIII
NEGATIVE COVENANTS
So long as the Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, no Loan Party shall, nor shall it permit any Subsidiary to, directly or indirectly:
Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than the following:
(a)Liens pursuant to any Loan Document;
(b)Liens existing on the date hereof and listed on Schedule 8.01;
(c)Liens (other than Liens imposed under ERISA) for taxes, assessments or governmental charges or levies not yet due or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;
(d)statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and suppliers and other Liens imposed by law or pursuant to customary reservations or retentions of title arising in the ordinary course of business, provided that such Liens secure only amounts not yet due and payable or, if due and payable, are unfiled and no other action has been taken to enforce the same or are being contested in good faith by appropriate proceedings for which adequate reserves determined in accordance with GAAP have been established;
(e)pledges or deposits in the ordinary course of business in connection with workers' compensation, unemployment insurance and other social security legislation, other than any Lien imposed by ERISA;
(f)deposits to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;
(g)easements, rights-of-way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person;
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(h)Liens securing judgments for the payment of money (or appeal or other surety bonds relating to such judgments) not constituting an Event of Default under Section 9.01(h);
(i)Liens securing Indebtedness permitted under Section 8.03(e); provided that (i) such Liens do not at any time encumber any property other than the property financed by such Indebtedness and (ii) such Liens attach to such property concurrently with or within ninety days after the acquisition thereof;
(j)leases or subleases granted to others not interfering in any material respect with the business of the Company or any Subsidiary;
(k)any interest of title of a lessor under, and Liens arising from UCC financing statements (or equivalent filings, registrations or agreements in foreign jurisdictions) relating to, leases permitted by this Agreement;
(l)Liens deemed to exist in connection with Investments in repurchase agreements permitted under Section 8.02;
(m)normal and customary rights of setoff upon deposits of cash in favor of banks or other depository institutions;
(n)Liens of a collection bank arising under Section 4‑210 of the Uniform Commercial Code on items in the course of collection; and
(o)prior to the Note Purchase Agreement Termination Date, Liens securing the Company's obligations under the Note Purchase Agreement.
Make any Investments, except:
(a)Investments held in the form of cash or Cash Equivalents;
(b)Investments existing as of the Closing Date and set forth on Schedule 8.02;
(c)Investments in any Person that is a Loan Party prior to giving effect to such Investment;
(d)Investments by any Subsidiary that is not a Loan Party in any other Subsidiary that is not a Loan Party;
(e)Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss;
(f)Guarantees permitted by Section 8.03;
(g)Permitted Acquisitions; and
(h)Investments of a nature not contemplated in the foregoing clauses in an amount not to exceed $2,500,000 in the aggregate at any time outstanding.
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Create, incur, assume or suffer to exist any Indebtedness, except:
(a)Indebtedness under the Loan Documents;
(b)Indebtedness set forth on Schedule 8.03;
(c)intercompany Indebtedness permitted under Section 8.02;
(d)obligations (contingent or otherwise) existing or arising under any Swap Contract, provided that (i) such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with liabilities, commitments, investments, assets, or property held or reasonably anticipated by such Person, or changes in the value of securities issued by such Person, and not for purposes of speculation or taking a "market view;" and (ii) such Swap Contract does not contain any provision exonerating the non‑defaulting party from its obligation to make payments on outstanding transactions to the defaulting party;
(e)purchase money Indebtedness (including obligations in respect of Capital Leases) hereafter incurred to finance the purchase of fixed assets, and renewals, refinancings and extensions thereof, provided that (i) the aggregate outstanding principal amount of all such Indebtedness shall not exceed $10,000,000 at any one time outstanding; and (ii) such Indebtedness when incurred shall not exceed the purchase price of the asset(s) financed;
(f)other unsecured Indebtedness in an aggregate principal amount not to exceed $1,250,000 at any one time outstanding;
(g)Guarantees with respect to Indebtedness permitted under this Section 8.03; and
(h)prior to the Note Purchase Agreement Termination Date, Indebtedness arising under the Note Purchase Agreement in an aggregate principal amount not to exceed $10,800,000.
Merge, dissolve, liquidate or consolidate with or into another Person, except that so long as no Default exists or would result therefrom, (a) the Company may merge or consolidate with any of its Subsidiaries provided that the Company is the continuing or surviving Person, (b) any Subsidiary may merge or consolidate with any other Subsidiary provided that if a Loan Party is a party to such transaction, the continuing or surviving Person is a Loan Party, (c) the Company or any Subsidiary may merge with any other Person in connection with a Permitted Acquisition provided that (i) if the Company is a party to such transaction, the Company is the continuing or surviving Person and (ii) if a Loan Party is a party to such transaction, such Loan Party is the surviving Person and (d) any Subsidiary may dissolve, liquidate or wind up its affairs at any time provided that such dissolution, liquidation or winding up, as applicable, could not have a Material Adverse Effect.
(a)Permitted Transfers;
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(b)Dispositions of machinery and equipment no longer used or useful in the conduct of business of the Company and its Subsidiaries that are Disposed of in the ordinary course of business; and
(c)other Dispositions so long as (i) the consideration paid in connection therewith shall be paid contemporaneous with consummation of the transaction and shall be in an amount not less than the fair market value of the property disposed of, (ii) such transaction does not involve the sale or other disposition of a minority equity interest in any Subsidiary, (iii) such transaction does not involve a sale or other disposition of receivables other than receivables owned by or attributable to other property concurrently being disposed of in a transaction otherwise permitted under this Section 8.05, and (iv) the aggregate net book value of all of the assets sold or otherwise disposed of by the Company and its Subsidiaries in all such transactions occurring after the Closing Date shall not exceed $25,000,000.
Notwithstanding the foregoing, prior to the Disposition (including by way of a merger or consolidation), dissolution, liquidation or winding up of any Subsidiary that is a Designated Borrower, the Company shall terminate such Subsidiary's status as a Designated Borrower in accordance with Section 2.13(d) and any Loans or other outstanding Obligations of such Subsidiary shall be assumed by the Company.
Declare or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, except that:
(a)each Subsidiary may make Restricted Payments to Persons that own Equity Interests in such Subsidiary, ratably according to their respective holdings of the type of Equity Interest in respect of which such Restricted Payment is being made;
(b)the Company and each Subsidiary may declare and make dividend payments or other distributions payable solely in common Equity Interests of such Person;
(c)so long as no Default exists immediately prior and after giving effect thereto, the Company may make cash dividends in an aggregate amount during any four-fiscal quarter period not to exceed 75% of Consolidated Net Income for the most recently ended four-fiscal quarter period for which financial statements have been delivered pursuant to Section 7.01; and
(d)so long as no Default exists immediately prior and after giving effect thereto, the Company may repurchase shares of its capital stock in an aggregate amount not to exceed $100,000,000 during the term of this Agreement.
8.07Change in Nature of Business.
Engage in any material line of business substantially different from those lines of business conducted by the Company and its Subsidiaries on the Closing Date or any business substantially related or incidental thereto.
8.08Transactions with Affiliates and Insiders.
Enter into or permit to exist any transaction or series of transactions with any officer, director or Affiliate of such Person other than (a) advances of working capital to any Loan Party, (b) transfers of cash and assets to any Loan Party, (c) intercompany transactions expressly permitted by this Agreement, (d) normal and reasonable compensation and reimbursement of expenses of officers and directors and (e) except as otherwise specifically limited in this Agreement, other transactions which are entered into in the ordinary course of such
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Person's business on terms and conditions substantially as favorable to such Person as would be obtainable by it in a comparable arms‑length transaction with a Person other than an officer, director or Affiliate.
Enter into, or permit to exist, any Contractual Obligation that (a) encumbers or restricts the ability of any such Person to (i) make Restricted Payments to any Loan Party, (ii) pay any Indebtedness or other obligation owed to any Loan Party, (iii) make loans or advances to any Loan Party, (iv) transfer any of its property to any Loan Party, (v) pledge its property pursuant to the Loan Documents or any renewals, refinancings, exchanges, refundings or extension thereof or (vi) act as a Loan Party pursuant to the Loan Documents or any renewals, refinancings, exchanges, refundings or extension thereof, except (in respect of any of the matters referred to in clauses (i)‑(v) above) for (1) this Agreement and the other Loan Documents, (2) any document or instrument governing Indebtedness incurred pursuant to Section 8.03(e), provided that any such restriction contained therein relates only to the asset or assets constructed or acquired in connection therewith, (3) any Permitted Lien or any document or instrument governing any Permitted Lien, provided that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien, (4) customary restrictions and conditions contained in any agreement relating to the sale of any property permitted under Section 8.05 pending the consummation of such sale, or (5) prior to the Note Purchase Agreement Termination Date, the Note Purchase Agreement or (b) requires the grant of any security for any obligation if such property is given as security for the Obligations except for during any time prior to the Note Purchase Agreement Termination Date, the Note Purchase Agreement.
Use the proceeds of any Credit Extension, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the FRB) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose.
(a)Prior to the Note Purchase Agreement Termination Date, the Company will not permit the covenants set forth on Exhibit 8.11 to be violated.
(b)At all times after the Note Purchase Agreement Termination Date, the Company will not permit the Consolidated EBITDA as of the end of any fiscal quarter of the Company for the four fiscal quarter period ending on such date to be less than $40,000,000.
8.12Prepayment of Other Indebtedness, Etc.
(a)Amend or modify any of the terms of any Indebtedness of the Company or any Subsidiary (other than Indebtedness arising under the Loan Documents) if such amendment or modification would add or change any terms in a manner adverse to the Company or any Subsidiary, or shorten the final maturity or average life to maturity or require any payment to be made sooner than originally scheduled or increase the interest rate applicable thereto.
(b)Make (or give any notice with respect thereto) any voluntary or optional payment or prepayment or redemption or acquisition for value of (including without limitation, by way of depositing money or securities with the trustee with respect thereto before due for the purpose of paying when due), refund, refinance or exchange of any Indebtedness of the Company or any Subsidiary (other than Indebtedness arising under the Loan Documents).
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8.13Organization Documents; Fiscal Year; Legal Name, State of Formation and Form of Entity.
(a)Amend, modify or change its Organization Documents in a manner adverse to the Lender.
(b)Change its fiscal year.
(c)Without providing ten days prior written notice to the Lender, change its name, state of formation or form of organization.
8.14Ownership of Subsidiaries.
Notwithstanding any other provisions of this Agreement to the contrary, (a) permit any Person (other than the Company or any wholly-owned Subsidiary) to own any Equity Interests of any Subsidiary except to qualify directors where required by applicable Law or to satisfy other requirements of applicable Law with respect to the ownership of Equity Interests of Foreign Subsidiaries, or (b) permit any Subsidiary to issue or have outstanding any shares of preferred Equity Interests.
Permit Consolidated Capital Expenditures to exceed $5,000,000 per fiscal year.
Notwithstanding anything to the contrary contained in Section 8.15 to the extent that the aggregate amount of Consolidated Capital Expenditures made by any Loan Party in any fiscal year of the Company is less than the maximum base amount of Consolidated Capital Expenditures permitted by Section 8.15 with respect to such fiscal year, the amount of such difference (the "Rollover Amount") may be carried forward and used to make additional Consolidated Capital Expenditures in subsequent fiscal years of the Company; provided that the Rollover Amount added to the amount of Consolidated Capital Expenditures permitted in any fiscal year of the Company shall not exceed $2,500,000.
8.16Synthetic Leases and Securitization Transactions.
Enter into, or permit to exist, any Synthetic Leases or Securitization Transactions.
ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
Each of the following shall be an “Event of Default” under this Agreement:
(a)Non-Payment. Any Loan Party fails to pay (i) when and as required to be paid herein, and in the currency required hereunder, any amount of principal of any Loan or any L/C Obligation, or (ii) within three days after the same becomes due, any interest on any Loan or on any L/C Obligation, or any fee due hereunder, or (iii) within five days after the same becomes due, any other amount payable hereunder or under any other Loan Document; or
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(b)Specific Covenants. Any Loan Party fails to perform or observe any term, covenant or agreement contained in any of Section 7.01, 7.02, 7.03, 7.05(a), 7.10, 7.11 or 7.13, or Article VIII; or
(c)Other Defaults. Any Loan Party fails to perform or observe any other covenant or agreement (not specified in subsection (a) or (b) above) contained in any Loan Document on its part to be performed or observed and such failure continues for thirty days after the earlier to occur of (i) any Responsible Officer of a Loan Party’s acquiring knowledge of such default and (ii) written notice thereof shall have been received by the Company from the Lender; or
(d)Representations and Warranties. Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of any Loan Party herein, in any other Loan Document, or in any document delivered in connection herewith or therewith shall be incorrect or misleading when made or deemed made; or
(e)Cross-Default. (i) The Company or any Subsidiary (A) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness or Guarantee (other than Indebtedness hereunder and Indebtedness under Swap Contracts) having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than the Threshold Amount, or (B) fails to observe or perform any other agreement or condition relating to any such Indebtedness or Guarantee or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness or the beneficiary or beneficiaries of such Guarantee (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to be demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity, or such Guarantee to become payable or cash collateral in respect thereof to be demanded; or (ii) there occurs under any Swap Contract an Early Termination Date (as defined in such Swap Contract) resulting from (A) any event of default under such Swap Contract as to which the Company or any Subsidiary is the Defaulting Party (as defined in such Swap Contract) or (B) any Termination Event (as so defined) under such Swap Contract as to which the Company or any Subsidiary is an Affected Party (as so defined) and, in either event, the Swap Termination Value owed by the Company or such Subsidiary as a result thereof is greater than the Threshold Amount; or
(f)Insolvency Proceedings, Etc. The Company or any Subsidiary institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for sixty calendar days; or any proceeding under any Debtor Relief Law relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for sixty calendar days, or an order for relief is entered in any such proceeding; or
(g)Inability to Pay Debts; Attachment. (i) The Company or any Subsidiary becomes unable or admits in writing its inability or fails generally to pay its debts as they become due, or (ii) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any such Person and is not released, vacated or fully bonded within thirty days after its issue or levy; or
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(h)Judgments. There is entered against the Company or any Subsidiary (i) one or more final judgments or orders for the payment of money in an aggregate amount (as to all such judgments or orders) exceeding the Threshold Amount (to the extent not covered by independent third-party insurance as to which the insurer has been notified of the claim and has not rejected coverage), or (ii) any one or more non-monetary final judgments that have, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and, in either case, (A) enforcement proceedings are commenced by any creditor upon such judgment or order, or (B) there is a period of thirty consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect; or
(i)ERISA. (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of any Loan Party under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of the Threshold Amount, or (ii) the Company or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of the Threshold Amount; or
(j)Invalidity of Loan Documents. Any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect; or any Loan Party or any other Person contests in any manner the validity or enforceability of any Loan Document; or any Loan Party denies that it has any or further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind any Loan Document; or
(k)Change of Control. There occurs any Change of Control; or
(l)Material Adverse Effect. An event or condition that has occurred that has had or could reasonably be expected to have a Material Adverse Effect.
9.02Remedies Upon Event of Default.
If any Event of Default occurs and is continuing, the Lender may take any or all of the following actions:
(a)declare the Commitments to be terminated, whereupon the Commitments shall be terminated;
(b)declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrowers;
(c)require that the Borrowers Cash Collateralize the L/C Obligations (in an amount equal to the then Outstanding Amount thereof); and
(d)exercise all rights and remedies available to it under the Loan Documents;
provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to any Borrower under the Bankruptcy Code of the United States, the obligation of the Lender to make Loans and make L/C Credit Extensions shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and
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payable, and the obligation of the Borrowers to Cash Collateralize the L/C Obligations as aforesaid shall automatically become effective, in each case without further act of the Lender.
The Lender may, at any time and from time to time after the initial deposit of Cash Collateral pursuant to Section 9.02(c), require that the Borrowers provide additional Cash Collateral (and the Borrowers shall, from time to time after the initial deposit of Cash Collateral, provide such additional Cash Collateral) in an amount not to exceed 105% of the Outstanding Amount of such L/C Obligations, in order to protect against the results of exchange rate fluctuations.
After the exercise of remedies provided for in Section 9.02 (or after the Loans have automatically become immediately due and payable and the L/C Obligations have automatically been required to be Cash Collateralized as set forth in the proviso to Section 9.02), any amounts received on account of the Obligations shall be applied by the Lender in its sole discretion. Notwithstanding the foregoing, payments provided by a Designated Borrower shall only be applied to the Obligations of such Designated Borrower.
No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by any Loan Party therefrom, shall be effective unless in writing signed by the Lender and the Loan Parties, as the case may be, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.
11.02Notices; Effectiveness; Electronic Communications.
(a)Notices Generally. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, to the address, telecopier number, electronic mail address or telephone number specified for such Person on Schedule 11.02.
Notices and other communications sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices and other communications sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices and other communications delivered through electronic
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communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b).
(b)Electronic Communications. The Lender or any Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications.
Unless the Lender otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender's receipt of an acknowledgement from the intended recipient (such as by the "return receipt requested" function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.
(c)Change of Address, Etc. Any Borrower and the Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the other parties hereto.
(d)Reliance by the Lender. The Lender shall be entitled to rely and act upon any notices (including telephonic Loan Notices) purportedly given by on behalf of any Loan Party even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Loan Parties shall indemnify the Lender and its Related Parties from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by on behalf of a Loan Party. All telephonic notices to and other telephonic communications with the Lender may be recorded by the Lender, and each of the parties hereto hereby consents to such recording.
11.03No Waiver; Cumulative Remedies; Enforcement.
No failure by the Lender to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or under any other Loan Document preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided, and provided under each other Loan Document are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
11.04Expenses; Indemnity; and Damage Waiver.
(a)Costs and Expenses. The Loan Parties shall pay (i) all reasonable out‑of‑pocket expenses incurred by the Lender and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Lender), in connection with the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out‑of‑pocket expenses incurred by the Lender in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all reasonable out‑of‑pocket expenses incurred by the Lender (including the fees, charges and disbursements of any counsel for the Lender), and shall pay all fees and time charges for
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attorneys who may be employees of the Lender, in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with the Loans made or Letters of Credit issued hereunder, including all such out‑of‑pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.
(b)Indemnification. The Loan Parties shall indemnify the Lender and each Related Party (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or by any Loan Party arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, or the administration of this Agreement and the other Loan Documents (including in respect of any matters addressed in Section 3.01), (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Company or any of its Subsidiaries, or any Environmental Liability related in any way to the Company or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by any Loan Party, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by any Loan Party against an Indemnitee for breach in bad faith of such Indemnitee's obligations hereunder or under any other Loan Document, if such Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction.
(c)Waiver of Consequential Damages, Etc. To the fullest extent permitted by applicable law, no Loan Party shall assert, and each Loan Party hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof. No Indemnitee referred to in subsection (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed to such unintended recipients by such Indemnitee through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby other than for direct or actual damages resulting from the gross negligence or willful misconduct of such Indemnitee as determined by a final and nonappealable judgment of a court of competent jurisdiction.
(d)Payments. All amounts due under this Section shall be payable not later than ten Business Days after demand therefor.
(e)Survival. The agreements in this Section shall survive the termination of the Commitments and the repayment, satisfaction or discharge of all the other Obligations.
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To the extent that any payment by or on behalf of any Loan Party is made to the Lender, or the Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred.
(a)Successors and Assigns Generally. The provisions of this Agreement and the other Loan Documents shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns permitted hereby, except that no Borrower may assign or otherwise transfer any of its rights or obligations hereunder or thereunder without the prior written consent of the Lender. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, participants and, to the extent expressly contemplated hereby, the Related Parties of the Lender) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b)Assignments. The Lender may at Lender’s sole cost and expense (so long as no Default exists) at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including all or a portion of its Commitments and the Loans at the time owing to it) pursuant to documentation acceptable to the Lender and the assignee. The Lender may also at Lender’s sole cost and expense (so long as no Default exists) sell participations in its rights and obligations under this Agreement. There shall not be any assignment or participation fee payable by the Loan Parties.
11.07Treatment of Certain Information; Confidentiality.
The Lender agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates' respective partners, directors, officers, employees, agents, trustees, advisors and representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including any self-regulatory authority), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or participant in, or any prospective assignee of or participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to a Loan Party and its obligations, (g) with the consent of the Company or (h) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Lender or any of its Affiliates on a nonconfidential basis from a source other than the Loan Parties.
For purposes of this Section, "Information" means all information received from the Company or any Subsidiary relating to the Company or any Subsidiary or any of their respective businesses, other than any such information that is available to the Lender on a nonconfidential basis prior to disclosure by the
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Company or any Subsidiary. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
The Lender acknowledges that (a) the Information may include material non-public information concerning the Company or a Subsidiary, as the case may be, (b) it has developed compliance procedures regarding the use of material non-public information and (c) it will handle such material non-public information in accordance with applicable Law, including Federal and state securities Laws.
If an Event of Default shall have occurred and be continuing, the Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by the Lender or any such Affiliate to or for the credit or the account of any Loan Party against any and all of the obligations of such Loan Party now or hereafter existing under this Agreement or any other Loan Document to the Lender, irrespective of whether or not the Lender shall have made any demand under this Agreement or any other Loan Document and although such obligations of such Loan Party may be contingent or unmatured or are owed to a branch or office of the Lender different from the branch or office holding such deposit or obligated on such indebtedness. The rights of the Lender and its Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that the Lender or its Affiliates may have. The Lender agrees to notify the Company promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.
11.09Interest Rate Limitation.
Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the "Maximum Rate"). If the Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Company. In determining whether the interest contracted for, charged, or received by the Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.
11.10Counterparts; Integration; Effectiveness.
This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 5.01, this Agreement shall become effective when it shall have been executed by the Lender and when the Lender shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopy or other electronic imaging means shall be effective as delivery of a manually executed counterpart of this Agreement.
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11.11Survival of Representations and Warranties.
All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Lender, regardless of any investigation made by the Lender or on their behalf and notwithstanding that the Lender may have had notice or knowledge of any Default at the time of any Credit Extension, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding.
If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
11.13Service of Process on the Designated Borrowers.
Each Designated Borrower hereby irrevocably designates, appoints and empowers the Company, and successors as the designee, appointee and agent of such Designated Borrower to receive, accept and acknowledge, for and on behalf of such Designated Borrower and its properties, service of any and all legal process, summons, notices and documents which may be served in such action, suit or proceeding relating to this Agreement or the Loan Documents in the case of the courts of the Southern District of California or of the courts of the State of California sitting in the city of San Diego, which service may be made on any such designee, appointee and agent in accordance with legal procedures prescribed for such courts. Each Designated Borrower agrees to take any and all action necessary to continue such designation in full force and effect and should such designee, appointee and agent become unavailable for this purpose for any reason, such Designated Borrower will forthwith irrevocably designate a new designee, appointee and agent, which shall irrevocably agree to act as such, with the powers and for purposes specified in this Section 11.13. Each Designated Borrower further irrevocably consents and agrees to service of any and all legal process, summons, notices and documents out of any of the aforesaid courts in any such action, suit or proceeding relating to the Notes or this Agreement or the other Loan Documents delivered to such Designated Borrower in accordance with this Section 11.13 or to its then designee, appointee or agent for service. If service is made upon such designee, appointee and agent, a copy of such process, summons, notice or document shall also be provided to the applicable Designated Borrower at the address specified in Schedule 11.02 by registered or certified mail, or overnight express air courier; provided that failure of such holder to provide such copy to such Designated Borrower shall not impair or affect in any way the validity of such service or any judgment rendered in such action or proceedings. Each Designated Borrower agrees that service upon such Designated Borrower or any such designee, appointee and agent as provided for herein shall constitute valid and effective personal service upon such Designated Borrower with respect to matters contemplated in this Section 11.13 and that the failure of any such designee, appointee and agent to give any notice of such service to such Designated Borrower shall not impair or affect in any way the validity of such service or any judgment rendered in any action or proceeding based thereon. Nothing herein shall, or shall be construed so as to, limit the right of the Lender to bring actions, suits or proceedings with respect to the obligations and liabilities of each Designated Borrower under, or any other matter arising out of or in connection with, this Agreement, or for recognition or enforcement of any judgment rendered
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in any such action, suit or proceeding, in the courts of whatever jurisdiction in which the respective offices of the Lender may be located or assets of such Designated Borrower may be found or as the Lender otherwise deems appropriate, or to affect the right to service of process in any jurisdiction in any other manner permitted by law.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA.
11.15Dispute Resolution; Waiver of Right to Trial by Jury.
(a)This Section 11.15(a) is referred to as the "Dispute Resolution Provision." This Dispute Resolution Provision is a material inducement for the parties entering into this Agreement.
(i)This Dispute Resolution Provision concerns the resolution of any controversies or claims between the parties, whether arising in contract, tort or by statute, including but not limited to controversies or claims that arise out of or relate to: (i) this Agreement (including any renewals, extensions or modifications); or (ii) any document related to this Agreement (collectively a "Claim"). For the purposes of this Dispute Resolution Provision only, the term “parties” shall include any parent corporation, Subsidiary or Affiliate of the Lender involved in the servicing, management or administration of any obligation described or evidenced by this Agreement.
(ii)At the request of any party to this Agreement, any Claim shall be resolved by binding arbitration in accordance with the Federal Arbitration Act (Title 9, U.S. Code) (the "Act"). The Act will apply even though this Agreement provides that it is governed by the law of a specified state.
(iii)Arbitration proceedings will be determined in accordance with the Act, the then-current rules and procedures for the arbitration of financial services disputes of the American Arbitration Association or any successor thereof ("AAA"), and the terms of this Dispute Resolution Provision. In the event of any inconsistency, the terms of this Dispute Resolution Provision shall control. If AAA is unwilling or unable to (i) serve as the provider of arbitration or (ii) enforce any provision of this arbitration clause, the Lender may designate another arbitration organization with similar procedures to serve as the provider of arbitration.
(iv)The arbitration shall be administered by AAA and conducted, unless otherwise required by law, in any U.S. state where real or tangible personal property collateral for this credit is located or if there is no such collateral, in the state specified in the governing law section of this Agreement. All Claims shall be determined by one arbitrator; however, if Claims exceed Five Million Dollars ($5,000,000), upon the request of any party, the Claims shall be decided by three arbitrators. All arbitration hearings shall commence within ninety (90) days of the demand for arbitration and close within ninety (90) days of commencement and the award of the arbitrator(s) shall be issued within thirty (30) days of the close of the hearing. However, the arbitrator(s), upon a showing of good cause, may extend the commencement of the hearing for up to an additional sixty (60) days. The arbitrator(s) shall provide a concise written statement of reasons for the award. The arbitration award may be submitted to any court having jurisdiction to be confirmed and have judgment entered and enforced.
(v)The arbitrator(s) will give effect to statutes of limitation in determining any Claim and shall dismiss the arbitration if the Claim is barred under the applicable statutes of limitation.
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For purposes of the application of any statutes of limitation, the service on AAA under applicable AAA rules of a notice of Claim is the equivalent of the filing of a lawsuit. Any dispute concerning this arbitration provision or whether a Claim is arbitrable shall be determined by the arbitrator(s), except as set forth at subparagraph (x) of this Dispute Resolution Provision. The arbitrator(s) shall have the power to award legal fees pursuant to the terms of this Agreement.
(vi)The procedure described above will not apply if the Claim, at the time of the proposed submission to arbitration, arises from or relates to an obligation to the Lender secured by real property. In this case, all of the parties to this Agreement must consent to submission of the Claim to arbitration.
(vii)To the extent any Claims are not arbitrated, to the extent permitted by law the Claims shall be resolved in court by a judge without a jury, except any Claims which are brought in California state court shall be determined by judicial reference as described below.
(viii)Any Claim which is not arbitrated and which is brought in California state court will be resolved by a general reference to a referee (or a panel of referees) as provided in California Code of Civil Procedure Section 638. The referee (or presiding referee of the panel) shall be a retired Judge or Justice. The referee (or panel of referees) shall be selected by mutual written agreement of the parties. If the parties do not agree, the referee shall be selected by the Presiding Judge of the Court (or his or her representative) as provided in California Code of Civil Procedure Section 638 and the following related sections. The referee shall determine all issues, whether of fact or law, in accordance with existing California law and the California rules of evidence and civil procedure. The referee shall be empowered to enter equitable as well as legal relief, provide all temporary or provisional remedies, enter equitable orders that will be binding on the parties and rule on any motion which would be authorized in a trial, including without limitation motions for summary judgment or summary adjudication. The award that results from the decision of the referee(s) will be entered as a judgment in the court that appointed the referee, in accordance with the provisions of California Code of Civil Procedure Sections 644(a) and 645. The parties reserve the right to seek appellate review of any judgment or order, including but not limited to, orders pertaining to class certification, to the same extent permitted in a court of law.
(ix)This Dispute Resolution Provision does not limit the right of any party to: (i) exercise self-help remedies, such as but not limited to, setoff; (ii) initiate judicial or non-judicial foreclosure against any real or personal property collateral; (iii) exercise any judicial or power of sale rights, or (iv) act in a court of law to obtain an interim remedy, such as but not limited to, injunctive relief, writ of possession or appointment of a receiver, or additional or supplementary remedies. The filing of a court action is not intended to constitute a waiver of the right of any party, including the suing party, thereafter to require submittal of the Claim to arbitration or judicial reference.
(x)Any arbitration or court trial (whether before a judge or jury or pursuant to judicial reference) of any Claim will take place on an individual basis without resort to any form of class or representative action (the “Class Action Waiver”). The Class Action Waiver precludes any party from participating in or being represented in any class or representative action regarding a Claim. Regardless of anything else in this Dispute Resolution Provision, the validity and effect of the Class Action Waiver may be determined only by a court or referee and not by an arbitrator. The parties to this Agreement acknowledge that the Class Action Waiver is material and essential to the arbitration of any disputes between the parties and is nonseverable from the agreement to arbitrate Claims. If the Class Action Waiver is limited, voided or found unenforceable, then the parties’ agreement to arbitrate shall be null and void with respect to such proceeding, subject to the right to
61
appeal the limitation or invalidation of the Class Action Waiver. The Parties acknowledge and agree that under no circumstances will a class action be arbitrated.
(b)By agreeing to binding arbitration or judicial reference, the parties irrevocably and voluntarily waive any right they may have to a trial by jury as permitted by law in respect of any Claim. Furthermore, without intending in any way to limit this Dispute Resolution Provision, to the extent any Claim is not arbitrated or submitted to judicial reference, the parties irrevocably and voluntarily waive any right they may have to a trial by jury to the extent permitted by law in respect of such Claim. This waiver of jury trial shall remain in effect even if the Class Action Waiver is limited, voided or found unenforceable. WHETHER THE CLAIM IS DECIDED BY ARBITRATION, BY JUDICIAL REFERENCE, OR BY TRIAL BY A JUDGE, THE PARTIES AGREE AND UNDERSTAND THAT THE EFFECT OF THIS AGREEMENT IS THAT THEY ARE GIVING UP THE RIGHT TO TRIAL BY JURY TO THE EXTENT PERMITTED BY LAW.
11.16Electronic Execution of Assignments and Certain Other Documents.
The words "execution," "signed," "signature," and words of like import in any amendment or other modification hereof (including waivers and consents) shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
The Lender hereby notifies each Loan Party that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the "Act"), it is required to obtain, verify and record information that identifies the Loan Parties, which information includes the name and address of the Loan Parties and other information that will allow the Lender to identify the Loan Parties in accordance with the Act. The Loan Parties shall, promptly following a request by the Lender, provide all documentation and other information that the Lender requests in order to comply with its ongoing obligations under applicable "know your customer" and anti-money laundering rules and regulations, including the Act.
If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder or any other Loan Document in one currency into another currency, the rate of exchange used shall be that at which in accordance with normal banking procedures the Lender could purchase the first currency with such other currency on the Business Day preceding that on which final judgment is given. The obligation of the Borrowers in respect of any such sum due from it to the Lender hereunder or under the other Loan Documents shall, notwithstanding any judgment in a currency (the "Judgment Currency") other than that in which such sum is denominated in accordance with the applicable provisions of this Agreement (the "Agreement Currency"), be discharged only to the extent that on the Business Day following receipt by the Lender of any sum adjudged to be so due in the Judgment Currency, the Lender may in accordance with normal banking procedures purchase the Agreement Currency with the Judgment Currency. If the amount of the Agreement Currency so purchased is less than the sum originally due to the Lender from the Borrowers in the Agreement Currency, the Borrowers agree, as a separate obligation and notwithstanding any such judgment, to indemnify the Lender or the Person to whom such obligation was owing against such loss. If the amount of the Agreement Currency so purchased is greater than the sum
62
originally due to the Lender in such currency, the Lender agrees to return the amount of any excess to the Borrowers (or to any other Person who may be entitled thereto under applicable law).
[SIGNATURE PAGES FOLLOW]
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BORROWER: |
WD-40 COMPANY, |
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a Delaware corporation |
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By: /s/ JAY REMBOLT |
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Name: Jay Rembolt |
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Title: CFO |
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GUARANTOR: |
HPD HOLDINGS CORP., |
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a Delaware corporation |
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By: /s/ JAY REMBOLT |
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Name: Jay Rembolt |
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Title: CFO |
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WD-40 MANUFACTURING COMPANY |
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a California corporation |
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By: /s/ JAY REMBOLT |
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Name: Jay Rembolt |
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Title: CFO |
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HPD LABORATORIES, INC., |
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a Delaware corporation |
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By: /s/ JAY REMBOLT |
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Name: Jay Rembolt |
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Title: CFO |
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HEARTLAND CORPORATION, |
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a Kansas corporation |
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By: /s/ JAY REMBOLT |
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Name: Jay Rembolt |
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Title: CFO |
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HPD PROPERTIES, L.L.C., |
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a Delaware limited liability company |
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By: /s/ JAY REMBOLT |
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Name: Jay Rembolt |
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Title: CFO |
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LENDER: |
BANK OF AMERICA, N.A., |
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as a Lender |
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By: /s/ CHRISTOPHER D. PANNACCIULLI |
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Name: Christopher D. Pannacciulli |
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Title: Senior Vice President |
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
Schedule 1.01
MANDATORY COST FORMULAE
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1. |
The Mandatory Cost (to the extent applicable) is an addition to the interest rate to compensate Lender for the cost of compliance with: |
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a. |
the requirements of the Bank of England and/or the Financial Services Authority (“FSA”) (or, in either case, any other authority which replaces all or any of its functions); or |
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b. |
the requirements of the European Central Bank. |
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2. |
On the first day of each Interest Period (or as soon as practicable thereafter) Lender shall calculate, as a percentage rate, a rate (the “Additional Cost Rate”) for Lender, in accordance with the paragraphs set out below. The Mandatory Cost will be expressed as a percentage rate per annum. The Lender will, at the request of the Company, deliver to the Company a statement setting forth the calculation of any Mandatory Cost. |
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3. |
The Additional Cost Rate if Lender is lending from a Lending Office in a Participating Member State will be the cost of complying with the minimum reserve requirements of the European Central Bank in respect of Loans made from that Lending Office. |
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4. |
The Additional Cost Rate if Lender is lending from a Lending Office in the United Kingdom will be calculated by Lender as follows: |
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(a) |
in relation to any Loan in Sterling: |
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AB+C(B-D)+E × 0.01 |
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per cent per annum |
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100 - (A+C) |
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(b) |
in relation to any Loan in any currency other than Sterling: |
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E × 0.01 |
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per cent per annum |
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300 |
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Where:
“A” is the percentage of Eligible Liabilities (assuming these to be in excess of any stated minimum) which Lender is from time to time required to maintain as an interest free cash ratio deposit with the Bank of England to comply with cash ratio requirements.
“B” is the percentage rate of interest (excluding the Applicable Rate, the Mandatory Cost and any interest charged on overdue amounts pursuant to Section 2.08(b) and, in the case of interest (other than on overdue amounts) charged at the default rate of interest specified in the Credit Agreement, without counting any increase in interest rate effected by the charging of such default interest rate) payable for the relevant Interest Period of such Loan.
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“C” |
is the percentage (if any) of Eligible Liabilities which Lender is required from time to time to maintain as interest bearing Special Deposits with the Bank of England. |
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“D” |
is the percentage rate per annum payable by the Bank of England to Lender on interest bearing Special Deposits. |
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“E” |
is designed to compensate Lender for amounts payable under the Fees Regulations and is calculated pursuant to paragraph 7 below and expressed in pounds per £1,000,000. |
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5. |
For the purposes of this Schedule: |
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(a) |
“Eligible Liabilities” and “Special Deposits” have the meanings given to them from time to time under or pursuant to the Bank of England Act 1998 or (as may be appropriate) by the Bank of England; |
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(b) |
“Fees Regulations” means the FSA Supervision Manual or such other law or regulation as may be in force from time to time in respect of the payment of fees for the acceptance of deposits; |
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(c) |
“Fee Tariffs” means the fee tariffs specified in the Fees Regulations under the activity group A.1 Deposit acceptors (ignoring any minimum fee or zero rated fee required pursuant to the Fees Regulations but taking into account any applicable discount rate); and |
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(d) |
“Tariff Base” has the meaning given to it in, and will be calculated in accordance with, the Fees Regulations. |
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6. |
In application of the above formulae, A, B, C and D will be included in the formulae as percentages (i.e. 5% will be included in the formula as 5 and not as 0.05). A negative result obtained by subtracting D from B shall be taken as zero. The resulting figures shall be rounded to four decimal places. |
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7. |
If requested by the Company, Lender shall, as soon as practicable after publication by the FSA, supply to the Company, the rate of charge payable by Lender to the FSA pursuant to the Fees Regulations in respect of the relevant financial year of the FSA (calculated for this purpose by Lender as being the average of the Fee Tariffs applicable to Lender for that financial year) and expressed in pounds per £1,000,000 of the Tariff Base of Lender. |
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8. |
Any determination by the Lender pursuant to this Schedule in relation to a formula, the Mandatory Cost, an Additional Cost Rate or any amount payable to Lender shall, in the absence of manifest error, be conclusive and binding on all parties hereto. |
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9. |
The Lender may from time to time, after consultation with the Company, determine and notify to all parties any amendments which are required to be made to this Schedule in order to comply with any change in law, regulation or any requirements from time to time imposed by the Bank of England, the FSA or the European Central Bank (or, in any case, any other authority which replaces all or any of its functions) and any such determination shall, in the absence of manifest error, be conclusive and binding on all parties hereto. |
Schedule 6.13
Subsidiaries
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Subsidiary |
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Jurisdiction |
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Shares Outstanding |
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% owned by |
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WD-40 Manufacturing Company |
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California |
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1,000 |
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100 |
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HPD Holdings Corp. |
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Delaware |
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1,411.1 Common 328.7346 Preferred |
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100 |
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HPD Laboratories, Inc. |
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Delaware |
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1 |
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100 * |
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HPD Properties, L.L.C. |
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Delaware |
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**** |
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100 ** |
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Heartland Corporation |
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Kansas |
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100 |
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100 |
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WD-40 Direct LLC |
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Delaware |
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**** |
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100 |
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WD-40 Company (Australia) Pty. Limited |
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Australia |
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10,000 |
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100 |
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WD-40 Company (Canada) Ltd. |
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Canada |
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100 |
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100 |
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WD-40 Holdings Limited |
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UK |
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100 |
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100 |
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WD-40 Company Limited |
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UK |
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250,000 |
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100 *** |
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Shanghai Wu Di Trading Company Limited |
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Peoples Republic of China |
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***** |
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100 |
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* |
shares held by HPD Holdings Corp. |
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** |
member equity held by HPD Laboratories, Inc. |
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*** |
shares held by WD-40 Holdings Limited |
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**** |
single member LLC – no shares or member units issued |
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***** |
wholly foreign owned enterprise – no shares issued with respect to the parent company’s registered capital investment |
Schedule 6.191
Loan Party Information
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BORROWER |
WD-40 COMPANY, a Delaware corporation 1061 Cudahy Place San Diego, CA 92110 FEIN # 95-1797918 DE corporation # 3087122 |
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GUARANTORS |
HPD HOLDINGS CORP., a Delaware corporation 1061 Cudahy Place San Diego, CA 92110 FEIN # 06-1509574 DE corporation # 2868082 |
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WD-40 MANUFACTURING COMPANY, a California corporation 1061 Cudahy Place San Diego, CA 92110 FEIN # 33-0836428 CA corporation # C2041870 |
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the chief executive office, exact legal name, U.S. tax payer identification number and organizational identification number of each Loan Party as of the Closing Date. |
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HPD LABORATORIES, INC., a Delaware corporation
1061 Cudahy Place San Diego, CA 92110
FEIN # 06-1509319
DE corporation #2868085
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HEARTLAND CORPORATION, a Kansas corporation
1061 Cudahy Place San Diego, CA 92110
FEIN # 48-0960791
KS corporation # 0826412
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HPD PROPERTIES, L.L.C., a Delaware limited liability company
1061 Cudahy Place San Diego, CA 92110
FEIN # disregarded entity under HPD Laboratories FEIN
DE entity # 3381568
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Schedule 8.012
Liens
None.
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2 |
Liens existing on the date hereof, except as otherwise described in Section 8.01. |
“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).
Schedule 8.023
Investments
None.
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3 |
Investments existing as of the date hereof, except as otherwise described in Section 8.02. |
“Investment” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of Equity Interests of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or equity participation or interest in, another Person, or (c) an Acquisition. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.
Schedule 8.034
Indebtedness
None.
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4 |
Indebtedness existing as of the date hereof, except as otherwise described in Section 8.03. |
“Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:
(a) all obligations for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;
(b) the maximum amount available to be drawn under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;
(c) the Swap Termination Value of any Swap Contract;
(d) all obligations to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business;
(e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;
(f) all Attributable Indebtedness;
(g) all Guarantees of such Person in respect of any of the foregoing; and
(h) all Indebtedness of the types referred to in clauses (a) through (g) above of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or joint venturer, unless such Indebtedness is expressly made non-recourse to such Person.
Schedule 11.02
Certain Addresses for Notices
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To Borrower or any Guarantor: |
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WD-40 COMPANY 1061 Cudahy Place San Diego, CA 92110 Attn: Jay W. Rembolt, CFO
Fax # (619) 275-5823 |
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With a copy to: |
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Gordon & Rees LLP 101 W Broadway, Suite 2000 San Diego, CA 92101 Attn: Richard T. Clampitt, Esq.
Fax # (619) 595-5753 |
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To Lender: |
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Bank of America, N.A. Doc Retention - GFS CT2-515-BB-03 70 Batterson Park Road Farmington CT 06032 |
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With a copy to: |
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Bank of America, N.A. 450 B Street, Suite 1500 San Diego, CA 92101 Attn: Evea Becerra, Sr. Credit Support Associate |
Exhibit 2.02
FORM OF LOAN NOTICE
Date: ,
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To: |
Bank of America, N.A., as Lender |
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Re: |
Credit Agreement dated as of June 17, 2011 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Credit Agreement”) among WD-40 Company, a Delaware corporation (the “Company”), certain Foreign Subsidiaries of the Company from time to time party thereto (each a “Designated Borrower” and, together with the Company, each a “Borrower” and collectively the “Borrowers”), the Guarantors, and Bank of America, N.A., as Lender. Capitalized terms used but not otherwise defined herein have the meanings provided in the Credit Agreement. |
Ladies and Gentlemen:
The undersigned hereby requests (select one):
A Borrowing of Loans
A conversion or continuation of Loans
On , (a Business Day).
Applicable Currency: .1
In the amount of $ .2
Comprised of (Type of Loan requested).3
For LIBOR Rate Loans: with an Interest Period of month(s).
Name of Borrower: .4
With respect to any Borrowing requested herein, the Borrower hereby represents and warrants that (i) this request complies with the requirements of Section 2.02(a) of the Credit Agreement and (ii) each of the conditions set forth in Section 5.02 of the Credit Agreement have been satisfied on and as of the date of such Borrowing.
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1 |
U.S. Dollars or other currency agreed to by the Company and the Lender. |
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2 |
Minimum amounts of (a) $250,000 or a whole multiple of $50,000 in excess thereof, in the case of LIBOR Rate Loans and (b) $100,000 and a whole multiple of $50,000 in excess thereof, in the case of Prime Rate Loans. |
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3 |
Select LIBOR Rate or Prime Rate, as appropriate. |
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4 |
Specify Company or other Borrower, as appropriate. |
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[BORROWER] |
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By: |
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Name: Title: |
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Exhibit 2.13A
FORM OF DESIGNATED BORROWER REQUEST
Date: ,
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To: |
Bank of America, N.A., as Lender |
Ladies and Gentlemen:
This Designated Borrower Request is made and delivered pursuant to Section 2.13 of that certain Credit Agreement dated as of June 17, 2011 (as amended, modified, supplemented, increased and extended from time to time, the “Credit Agreement”; terms defined therein are used herein as therein defined) among WD-40 Company, a Delaware corporation (the “Company”), certain Foreign Subsidiaries of the Company from time to time party thereto (each a “Designated Borrower” and, together with the Company, each a “Borrower” and collectively the “Borrowers”), the Guarantors and Bank of America, N.A., as Lender, and reference is made thereto for full particulars of the matters described therein. All capitalized terms used in this Designated Borrower Request and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
Each of (the “New Designated Borrower”) and the Company hereby confirms, represents and warrants to the Lender that the New Designated Borrower is a wholly-owned Subsidiary of the Company.
The documents required to be delivered to the Lender under Section 2.13 of the Credit Agreement will be furnished to the Lender in accordance with the requirements of the Credit Agreement.
The true and correct unique identification number that has been issued to the New Designated Borrower by its jurisdiction of organization and the name of such jurisdiction are set forth below:
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Identification Number |
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Jurisdiction of Organization |
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The parties hereto hereby request that the New Designated Borrower be entitled to receive Loans under the Credit Agreement, and understand, acknowledge and agree that neither the New Designated Borrower nor the Company on its behalf shall have any right to request any Loans for its account unless and until the date five Business Days after the effective date designated by the Lender in a Designated Borrower Notice delivered to the Company and the Lender pursuant to Section 2.13 of the Credit Agreement.
This Designated Borrower Request shall constitute a Loan Document under the Credit Agreement.
THIS DESIGNATED BORROWER REQUEST SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA.
IN WITNESS WHEREOF, the parties hereto have caused this Designated Borrower Request to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.
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[NEW DESIGNATED BORROWER] |
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By: |
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Name: |
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Title: |
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WD-40 COMPANY, a Delaware corporation |
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By: |
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Name: |
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Title: |
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Exhibit 2.13B
FORM OF DESIGNATED BORROWER JOINDER AGREEMENT
Date: ,
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To: |
WD-40 Company and |
[applicable New Designated Borrower]
The Lender party to the Credit Agreement referred to below
Ladies and Gentlemen:
This Designated Borrower Joinder Agreement is executed and delivered pursuant to Section 2.13 of that certain Credit Agreement, dated as of June 17, 2011 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Credit Agreement;” the terms defined therein being used herein as therein defined), among WD-40 Company, a Delaware corporation (the “Company”), certain Foreign Subsidiaries of the Company from time to time party thereto (each a “Designated Borrower” and, together with the Company, each a “Borrower” and collectively the “Borrowers”), the Guarantors, and Bank of America, N.A., as Lender and reference is made thereto for full particulars of the matters described therein. All capitalized terms used in this Designated Borrower Joinder Agreement and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
The parties hereto hereby confirm that from and after the date hereof, [ ] [Name of Designated Borrower] (the “New Designated Borrower”) shall have obligations, duties and liabilities toward each of the other parties to the Credit Agreement identical to those which the New Designated Borrower would have had if the New Designated Borrower had been an original party to the Credit Agreement as a Borrower. The New Designated Borrower confirms its acceptance of, and consents to, all representations and warranties, covenants, and other terms and provisions of the Credit Agreement.
Effective as of the date hereof [ ] shall be a Designated Borrower and be permitted to receive Loans for its account on the terms and conditions set forth in the Credit Agreement [and herein]1 and shall otherwise be a Borrower for all purposes of the Credit Agreement; provided that no Loan Notice may be submitted by or on behalf of such Designated Borrower until the date five Business Days after such effective date.
[The additional terms and conditions applicable to extensions of credit to the New Designated Borrower shall be:]2
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1 |
Include bracketed language if additional terms and conditions apply. |
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2 |
Only if additional terms and conditions apply. |
This Designated Borrower Joinder Agreement shall constitute a Loan Document under the Credit Agreement.
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BANK OF AMERICA, N.A., as Lender |
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By: |
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Title: |
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[NEW DESIGNATED BORROWER] |
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By: |
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Name: |
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Title: |
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WD-40 Company, a Delaware corporation |
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By: |
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Name: |
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Title: |
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Exhibit 7.02
FORM OF COMPLIANCE CERTIFICATE
Financial Statement Date: ,
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To: |
Bank of America, N.A., as Lender |
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Re: |
Credit Agreement dated as of June 17, 2011 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Credit Agreement”) among WD-40 Company, a Delaware corporation (the “Company”), certain Foreign Subsidiaries of the Company from time to time party thereto (each a “Designated Borrower” and, together with the Company, each a “Borrower” and collectively the “Borrowers”), the Guarantors and Bank of America, N.A., as Lender. Capitalized terms used but not otherwise defined herein have the meanings provided in the Credit Agreement. |
Ladies and Gentlemen:
The undersigned Responsible Officer hereby certifies as of the date hereof that [he/she] is the of the Company, and that, in [his/her] capacity as such, [he/she] is authorized to execute and deliver this Certificate to the Lender on the behalf of the Company, and that:
[Use following paragraph 1 for fiscal year-end financial statements:]
[1. The year-end audited financial statements required by Section 7.01(a) of the Credit Agreement for the fiscal year of the Company ended as of the above date, together with the report and opinion of an independent certified public accountant required by such section have been filed with the SEC and are available through access to the Company’s investor relations website at www.wd40company.com.]
[Use following paragraph 1 for fiscal quarter-end financial statements:]
[1. The unaudited financial statements required by Section 7.01(b) of the Credit Agreement for the fiscal quarter of the Company ended as of the above date have been filed with the SEC and are available through access to the Company’s investor relations website at www.wd40company.com.]
Such financial statements fairly present the financial condition, results of operations and cash flows of the Company and its Subsidiaries in accordance with GAAP as of such date and for such period, subject only to normal year-end audit adjustments and the absence of footnotes.
[select one:]
[2. To the best knowledge of the undersigned during such fiscal period, no Default or Event of Default exists as of the date hereof.]
[or:]
[The following is a list of each existing Default or Event of Default, the nature and extent thereof, and the proposed actions of the Loan Parties with respect thereto:]
3. The representations and warranties of the Loan Parties contained in Article VI of the Credit Agreement, or which are contained in any document furnished at any time under or in connection with the Loan Documents, are true and correct on and as of the date hereof, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date.
4. The financial covenant analyses and information set forth on Schedule 1 attached hereto (i) are true and accurate on and as of the date of this Certificate and (ii) demonstrate compliance with Section 8.11 of the Credit Agreement.
5. Attached hereto is a list of Domestic Subsidiaries created or acquired since the later of the Closing Date or the previous Compliance Certificate or there are no new Domestic Subsidiaries at this time (check one).
6. Set forth below is a summary of all material changes in GAAP and in the consistent application thereof occurring during the most recent fiscal quarter ending prior to the date hereof, the effect on the financial covenants resulting therefrom, and a reconciliation between calculation of the financial covenants before and after giving effect to such changes:
[7. To the best knowledge of the undersigned during such fiscal period, no change to the corporate structure of the Company, including the addition of Foreign Subsidiaries, has occurred.]
[or:]
[The revised corporate structure of the Company is set forth on Schedule 2 attached hereto.]
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of , .
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WD-40 COMPANY |
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By: |
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Name: |
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Title: |
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For the Quarter/Year ended (“Statement Date”)
SCHEDULE 1
to the Compliance Certificate
($ in 000’s)
PRIOR TO THE NOTE PURCHASE AGREEMENT TERMINATION DATE
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I. |
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Section 8.11 (a) – Debt to EBITDA Ratio. |
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A. |
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EBITDA for four consecutive fiscal quarters ending on above date (“Subject Period”): |
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1. |
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Net Income for Subject Period: |
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$ |
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2. |
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Interest Expense for Subject Period: |
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$ |
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3. |
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Provision for income taxes for Subject Period: |
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$ |
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4. |
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Depreciation expenses for Subject Period: |
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$ |
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5. |
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Amortization expenses for Subject Period: |
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$ |
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6. |
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EBITDA (Lines I.A.1 + I.A.2 + I.A.3 + I.A.4 + I.A.5): |
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$ |
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B. |
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Debt at Statement Date: |
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$ |
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D. |
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Debt to EBITDA Ratio ((Line I.B) ÷ (Line I.A.6)): |
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to 1.00 |
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Maximum allowed: 2.25 to 1.00 |
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II. |
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Section 8.11 (a) – Consolidated Net Worth. |
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A. |
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Consolidated Net Worth at Statement Date: |
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$ |
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B. |
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On a cumulative basis, 25% of Net Income (if positive) for each fiscal quarter, commencing with the fiscal quarter ending September 1, 2001: |
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$ |
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C. |
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100% of the cash proceeds received as consideration for the sale of Equity Interests subsequent to October 18, 2001: |
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$ |
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D. |
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$45,000,000 + Line II.B. + Line II. C. |
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$ |
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Line II.A must be greater than Line II.D |
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III. |
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Section 8.11 (a) – Fixed Charge Coverage Ratio. |
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A. |
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EBITDAR for Subject Period: |
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EBITDA for Subject Period (Line I.A.6 above): |
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$ |
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2. |
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Rent expense for Subject Period: |
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$ |
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3. |
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EBITDAR (Lines III.A.1 + III.A.2) |
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$ |
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B. |
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Other |
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1. |
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Capital expenditures for Subject Period: |
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$ |
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2. |
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Provision for income taxes paid in cash for Subject Period: |
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$ |
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C. |
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Numerator of Fixed Charge Coverage Ratio (Lines III.A.3 – III.B.1 – III.B.2) |
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$ |
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D. |
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Fixed Charges for Subject Period: |
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1. |
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Interest Expense for Subject Period: |
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$ |
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2. |
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Rent expense for Subject Period: |
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$ |
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3. |
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Payments scheduled to be made in respect of the principal amount of Debt for Subject Period: |
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$ |
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4. |
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Fixed Charges (Lines III.D.1 + III.D.2 + III.D.3) |
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$ |
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F. |
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Fixed Charge Coverage Ratio (Line III.C ÷ III.D.4) |
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to 1.00 |
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Minimum required: 1.20 to 1.00 |
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AFTER THE NOTE PURCHASE AGREEMENT TERMINATION DATE |
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I. |
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Section 8.11 (b) – Consolidated EBITDA. |
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A. |
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EBITDA for four consecutive fiscal quarters ending on above date (“Subject Period”): |
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1. |
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Consolidated Net Income for Subject Period: |
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$ |
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2. |
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Consolidated Interest Charges for Subject Period: |
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$ |
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3. |
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Provision for income taxes for Subject Period: |
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$ |
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4. |
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Depreciation expenses for Subject Period: |
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$ |
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5. |
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Amortization expenses for Subject Period: |
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$ |
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6. |
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Impairment charges related to intangible assets for Subject Period: |
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$ |
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7. |
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EBITDA (Lines I.A.1 + 2 + 3 + 4 + 5+6): |
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$ |
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Minimum required: $40,000,000 |
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Exhibit 7.13
FORM OF JOINDER AGREEMENT
THIS JOINDER AGREEMENT (the “Agreement”), dated as of is by and between , a (the “Domestic Subsidiary”), and Bank of America, N.A., in its capacity as Lender under that certain Credit Agreement dated as of June 17, 2011 (as amended, modified, supplemented, increased and extended from time to time, the “Credit Agreement”; terms defined therein are used herein as therein defined) among WD-40 Company, a Delaware corporation (the “Company”), certain Foreign Subsidiaries of the Company from time to time party thereto (each a “Designated Borrower” and, together with the Company, each a “Borrower” and collectively the “Borrowers”), the Guarantors and the Lender.
The Loan Parties are required by Section 7.13 of the Credit Agreement to cause the Domestic Subsidiary to become a “Guarantor” thereunder. Accordingly, the Domestic Subsidiary hereby agrees as follows with the Lender:
1. The Domestic Subsidiary hereby acknowledges, agrees and confirms that, by its execution of this Agreement, the Domestic Subsidiary will be deemed to be a party to the Credit Agreement and a “Guarantor” for all purposes of the Credit Agreement, and shall have all of the obligations of a Guarantor thereunder as if it had executed the Credit Agreement. The Domestic Subsidiary hereby ratifies, as of the date hereof, and agrees to be bound by, all of the terms, provisions and conditions applicable to the Guarantors contained in the Credit Agreement. Without limiting the generality of the foregoing terms of this paragraph 1, the Domestic Subsidiary hereby jointly and severally together with the other Guarantors, guarantees to the Lender, as provided in Article IV of the Credit Agreement, the prompt payment and performance of the Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration or otherwise) strictly in accordance with the terms thereof.
2. The address of the Domestic Subsidiary for purposes of all notices and other communications is:
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[Domestic Subsidiary] |
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Attention: |
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Telephone: |
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Facsimile: |
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3. The Domestic Subsidiary hereby waives acceptance by the Lender of the guaranty by the Domestic Subsidiary under Article IV of the Credit Agreement upon the execution of this Agreement by the Domestic Subsidiary.
4. This Agreement may be executed in multiple counterparts, each of which shall constitute an original but all of which when taken together shall constitute one contract.
5. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
IN WITNESS WHEREOF, the Domestic Subsidiary has caused this Joinder Agreement to be duly executed by its authorized officer, and the Lender has caused the same to be accepted by its authorized officer, as of the day and year first above written.
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[DOMESTIC SUBSIDIARY] |
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By: |
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Name: |
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Title: |
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Acknowledged and accepted: |
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BANK OF AMERICA, N.A., as Lender |
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By: |
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Name: |
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Title: |
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Exhibit 8.11
NOTE PURCHASE AGREEMENT FINANCIAL COVENANTS
Prior to the Note Purchase Agreement Termination Date, the Company will not permit:
(a) Debt to EBITDA Ratio. The ratio of Debt to EBITDA at any time to be greater than 2.25: 1.00.
(b) Consolidated Net Worth. Consolidated Net Worth at any time to be less than the sum of (i) $45,000,000 plus (ii) on a cumulative basis, 25% of Net Income (only if positive) for each fiscal quarter of the Company, commencing with the fiscal quarter beginning September 1, 2001 plus (iii) 100% of the cash proceeds received by the Company (or 100% of the fair market value of any other property received by the Company) as consideration for the Company’s issue and sale of any Equity Interests (except to employees or former employees of the Company pursuant to an employee stock option plan maintained by the Company) subsequent to the date of the Note Purchase Agreement; and
(c) Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio to be less than 1.20:1.00 on the last day of any fiscal quarter.
As used in this Exhibit 8.11, the following terms have the following meanings:
“EBITDAR” means, for the four fiscal quarter period immediately preceding the time of determination, (i) EBITDA plus (ii) to the extent deducted in the calculation of Net Income, consolidated rent expense of the Company and Subsidiaries.
“Fixed Charge Coverage Ratio” means the ratio of: (i) EBITDAR minus capital expenditures and income taxes paid in cash, in each case for the Company and its Subsidiaries for the four fiscal quarter period immediately ending on any date of determination; to (ii) Fixed Charges.
“Fixed Charges” means, (i) for the four fiscal quarter period ending on any date of determination, Interest Expense plus consolidated rent expense of the Company and Subsidiaries plus (ii) for the four fiscal quarter period immediately succeeding any date of determination, payments scheduled to be made in respect of the principal amount of Debt (as estimated in good faith by the Company based on reasonable assumptions disclosed in writing in the applicable Compliance Certificate).
“Consolidated Net Worth” means, as of any date of determination, consolidated shareholders’ equity of the Company and its Subsidiaries as of that date.
“Debt” means, with respect to Company and its Subsidiaries, on a consolidated basis, without duplication (i) indebtedness for borrowed money (ii) obligations evidenced by bonds, debentures, notes, matured reimbursable obligations under letters of credit or other similar instruments, (iii) obligations to pay the deferred purchase price of property or services other than trade payables incurred in the ordinary course of business, (iv) obligations as lessee under Capital Leases, (v) indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above, which are the subject of a Guarantee provided by such Person(s) and (vii) liabilities in respect of unfunded vested benefits under Plans covered by Title IV of ERISA.
“EBITDA” means, for the four fiscal quarter period most recently ended at the time of determination, (i) Net Income plus (ii) to the extent deducted in the calculation of Net Income, Interest Expense, consolidated depreciation expense of the Company and its Subsidiaries, consolidated amortization expense of the Company and its Subsidiaries and consolidated income tax expense of the Company and its Subsidiaries.
“Interest Expense” means, for any period, all interest expense on the Debt of the Company and its Subsidiaries on a consolidated basis, including all commissions, discounts or related amortization and other fees and charges with respect to letters of credit and bankers’ acceptance financing and the net costs associated with interest rate swap, cap and similar arrangements, amortization of debt expense and original issue discount and the interest portion of any deferred payment obligation (including leases of all types), calculated in accordance with the effective interest method.
“Net Income” means, for any period, the net income (or loss) of the Company and its Subsidiaries as determined in accordance with GAAP, provided that there shall be excluded:
(a) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with the Company or a Subsidiary, and the income (or loss) of any Person, substantially all of the assets of which have been acquired in any manner, realized by such other Person prior to the date of acquisition;
(b) the income (or loss) of any Person (other than a Subsidiary) in which the Company or any Subsidiary has an ownership interest, except to the extent that any such income has been actually received by the Company or such Subsidiary in the form of cash dividends or similar cash distributions;
(c) the undistributed earnings of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Subsidiary;
(d) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of income accrued during such period;
(e) any aggregate net gain (but not any aggregate net loss) during such period arising from the sale, conversion, exchange or other disposition of capital assets (such term to include (i) all non-current assets and, without duplication, (ii) the following, whether or not current: all fixed assets, whether tangible or intangible, all inventory sold in conjunction with the disposition of fixed assets, and all securities);
(f) any gains resulting from any write-up of any assets (but not any loss resulting from any write-down of any assets, except as provided in clause (g), below);
(g) any loss resulting from any write-down of any goodwill or other intangible asset required by FASB Statement No. 142;
(h) any net gain from the collection of the proceeds of life insurance policies;
(i) any gain arising from the acquisition of any security, or the extinguishment, under GAAP, of any Debt, of the Company or any Subsidiary;
(j) any net income or gain (but not any net loss) during such period from (i) any restatement of the financial statements of the Company and its consolidated Subsidiaries pursuant to a change in accounting principles in accordance with GAAP, (ii) any prior period adjustments resulting from any change in accounting principles in accordance with GAAP, (iii) any extraordinary items, or (iv) any discontinued operations or the disposition thereof;
(k) any deferred credit representing the excess of equity in any Subsidiary at the date of acquisition over the cost of the investment in such Subsidiary; and
(l) any portion of such net income that cannot be freely converted into Dollars.
SUBSIDIARIES OF THE REGISTRANT
The Registrant has the following wholly-owned subsidiaries which, except as indicated, do business under their respective legal names:
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WD-40 Manufacturing Company |
California, USA |
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WD-40 Company (Canada) Ltd. |
Ontario, Canada |
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WD-40 Holdings Limited |
London, England |
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WD-40 Company Limited |
London, England |
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WD-40 Company (Australia) Pty. Limited |
New South Wales, Australia |
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HPD Laboratories Inc. |
Delaware, USA |
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Heartland Corporation |
Kansas, USA |
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Wu Di (Shanghai) Industrial Co., Ltd. |
Shanghai, China |
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WD-40 Company (Malaysia) Sdn. Bhd. |
Kuala Lumpur, Malaysia |
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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S‑8 (No. 333-151149, 333-117395, 333-64256, 333-41247, 333-90972, and 333-43174) and Form S-3 (No. 333-98041 and 333-63890) of WD-40 Company of our report dated October 23, 2017 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10‑K.
/s/ PricewaterhouseCoopers LLP
San Diego, California
October 23, 2017
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Garry O. Ridge, certify that:
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I have reviewed this Annual Report on Form 10-K of WD-40 Company; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the Registrant as of, and for, the periods presented in this report; |
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4. |
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
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The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize, and report financial information; and |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
Date: October 23, 2017
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/s/ GARRY O. RIDGE |
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Garry O. Ridge President and Chief Executive Officer |
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jay W. Rembolt, certify that:
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I have reviewed this Annual Report on Form 10-K of WD-40 Company; |
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the Registrant as of, and for, the periods presented in this report; |
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4. |
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
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a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c) |
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d) |
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
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5. |
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize, and report financial information; and |
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b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
Date: October 23, 2017
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/s/ JAY W. REMBOLT |
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Jay W. Rembolt Vice President, Finance, Treasurer and Chief Financial Officer |
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Garry O. Ridge, Chief Executive Officer of WD-40 Company (the “Company”), have reviewed the Annual Report on Form 10-K of the Company for the fiscal year ended August 31, 2017 (the “Report”). For purposes of Section 1350 of Title 18, United States Code, I certify that to the best of my knowledge:
|
(1) |
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|
(2) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: October 23, 2017
|
/s/ GARRY O. RIDGE |
|
Garry O. Ridge President and Chief Executive Officer |
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Jay W. Rembolt, Chief Financial Officer of WD-40 Company (the “Company”), have reviewed the Annual Report on Form 10-K of the Company for the fiscal year ended August 31, 2017 (the “Report”). For purposes of Section 1350 of Title 18, United States Code, I certify that to the best of my knowledge:
|
(1) |
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|
(2) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: October 23, 2017
|
/s/ JAY W. REMBOLT |
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Jay W. Rembolt Vice President, Finance, Treasurer and Chief Financial Officer |
Document and Entity Information - USD ($) |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Oct. 18, 2017 |
Feb. 28, 2017 |
|
| Document Document And Entity Information [Abstract] | |||
| Document Type | 10-K | ||
| Amendment Flag | false | ||
| Document Period End Date | Aug. 31, 2017 | ||
| Document Fiscal Year Focus | 2017 | ||
| Document Fiscal Period Focus | FY | ||
| Trading Symbol | wdfc | ||
| Entity Registrant Name | WD 40 CO | ||
| Entity Central Index Key | 0000105132 | ||
| Current Fiscal Year End Date | --08-31 | ||
| Entity Current Reporting Status | Yes | ||
| Entity Well-known Seasoned Issuer | Yes | ||
| Entity Voluntary Filers | No | ||
| Entity Filer Category | Large Accelerated Filer | ||
| Entity Public Float | $ 1,490,334,448 | ||
| Entity Common Stock, Shares Outstanding | 13,964,343 |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands |
Aug. 31, 2017 |
Aug. 31, 2016 |
|---|---|---|
| Consolidated Balance Sheets [Abstract] | ||
| Trade and other accounts receivable, allowance for doubtful accounts | $ 240 | $ 394 |
| Common stock, shares authorized | 36,000,000 | 36,000,000 |
| Common stock, par value | $ 0.001 | $ 0.001 |
| Common stock, shares issued | 19,688,238 | 19,621,820 |
| Common stock, shares outstanding | 13,984,183 | 14,208,338 |
| Treasury stock, shares | 5,704,055 | 5,413,482 |
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Consolidated Statements Of Operations [Abstract] | |||
| Net sales | $ 380,506 | $ 380,670 | $ 378,150 |
| Cost of products sold | 166,621 | 166,301 | 177,972 |
| Gross profit | 213,885 | 214,369 | 200,178 |
| Operating expenses: | |||
| Selling, general and administrative | 114,560 | 117,767 | 108,873 |
| Advertising and sales promotion | 20,537 | 22,278 | 22,876 |
| Amortization of definite-lived intangible assets | 2,879 | 2,976 | 3,039 |
| Total operating expenses | 137,976 | 143,021 | 134,788 |
| Income from operations | 75,909 | 71,348 | 65,390 |
| Other income (expense): | |||
| Interest income | 508 | 683 | 584 |
| Interest expense | (2,582) | (1,703) | (1,205) |
| Other income (expense), net | 787 | 2,461 | (1,659) |
| Income before income taxes | 74,622 | 72,789 | 63,110 |
| Provision for income taxes | 21,692 | 20,161 | 18,303 |
| Net income | $ 52,930 | $ 52,628 | $ 44,807 |
| Earnings per common share: | |||
| Basic | $ 3.73 | $ 3.65 | $ 3.05 |
| Diluted | $ 3.72 | $ 3.64 | $ 3.04 |
| Shares used in per share calculations: | |||
| Basic | 14,089 | 14,332 | 14,582 |
| Diluted | 14,123 | 14,379 | 14,649 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Consolidated Statements Of Comprehensive Income [Abstract] | |||
| Net income | $ 52,930 | $ 52,628 | $ 44,807 |
| Other comprehensive loss: | |||
| Foreign currency translation adjustment | (777) | (18,576) | (9,825) |
| Total comprehensive income | $ 52,153 | $ 34,052 | $ 34,982 |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($) $ in Thousands |
Common Stock [Member] |
Additional Paid-In Capital [Member] |
Retained Earnings [Member] |
Accumulated Other Comprehensive Income (Loss) [Member] |
Treasury Stock [Member] |
Total |
|---|---|---|---|---|---|---|
| Beginning balance at Aug. 31, 2014 | $ 19 | $ 136,212 | $ 237,596 | $ 1,103 | $ (205,515) | $ 169,415 |
| Beginning balance, shares at Aug. 31, 2014 | 19,464,310 | 4,709,948 | ||||
| Issuance of common stock under share-based compensation plan, net of shares withheld for taxes | $ 1 | 1,449 | 1,450 | |||
| Issuance of common stock under share-based compensation plan, net of shares withheld for taxes, shares | 82,578 | |||||
| Stock-based compensation | 2,782 | 2,782 | ||||
| Tax benefits from settlements of stock-based equity awards | 1,208 | 1,208 | ||||
| Cash dividends | (21,720) | (21,720) | ||||
| Acquisition of treasury stock | $ (30,259) | (30,259) | ||||
| Acquisition of treasury stock, shares | 386,450 | |||||
| Foreign currency translation adjustment | (9,825) | (9,825) | ||||
| Net income | 44,807 | 44,807 | ||||
| Ending balance at Aug. 31, 2015 | $ 20 | 141,651 | 260,683 | (8,722) | $ (235,774) | 157,858 |
| Ending balance, shares at Aug. 31, 2015 | 19,546,888 | 5,096,398 | ||||
| Issuance of common stock under share-based compensation plan, net of shares withheld for taxes | (1,434) | (1,434) | ||||
| Issuance of common stock under share-based compensation plan, net of shares withheld for taxes, shares | 74,932 | |||||
| Stock-based compensation | 3,655 | 3,655 | ||||
| Tax benefits from settlements of stock-based equity awards | 2,064 | 2,064 | ||||
| Cash dividends | (23,669) | (23,669) | ||||
| Acquisition of treasury stock | $ (32,131) | (32,131) | ||||
| Acquisition of treasury stock, shares | 317,084 | |||||
| Foreign currency translation adjustment | (18,576) | (18,576) | ||||
| Net income | 52,628 | 52,628 | ||||
| Ending balance at Aug. 31, 2016 | $ 20 | 145,936 | 289,642 | (27,298) | $ (267,905) | $ 140,395 |
| Ending balance, shares at Aug. 31, 2016 | 19,621,820 | 5,413,482 | 14,208,338 | |||
| Issuance of common stock under share-based compensation plan, net of shares withheld for taxes | (921) | $ (921) | ||||
| Issuance of common stock under share-based compensation plan, net of shares withheld for taxes, shares | 66,418 | |||||
| Stock-based compensation | 4,138 | 4,138 | ||||
| Tax benefits from settlements of stock-based equity awards | 1,539 | 1,539 | ||||
| Cash dividends | (26,808) | (26,808) | ||||
| Acquisition of treasury stock | $ (31,109) | (31,109) | ||||
| Acquisition of treasury stock, shares | 290,573 | |||||
| Foreign currency translation adjustment | (777) | (777) | ||||
| Net income | 52,930 | 52,930 | ||||
| Ending balance at Aug. 31, 2017 | $ 20 | $ 150,692 | $ 315,764 | $ (28,075) | $ (299,014) | $ 139,387 |
| Ending balance, shares at Aug. 31, 2017 | 19,688,238 | 5,704,055 | 13,984,183 |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Parenthetical) - $ / shares |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Consolidated Statements Of Shareholders' Equity [Abstract] | |||
| Cash dividends, per share | $ 1.89 | $ 1.64 | $ 1.48 |
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Operating activities: | |||
| Net income | $ 52,930 | $ 52,628 | $ 44,807 |
| Adjustments to reconcile net income to net cash provided by operating activities: | |||
| Depreciation and amortization | 6,769 | 6,465 | 6,464 |
| Net gains on sales and disposals of property and equipment | (115) | (75) | (71) |
| Deferred income taxes | 1,608 | (2,227) | (1,334) |
| Excess tax benefits from settlements of stock-based equity awards | (1,539) | (2,064) | (1,205) |
| Stock-based compensation | 4,138 | 3,655 | 2,782 |
| Unrealized foreign currency exchange losses (gains), net | 364 | (986) | 2,086 |
| Provision for bad debts | (138) | 52 | 302 |
| Changes in assets and liabilities: | |||
| Trade accounts receivable | 482 | (9,936) | (314) |
| Inventories | (3,487) | (1,001) | 2,037 |
| Other assets | (3,514) | 1,557 | 1,731 |
| Accounts payable and accrued liabilities | 2,827 | 2,871 | (2,464) |
| Accrued payroll and related expenses | (8,328) | 5,486 | (2,722) |
| Income taxes payable | 605 | 4,235 | 2,737 |
| Other long-term liabilities | (265) | (56) | 228 |
| Net cash provided by operating activities | 52,337 | 60,604 | 55,064 |
| Investing activities: | |||
| Purchases of property and equipment | (20,150) | (4,354) | (5,784) |
| Proceeds from sales of property and equipment | 430 | 301 | 333 |
| Acquisition of business | (4,117) | ||
| Purchases of short-term investments | (27,136) | (24,899) | (10,575) |
| Maturities of short-term investments | 4,565 | 8,032 | 3,192 |
| Net cash used in investing activities | (42,291) | (20,920) | (16,951) |
| Financing activities: | |||
| Treasury stock purchases | (31,109) | (32,131) | (30,259) |
| Dividends paid | (26,808) | (23,669) | (21,720) |
| Proceeds from issuance of common stock | 775 | 1,200 | 2,111 |
| Excess tax benefits from settlements of stock-based equity awards | 1,539 | 2,064 | 1,205 |
| Net proceeds from revolving credit facility | 32,000 | 14,000 | 10,000 |
| Net cash used in financing activities | (23,603) | (38,536) | (38,663) |
| Effect of exchange rate changes on cash and cash equivalents | (252) | (4,153) | (3,357) |
| Net decrease in cash and cash equivalents | (13,809) | (3,005) | (3,907) |
| Cash and cash equivalents at beginning of period | 50,891 | 53,896 | 57,803 |
| Cash and cash equivalents at end of period | 37,082 | 50,891 | 53,896 |
| Cash paid for: | |||
| Interest | 2,625 | 1,573 | 1,168 |
| Income taxes, net of tax refunds received | $ 21,933 | $ 16,494 | $ 15,414 |
The Company |
12 Months Ended |
|---|---|
Aug. 31, 2017 | |
| The Company [Abstract] | |
| The Company | 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.
|
Basis Of Presentation And Summary Of Significant Accounting Policies |
12 Months Ended |
|---|---|
Aug. 31, 2017 | |
| Basis Of Presentation And Summary Of Significant Accounting Policies [Abstract] | |
| Basis Of Presentation And Summary Of Significant Accounting Policies | Note 2. Basis of Presentation and Summary of Significant Accounting Policies Basis of Consolidation The 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. Supplier Risk The Company relies on a limited number of suppliers, including single or sole source suppliers for certain of its raw materials, packaging, product components and other necessary supplies. Where possible and where it makes business sense, the Company works with secondary or multiple suppliers to qualify additional supply sources. To date, the Company has been able to obtain adequate supplies of these materials which are used in the production of its maintenance products and homecare and cleaning products in a timely manner from existing sources. Cash and Cash Equivalents Cash equivalents are highly liquid investments purchased with an original maturity of three months or less. Short-term Investments The Company's short-term investments consist of term deposits and callable time deposits. These short-term investments had a carrying value of $80.2 million and $57.6 million at August 31, 2017 and 2016, respectively. The term deposits are subject to penalty for early redemption before their maturity, and the callable time deposits require a notice before redemption.
Trade Accounts Receivable and Allowance for Doubtful Accounts Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in existing accounts receivable. The Company determines the allowance for doubtful accounts based on historical write-off experience and the identification of specific balances deemed uncollectible. Trade accounts receivable are charged against the allowance when the Company believes it is probable that the trade accounts receivable will not be recovered. The Company does not have any off-balance sheet credit exposure related to its customers. Allowance for doubtful accounts related to the Company’s trade accounts receivable were not significant at August 31, 2017 and 2016. Inventories 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. When necessary, the Company adjusts the carrying value of its inventory to the lower of cost or market, including any costs to sell or dispose of such inventory. Appropriate consideration is given by the Company to obsolescence, excessive inventory levels, product deterioration and other factors when evaluating net realizable value for the purposes of determining the lower of cost or market. Included in inventories are amounts for certain raw materials and components that the Company has provided to its third-party contract manufacturers but that remain unpaid to the Company as of the balance sheet date. The Company’s contract manufacturers package products to the Company’s specifications and, upon order from the Company, ship ready-to-sell inventory to either the Company’s third-party distribution centers or directly to its customers. The Company transfers certain raw materials and components to these contract manufacturers for use in the manufacturing process. Contract manufacturers are obligated to pay the Company for these raw materials and components upon receipt. Amounts receivable from the contract manufacturers as of the balance sheet date related to transfers of these raw materials and components by the Company to its contract manufacturers are considered product held at third-party contract manufacturers and are included in inventories in the accompanying consolidated balance sheets. Property and Equipment Property and equipment is stated at cost. Depreciation is computed using the straight-line method based upon estimated useful lives of ten to forty years for buildings and improvements, three to fifteen years for machinery and equipment, three to five years for vehicles, three to ten years for furniture and fixtures and three to five years for software and computer equipment. Depreciation expense totaled $3.9 million, $3.5 million and $3.4 million for fiscal years 2017, 2016 and 2015, respectively. These amounts include factory depreciation expense which is recognized as cost of products sold and totaled $1.1 million for fiscal year 2017 and $0.8 million for each of the fiscal years ended August 31, 2016 and 2015.
Software
The Company capitalizes costs related to computer software obtained or developed for internal use. Software obtained for internal use has generally been enterprise-level business and finance software that the Company customizes to meet its specific operational needs. Costs incurred in the application development phase are capitalized and amortized over their useful lives, which are generally three to five years. Goodwill Goodwill represents the excess of the purchase price over the fair value of tangible and intangible assets acquired. The carrying value of goodwill is reviewed for possible impairment in accordance with the authoritative guidance on goodwill, intangibles and other. The Company assesses possible impairments to goodwill at least annually during its second fiscal quarter and otherwise when events or changes in circumstances indicate that an impairment condition may exist. In performing the annual impairment test of its goodwill, the Company considers the fair value concepts of a market participant and the highest and best use for its intangible assets. In addition to the annual impairment test, goodwill is evaluated each reporting period to determine whether events and circumstances would more likely than not reduce the fair value of a reporting unit below its carrying value. When testing goodwill for impairment, the Company first assesses qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. If, after assessing qualitative factors, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing additional quantitative tests is unnecessary. Otherwise, a two-step quantitative test is performed to identify the potential impairment and to measure the amount of goodwill impairment, if any. Any required impairment losses are recorded as a reduction in the carrying amount of the related asset and charged to results of operations. No goodwill impairments were identified by the Company during fiscal years 2017, 2016 and 2015. Long-lived Assets The Company’s long-lived assets consist of property and equipment and definite-lived intangible assets. Long-lived assets are depreciated or amortized, as applicable, on a straight-line basis over their estimated useful lives. The Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and/or its remaining useful life may no longer be appropriate. Any required impairment loss would be measured as the amount by which the asset’s carrying amount exceeds its fair value, which is the amount at which the asset could be bought or sold in a current transaction between willing market participants and would be recorded as a reduction in the carrying amount of the related asset and a charge to results of operations. An impairment loss would be recognized when the sum of the expected future undiscounted net cash flows is less than the carrying amount of the asset. No impairments to its long-lived assets were identified by the Company during fiscal years 2017, 2016 and 2015. Fair Value of Financial Instruments 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 August 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. In addition, the carrying value of long-term borrowings on the Company’s consolidated balance sheets approximate fair value and is also classified as Level 2 within the fair value hierarchy. During the fiscal years ended August 31, 2017, 2016 and 2015, the Company did not record any significant nonrecurring fair value measurements for assets or liabilities in periods subsequent to their initial recognition. Concentration of Credit Risk Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents, short-term investments and trade accounts receivable. The Company’s policy is to place its cash in high credit quality financial institutions, in investments that include demand deposits, term deposits and callable time deposits. The Company’s trade accounts receivable are derived from customers located in North America, South America, Asia-Pacific, Europe, the Middle East, Africa and India. The Company limits its credit exposure from trade accounts receivable by performing on-going credit evaluations of customers, as well as insuring its trade accounts receivable in selected markets. Insurance Coverage The Company carries insurance policies to cover insurable risks such as property damage, business interruption, product liability, workers’ compensation and other risks, with coverage and other terms that it believes to be adequate and appropriate. These policies may be subject to applicable deductible or retention amounts, coverage limitations and exclusions. The Company does not maintain self-insurance with respect to its material risks; therefore, the Company has not provided for self-insurance reserves as of August 31, 2017 and 2016. Revenue Recognition and Sales Incentives Sales are recognized as revenue at the time of delivery to the customer when risks of loss and title have passed. Sales are recorded net of allowances for damaged goods and other sales returns, sales incentives, trade promotions and cash discounts. The Company records the costs of promotional activities such as sales incentives, trade promotions, coupon offers and cash discounts that are given to its customers as a reduction of sales in its consolidated statements of operations. The Company offers on-going trade promotion programs with customers and consumer coupon programs that require the Company to estimate and accrue the expected costs for such programs. Programs include cooperative marketing programs, shelf price reductions, coupons, rebates, consideration and allowances given to retailers for shelf space and/or favorable display positions in their stores and other promotional activities. Costs related to rebates, cooperative advertising and other promotional activities are recorded as a reduction to sales upon delivery of the Company’s products to its customers. Coupon costs are based upon historical redemption rates and are recorded as a reduction to sales as incurred, which is when the coupons are circulated.
Cost of Products Sold Cost of products sold primarily includes the cost of products manufactured on the Company’s behalf by its third-party contract manufacturers, net of volume and other rebates. Cost of products sold also includes the costs to manufacture WD-40 concentrate, which is done at the Company’s own facilities or at third-party contract manufacturers. When the concentrate is manufactured by the Company, cost of products sold includes direct labor, direct materials and supplies; in-bound freight costs related to purchased raw materials and finished product; and depreciation of machinery and equipment used in the manufacturing process. Selling, General and Administrative Expenses Selling, general and administrative expenses include costs related to selling the Company’s products, such as the cost of the sales force and related sales and broker commissions; shipping and handling costs paid to third-party companies to distribute finished goods from the Company’s third-party contract manufacturers and distribution centers to its customers; other general and administrative costs related to the Company’s business such as general overhead, legal and accounting fees, insurance, and depreciation; and other employee-related costs to support marketing, human resources, finance, supply chain, information technology and research and development activities. Shipping and Handling Costs Shipping and handling costs associated with in-bound freight and movement of product from third-party contract manufacturers to the Company’s third-party warehouses are capitalized in the cost of inventory and subsequently included in cost of sales when recognized in the statement of operations. Shipping and handling costs associated with out-bound transportation are included in selling, general and administrative expenses and are recorded at the time of shipment of product to the Company’s customers. Out-bound shipping and handling costs were $16.4 million, $16.1 million and $15.8 million for fiscal years 2017, 2016 and 2015, respectively. Advertising and Sales Promotion Expenses Advertising and sales promotion expenses are expensed as incurred. Advertising and sales promotion expenses include costs associated with promotional activities that the Company pays to third parties, which include costs for advertising (television, print media and internet), administration of coupon programs, consumer promotions, product demonstrations, public relations, agency costs, package design expenses and market research costs. Total advertising and sales promotion expenses were $20.5 million, $22.3 million and $22.9 million for fiscal years 2017, 2016 and 2015, respectively. Research and Development The Company is involved in research and development efforts that include the ongoing development or innovation of new products and the improvement, extension or renovation of existing products or product lines. All research and development costs are expensed as incurred and are included in selling, general and administrative expenses. Research and development expenses were $8.4 million, $7.7 million and $9.0 million in fiscal years 2017, 2016 and 2015, respectively. These expenses include costs associated with general research and development activities, as well as those associated with internal staff, overhead, design testing, market research and consultants. Income Taxes Current income tax expense is the amount of income taxes expected to be payable for the current year. A deferred income tax liability or asset is established for the expected future tax consequences resulting from the differences in financial reporting and tax bases of assets and liabilities. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be realized. In addition to valuation allowances, the Company provides for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement standards prescribed by the authoritative guidance on income taxes. Amounts for uncertain tax positions are adjusted in periods when new information becomes available or when positions are effectively settled. The Company recognizes accrued interest and penalties related to uncertain tax positions as a component of income tax expense. U.S. federal income tax expense is provided on remittances of foreign earnings and on unremitted foreign earnings that are not indefinitely reinvested. U.S. federal income taxes and foreign withholding taxes are not provided when foreign earnings are indefinitely reinvested. The Company determines whether its foreign subsidiaries will invest their undistributed earnings indefinitely based on the capital needs of the foreign subsidiaries and reassesses this determination each reporting period. Changes to the Company’s determination may be warranted based on the Company’s experience as well as its plans regarding future international operations and expected remittances. Foreign Currency The Company translates the assets and liabilities of its foreign subsidiaries into U.S. dollars at current rates of exchange in effect at the end of the reporting period. Income and expense items are translated at rates that approximate the rates in effect at the transaction date. Gains and losses from translation are included in accumulated other comprehensive income or loss. Gains or losses resulting from foreign currency transactions (transactions denominated in a currency other than the entity’s functional currency) are included as other income (expense) in the Company’s consolidated statements of operations. The Company had $0.4 million and $2.4 million of net gains in foreign currency transactions in fiscal years 2017 and 2016, respectively, and $1.7 million of net losses in fiscal year 2015. 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 currencies, 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. 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 August 31, 2017, the Company had a notional amount of $23.4 million outstanding in foreign currency forward contracts, which matured in September 2017. Unrealized net losses related to foreign currency forward contracts were $0.6 million at August 31, 2017, while unrealized net gains and losses were not significant at August 31, 2016. Realized net losses related to foreign currency forward contracts were $0.5 million for the fiscal year ended August 31, 2017, while realized net gains and losses were not significant for the fiscal year ended August 31, 2016. Earnings per Common Share Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities that are required to be included in the computation of earnings per common share pursuant to the two-class method. Accordingly, the Company’s outstanding unvested, if any, and outstanding vested stock-based equity awards that provide such nonforfeitable rights to dividend equivalents are included as participating securities in the calculation of earnings per common share (“EPS”) pursuant to the two-class method. The Company calculates EPS using the two-class method, which provides for an allocation of net income between common stock and other participating securities based on their respective participation rights to share in dividends. Basic EPS is calculated by dividing net income available to common shareholders for the period by the weighted-average number of common shares outstanding during the period. Net income available to common shareholders for the period includes dividends paid to common shareholders during the period plus a proportionate share of undistributed net income allocable to common shareholders for the period; the proportionate share of undistributed net income allocable to common shareholders for the period is based on the proportionate share of total weighted-average common shares and participating securities outstanding during the period. Diluted EPS is calculated by dividing net income available to common shareholders for the period by the weighted-average number of common shares outstanding during the period increased by the weighted-average number of potentially dilutive common shares (dilutive securities) that were outstanding during the period if the effect is dilutive. Dilutive securities are comprised of stock options, restricted stock units, market share units and deferred performance units granted under the Company’s prior and current equity incentive plans. Stock-based Compensation The Company accounts for stock-based equity awards exchanged for employee and non-employee director services in accordance with the authoritative guidance for share-based payments. Under such guidance, stock-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense, net of estimated forfeitures, over the requisite service period. Compensation expense is amortized on a straight-line basis over the requisite service period for the entire award, which is generally the maximum vesting period of the award. The fair value of stock options is determined using a Black-Scholes option pricing model. The fair values of restricted stock unit awards and deferred performance unit awards are based on the fair value of the Company’s common stock on the date that such awards are granted. The fair value of market share unit awards is determined using a Monte Carlo simulation model. For the deferred performance unit awards, the Company adjusts the compensation expense over the service period based upon the expected achievement level of the applicable performance condition. As the grant date fair value of market share unit awards reflects the probabilities of the actual number of such awards expected to vest, compensation expense for such awards is not adjusted based on the expected achievement level of the applicable performance condition. An estimated forfeiture rate is applied and included in the calculation of stock-based compensation expense at the time that the stock-based equity awards are granted and revised, if necessary, in subsequent periods if actual forfeiture rates differ from those estimates. Compensation expense related to the Company’s stock-based equity awards is recorded as selling, general and administrative expenses in the Company’s consolidated statements of operations. The Company calculates its windfall tax benefits additional paid-in capital pool that is available to absorb tax deficiencies in accordance with the short-cut method provided for by the authoritative guidance for share-based payments. As of August 31, 2017, the Company determined that it has a remaining pool of windfall tax benefits. Segment Information The Company discloses certain information about its business segments, which are determined consistent with the way the Company’s Chief Operating Decision Maker organizes and evaluates financial information internally for making operating decisions and assessing performance. In addition, the Chief Operating Decision Maker assesses and measures revenue based on product groups. Recently Adopted Accounting Standards 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 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. The Company adopted this guidance in the fourth quarter of fiscal year 2017 on a prospective basis and there was no impact on its consolidated financial statements and related disclosures. 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 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 was permitted. The Company did not adopt this updated guidance early and therefore this guidance will become effective for the Company during the first quarter of fiscal year 2018. The Company 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 2017, its income tax expense for the year would have been reduced by approximately $1.5 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 Consolidated 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 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.
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Inventories |
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| Inventories | Note 3. Inventories Inventories consisted of the following (in thousands):
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Property And Equipment |
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| Property And Equipment | Note 4. Property and Equipment Property and equipment, net, consisted of the following (in thousands):
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Goodwill And Other Intangible Assets |
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| Goodwill And Other Intangible Assets | Note 5. Goodwill and Other Intangible Assets Acquisitions During the first quarter of fiscal year 2015, the Company entered into an agreement by and between GT 85 Limited (“GT85”) and WD-40 Company Limited, which is the Company’s U.K. subsidiary, to acquire the GT85 business and certain of its assets for a purchase consideration of $4.1 million. Of this purchase consideration, $3.7 million was paid in cash upon completion of the acquisition (“completion”) and the remaining balance was paid in June 2015. Located in the U.K., the GT85 business was engaged in the marketing and sale of the GT85® and SG85 brands of maintenance products. This acquisition complements the Company’s maintenance products and will help to build upon its strategy to develop new product categories for WD-40 Specialist and WD-40 BIKE. The purchase price was allocated to certain customer-related, trade name-related, and technology-based intangible assets in the amount of $1.7 million, $0.9 million, and $0.2 million, respectively. The Company began to amortize these definite-lived intangible assets on a straight-line basis over their estimated useful lives of eight, ten, and four years, respectively, in the first quarter of fiscal year 2015. The purchase price exceeded the fair value of the intangible assets acquired and, as a result, the Company recorded goodwill of $1.3 million in connection with this transaction. This acquisition did not have a material impact on the Company’s condensed consolidated financial statements, and as a result no pro forma disclosures have been presented.
Goodwill The following table summarizes the changes in the carrying amounts of goodwill by segment (in thousands):
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, which resides at a component level below the Company’s operating segment level and for which discrete financial information is available, as required by the authoritative guidance. 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 employees; 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 (in thousands):
There has been no impairment charge for the period ended August 31, 2017 as a result of the Company’s review of events and circumstances related to its existing definite-lived intangible assets. Changes in the carrying amounts of definite-lived intangible assets by segment are summarized below (in thousands):
The estimated amortization expense for the Company’s definite-lived intangible assets in future fiscal years is as follows (in thousands):
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.
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Accrued And Other Liabilities |
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| Accrued And Other Liabilities | Note 6. Accrued and Other Liabilities Accrued liabilities consisted of the following (in thousands):
Accrued payroll and related expenses consisted of the following (in thousands):
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Debt |
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| Debt | 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 office building and related 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:
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 August 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 fiscal year ended August 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 fiscal year ended August 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 fiscal year ended August 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 August 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 August 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.
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Share Repurchase Plans |
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Aug. 31, 2017 | |
| Share Repurchase Plans [Abstract] | |
| Share Repurchase Plans | 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 August 31, 2017, the Company repurchased 290,573 shares at a total cost of $31.1 million under this $75.0 million plan.
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Earnings Per Common Share |
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| Earnings Per Common Share | Note 9. Earnings per Common Share The table below reconciles net income to net income available to common shareholders (in thousands):
The table below summarizes the weighted-average number of common shares outstanding included in the calculation of basic and diluted EPS (in thousands):
There were no anti-dilutive stock-based equity awards outstanding for the fiscal year ended August 31, 2017. For the fiscal years ended August 31, 2016 and 2015, weighted-average stock-based equity awards outstanding that are non-participating securities in the amounts of 4,501 and 1,337, respectively, were excluded from the calculation of diluted EPS under the treasury stock method as they were anti-dilutive.
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Related Parties |
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| Related Parties [Abstract] | |
| Related Parties | 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 the 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 consolidated financial statements include sales to Tractor Supply of $1.2 million for each of the fiscal years 2017 and 2016, respectively, and $1.1 million for fiscal year 2015. Accounts receivable from Tractor Supply were not significant as of August 31, 2017 and 2016.
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| Commitments And Contingencies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments And Contingencies | Note 11. Commitments and Contingencies Leases The Company was committed under certain non-cancelable operating leases at August 31, 2017 which provide for the following future fiscal year minimum payments (in thousands):
Rent expense was $2.1 million, $1.9 million, and $2.1 million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively. Purchase Commitments The Company has ongoing relationships with various suppliers (contract manufacturers) who manufacture the Company’s products. The contract manufacturers maintain title 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 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 August 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 alleged claims of 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”) claimed exclusive ownership and the right to use the words “EZ REACH” for lubricating oil products based on certain registered trademarks covering such words. 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. On July 18, 2017 the District Court issued a Memorandum Opinion denying FirstPower’s motion for preliminary injunction. On October 13, 2017 the case was dismissed as to all of the defendants pursuant to a confidential settlement agreement between the Company and FirstPower, which did not have a material impact on the Company’s business, 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 August 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 August 31, 2017.
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Income Taxes |
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| Income Taxes [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes | Note 12. Income Taxes Income before income taxes consisted of the following (in thousands):
The provision for income taxes consisted of the following (in thousands):
Deferred tax assets and deferred tax liabilities consisted of the following (in thousands):
The Company had state net operating loss (“NOL”) carryforwards of $2.6 million and $2.4 million as of August 31, 2017 and 2016, respectively, which generated a net deferred tax asset of $0.2 million for each of the fiscal years 2017 and 2016. The state NOL carryforwards, if unused, will expire between fiscal year 2018 and 2037. The Company also had cumulative tax credit carryforwards of $2.3 million and $2.0 million as of August 31, 2017 and 2016, respectively, of which $2.1 million and $1.9 million, respectively, is attributable to a U.K. tax credit carryforward, which does not expire. Future utilization of the tax credit carryforwards and certain state NOL carryovers is uncertain and is dependent upon several factors that may not occur, including the generation of future taxable income in certain jurisdictions. At this time, management cannot conclude that it is “more likely than not” that the related deferred tax assets will be realized. Accordingly, a full valuation allowance has been recorded against the related deferred tax asset associated with cumulative tax credit carryforwards. A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows (in thousands):
The provision for income taxes was 29.1% and 27.7% of income before income taxes for the fiscal years ended August 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. As of August 31, 2017, the Company has not provided for U.S. federal and state income taxes and foreign withholding taxes on $137.5 million of the undistributed earnings of certain foreign subsidiaries, mostly attributable to the U.K., since these earnings are considered indefinitely reinvested outside of the United States. The amount of unrecognized deferred U.S. federal and state income tax liability, net of unrecognized foreign tax credits, is estimated to be approximately $12.9 million as of August 31, 2017. This net liability is impacted by changes in foreign currency exchange rates and, as a result, will fluctuate with any changes in such rates. If management decides to repatriate foreign earnings in future periods, the Company would be required to provide for the incremental U.S. federal and state income taxes as well as foreign withholding taxes on such amounts in the period in which the decision is made. In the fourth quarter of fiscal year 2016, the Company approved a one-time repatriation of $8.2 million of historical foreign earnings from its Australia and China subsidiaries due to favorable tax consequences stemming principally from the strengthening of the U.S. dollar against various currencies in which the Company conducts business. This action resulted in the recognition of an incremental immaterial tax benefit in fiscal year 2016. The Company continues to consider the remaining amount of unremitted foreign earnings in Australia and China, in addition to the U.K, to be indefinitely reinvested outside of the United States. The Company continues to provide for U.S. income taxes and foreign withholding taxes on the undistributed earnings of its Canada and Malaysia subsidiaries, whose earnings are not considered indefinitely reinvested.
Reconciliations of the beginning and ending amounts of the Company’s gross unrecognized tax benefits, excluding interest and penalties, are as follows (in thousands):
Gross unrecognized tax benefits totaled $1.0 million and $1.2 million as of August 31, 2017 and 2016, of which $0.6 million and $0.9 million, respectively, would affect the Company’s effective income tax rate if recognized. There were no material interest or penalties included in income tax expense for the fiscal years ended August 31, 2017 and 2016. The total balance of accrued interest and penalties related to uncertain tax positions was also immaterial at August 31, 2017 and 2016. 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 was concluded in the third quarter of fiscal year 2017 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 $0.4 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.
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Stock-based Compensation |
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| Stock-based Compensation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based Compensation | Note 13. Stock-based Compensation As of August 31, 2017, the Company had one stock incentive plan, the WD-40 Company 2016 Stock Incentive Plan (“2016 Plan”), which was approved by the Company’s shareholders effective as of December 13, 2016. The 2016 Plan permits the granting of various stock-based equity awards, including non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and other stock-based awards to employees, directors and consultants. To date through August 31, 2017, the Company had granted awards of restricted stock units (“RSUs”) under the 2016 Plan. Additionally, as of August 31, 2017, there were still outstanding stock options, RSUs, market share units (“MSUs”) and deferred performance units (“DPUs”) which had been granted under the Company’s prior equity incentive plans. The 2016 Plan is administered by the Board of Directors (the “Board”) or the Compensation Committee or other designated committee of the Board (the “Committee”). All stock-based equity awards granted under the 2016 Plan are subject to the specific terms and conditions as determined by the Committee at the time of grant of such awards in accordance with the various terms and conditions specified for each award type per the 2016 Plan. The total number of shares of common stock authorized for issuance pursuant to grants of awards under the 2016 Plan is 1,000,000. As of August 31, 2017, 979,546 shares of common stock remained available for future issuance pursuant to grants of awards under the 2016 Plan. The shares of common stock to be issued pursuant to awards under the 2016 Plan may be authorized but unissued shares or treasury shares. The Company has historically issued new authorized but unissued shares upon the settlement of the various stock-based equity awards under its equity incentive plans. Vesting of the RSUs granted to directors is immediate, with shares to be issued pursuant to the vested RSUs upon termination of each director’s service as a director of the Company. Vesting of the one-time grant of RSUs granted to certain key executives of the Company in March 2008 in settlement of these key executives’ benefits under the Company’s supplemental employee retirement plan agreements was over a period of three years from the date of grant, with shares to be issued pursuant to the vested RSUs six months following the day after each executive officer’s termination of employment with the Company. Vesting of the RSUs granted to certain high level employees is over a period of three years from the date of grant, subject to potential earlier vesting in the event of retirement of the holder of the award in accordance with the award agreement, with shares to be issued pursuant to the vested RSUs at the time of vest. The director RSU holders and the executive officer March 2008 grant date RSU holders are entitled to receive dividend equivalents with respect to their RSUs, payable in cash as and when dividends are declared by the Company’s Board of Directors. Vesting of the MSUs granted to certain high level employees follows a performance measurement period of three fiscal years commencing with the Company’s fiscal year in which the MSU awards are granted (the “Measurement Period”). Shares will be issued pursuant to the vested MSUs following the conclusion of the applicable MSU Measurement Period after the Committee’s certification of achievement of the applicable performance measure for such awards and the vesting of the MSU awards and the applicable percentage of the target number of MSU shares to be issued. The recipient must remain employed with the Company for vesting purposes until the date on which the Committee certifies achievement of the applicable performance measure for the MSU awards, subject to potential pro-rata vesting in the event of earlier retirement of the holder of the award in accordance with the award agreement. Vesting of the DPUs granted to certain high level employees follows a performance measurement period of one fiscal year that is the same fiscal year in which the DPU awards are granted (the “Measurement Year”). A number of DPUs equal to the applicable percentage of the maximum number of DPUs awarded will be confirmed as vested following the conclusion of the applicable DPU Measurement Year after the Committee’s certification of achievement of the applicable performance measure for such awards (the “Vested DPUs”). The recipient must remain employed with the Company for vesting purposes until August 31 of the Measurement Year, subject to potential pro-rata vesting in the event of earlier retirement of the holder of the award in accordance with the award agreement. For recipients who are residents of the United States, the Vested DPUs must be held until termination of employment, with shares to be issued pursuant to the Vested DPUs six months following the day after each such recipient’s termination of employment with the Company. For recipients who are not residents of the United States, the Committee has discretion to either defer settlement of each such recipient’s Vested DPUs by issuance of shares following termination of employment or settle each Vested DPU in cash by payment of an amount equal to the closing price of one share of the Company’s common stock as of the date of the Committee’s certification of the relative achievement of the applicable performance measure for the DPU awards. Until issuance of shares in settlement of the Vested DPUs, the holders of each Vested DPU that is not settled in cash are entitled to receive dividend equivalents with respect to their Vested DPUs, payable in cash as and when dividends are declared by the Company’s Board of Directors. Stock-based compensation expense is amortized on a straight-line basis over the requisite service period for the entire award. Stock-based compensation expense related to the Company’s stock-based equity awards totaled $4.1 million, $3.7 million and $2.8 million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively. The Company recognized income tax benefits related to such stock-based compensation of $1.4 million, $1.2 million and $0.9 million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively. As of August 31, 2017, the total unamortized compensation cost related to non-vested stock-based equity awards was $0.8 million and $1.6 million for RSUs and MSUs, respectively, which the Company expects to recognize over remaining weighted-average vesting periods of 1.5 and 1.7 years for RSUs and MSUs, respectively. No unamortized compensation cost for DPUs remained as of August 31, 2017. Stock Options Fiscal year 2008 was the last fiscal period in which the Company granted stock options. The estimated fair value of each of the Company’s stock option awards granted in and prior to fiscal year 2008 was determined on the date of grant using the Black-Scholes option pricing model. A summary of the Company’s stock option award activity is as follows (in thousands, except share and per share amounts and contractual term in years data):
The total intrinsic value of stock options exercised was $1.6 million, $2.5 million and $3.3 million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively. The income tax benefits from stock options exercised totaled $0.4 million, $0.7 million and $1.1 million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively. Restricted Stock Units The estimated fair value of each of the Company’s RSU awards was determined on the date of grant based on the closing market price of the Company’s common stock on the date of grant for those RSUs which are entitled to receive dividend equivalents with respect to the RSUs, or based on the closing market price of the Company’s common stock on the date of grant less the grant date present value of expected dividends during the vesting period for those RSUs which are not entitled to receive dividend equivalents with respect to the RSUs.
A summary of the Company’s restricted stock unit activity is as follows (in thousands, except share and per share amounts):
The weighted-average grant date fair value of all RSUs granted during the fiscal years ended August 31, 2017, 2016 and 2015 was $109.23, $95.89 and $69.35, respectively. The total intrinsic value of all RSUs converted to common shares was $3.6 million, $2.8 million and $1.8 million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively. The income tax benefits from RSUs converted to common shares totaled $1.3 million, $1.0 million and $0.6 million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively. Market Share Units The MSUs are market performance-based awards that shall vest with respect to the applicable percentage of the target number of MSU shares based on relative total stockholder return (“TSR”) for the Company as compared to the total return for the Russell 2000 Index (“Index”) over the performance Measurement Period. The ultimate number of MSUs that vest may range from 0% to 200% of the original target number of shares depending on the relative achievement of the TSR performance measure at the end of the Measurement Period. The probabilities of the actual number of MSUs expected to vest and resultant actual number of shares of common stock expected to be awarded are reflected in the grant date fair values of the various MSU awards; therefore, the compensation expense for the MSU awards will be recognized assuming the requisite service period is rendered and will not be adjusted based on the actual number of such MSU awards to ultimately vest. The estimated fair value of each of the Company’s MSU awards, which are not entitled to receive dividend equivalents with respect to the MSUs, was determined on the date of grant using the Monte Carlo simulation model, which utilizes multiple input variables to simulate a range of possible future stock prices for both the Company and the Index and estimates the probabilities of the potential payouts. The determination of the estimated grant date fair value of the MSUs is affected by the Company’s stock price and a number of assumptions including the expected volatilities of the Company’s stock and the Index, the Company’s risk-free interest rate and expected dividends. The following weighted-average assumptions for MSU grants for the last three fiscal years were used in the Monte Carlo simulation model:
The expected volatility utilized was based on the historical volatilities of the Company’s common stock and the Index in order to model the stock price movements. The volatility used was calculated over the most recent 2.89-year periods for MSUs granted during each of the fiscal years ended August 31, 2017 and 2016, and over the most recent 2.88-year period for MSUs granted during the fiscal year ended August 31, 2015, which were the remaining terms of the performance Measurement Period at the dates of grant. The risk-free interest rates used were based on the implied yield available on a U.S. Treasury zero-coupon bill with a remaining term equivalent to the remaining performance Measurement Period. The MSU awards stipulate that, for purposes of computing the relative TSR for the Company as compared to the return for the Index, dividends paid with respect to both the Company’s stock and the Index are to be treated as being reinvested into the stock of each entity as of the ex-dividend date. Accordingly, an expected dividend yield of zero was used in the Monte Carlo simulation model, which is the mathematical equivalent to reinvesting dividends in the issuing entity over the performance Measurement Period.
A summary of the Company’s market share unit activity is as follows (in thousands, except share and per share amounts):
The weighted-average grant date fair value of all MSUs granted during the fiscal years ended August 31, 2017, 2016 and 2015 was $90.91, $120.99 and $71.66 respectively. The total intrinsic value of all MSUs converted to common shares was $2.8 million and $3.7 million for the fiscal years ended August 31, 2017 and 2016, respectively. No MSUs were converted to common shares during the fiscal year ended August 31, 2015. The income tax benefits from MSUs converted to common shares totaled $0.9 million and $1.2 million for the fiscal years ended August 31, 2017 and 2016, respectively. Deferred Performance Units The DPU awards provide for performance-based vesting over a performance measurement period of the fiscal year in which the DPU awards are granted. The performance vesting provisions of the DPUs are based on relative achievement within an established performance measure range of the Company’s reported earnings before interest, income taxes, depreciation in operating departments, and amortization computed on a consolidated basis for the Measurement Year, before deduction of the stock-based compensation expense for the Vested DPUs and excluding other non-operating income and expense amounts (“Adjusted Global EBITDA”). The ultimate number of DPUs that vest may range from 0% to 100% of the original maximum number of DPUs awarded depending on the relative achievement of the Adjusted Global EBITDA performance measure at the end of the Measurement Year. The estimated fair value of each of the Company’s DPU awards was determined on the date of grant based on the closing market price of the Company’s common stock on the date of grant less the grant date present value of expected dividends during the vesting period for the DPUs, which are not entitled to receive dividend equivalents with respect to the unvested DPUs. A summary of the Company’s deferred performance unit activity is as follows (in thousands, except share and per share amounts):
The weighted-average grant date fair value of all DPUs granted during the fiscal years ended August 31, 2017, 2016 and 2015 was $110.19, $94.54 and $75.14, respectively. The total intrinsic value of all DPUs converted to common shares was not significant for the fiscal year ended August 31, 2017. No DPUs were converted to common shares during the fiscal years ended August 31, 2016, or 2015. The income tax benefits from DPUs converted to common shares were not significant for the fiscal year ended August 31, 2017.
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Other Benefit Plans |
12 Months Ended |
|---|---|
Aug. 31, 2017 | |
| Other Benefit Plans [Abstract] | |
| Other Benefit Plans | Note 14. Other Benefit Plans
The Company has a WD-40 Company Profit Sharing/401(k) Plan and Trust (the “Profit Sharing/401(k) Plan”) whereby regular U.S. employees who have completed certain minimum service requirements can defer a portion of their income through contributions to a trust. The Profit Sharing/401(k) Plan provides for Company contributions to the trust, as approved by the Board of Directors, as follows: 1) matching contributions to each participant up to 50% of the first 6.6% of compensation contributed by the participant; 2) fixed non-elective contributions in the amount equal to 10% of eligible compensation; and 3) a discretionary non-elective contribution in an amount to be determined by the Board of Directors up to 5% of eligible compensation. The Company’s contributions are subject to overall employer contribution limits and may not exceed the amount deductible for income tax purposes. The Profit Sharing/401(k) Plan may be amended or discontinued at any time by the Company. The Company’s contribution expense for the Profit Sharing/401(k) Plan was $3.3 million, $3.2 million and $3.1 million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively. The Company’s international subsidiaries have similar benefit plan arrangements, dependent upon the local applicable laws and regulations. The plans provide for Company contributions to an appropriate third-party plan, as approved by the subsidiary’s Board of Directors. The Company’s contribution expense related to the international plans was $1.4 million, $1.5 million and $1.4 million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively.
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Business Segments And Foreign Operations |
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| Business Segments And Foreign Operations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Segments And Foreign Operations | Note 15. 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.
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):
Net sales and long-lived assets by geographic area are as follows (in thousands):
(2) Includes tangible assets and property and equipment, net, attributed to the geographic location in which such assets are located.
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Subsequent Events |
12 Months Ended |
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Aug. 31, 2017 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | Note 16. Subsequent Events On October 10, 2017, the Company’s Board of Directors declared a cash dividend of $0.49 per share payable on October 31, 2017 to shareholders of record on October 20, 2017.
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Basis Of Presentation And Summary Of Significant Accounting Policies (Policy) |
12 Months Ended |
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Aug. 31, 2017 | |
| Basis Of Presentation And Summary Of Significant Accounting Policies [Abstract] | |
| Basis Of Consolidation | Basis of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
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| Use Of Estimates | 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.
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| Supplier Risk | Supplier Risk The Company relies on a limited number of suppliers, including single or sole source suppliers for certain of its raw materials, packaging, product components and other necessary supplies. Where possible and where it makes business sense, the Company works with secondary or multiple suppliers to qualify additional supply sources. To date, the Company has been able to obtain adequate supplies of these materials which are used in the production of its maintenance products and homecare and cleaning products in a timely manner from existing sources.
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| Cash And Cash Equivalents | Cash and Cash Equivalents Cash equivalents are highly liquid investments purchased with an original maturity of three months or less.
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| Short-term Investments | Short-term Investments The Company's short-term investments consist of term deposits and callable time deposits. These short-term investments had a carrying value of $80.2 million and $57.6 million at August 31, 2017 and 2016, respectively. The term deposits are subject to penalty for early redemption before their maturity, and the callable time deposits require a notice before redemption.
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| Trade Accounts Receivable And Allowance For Doubtful Accounts | Trade Accounts Receivable and Allowance for Doubtful Accounts Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in existing accounts receivable. The Company determines the allowance for doubtful accounts based on historical write-off experience and the identification of specific balances deemed uncollectible. Trade accounts receivable are charged against the allowance when the Company believes it is probable that the trade accounts receivable will not be recovered. The Company does not have any off-balance sheet credit exposure related to its customers. Allowance for doubtful accounts related to the Company’s trade accounts receivable were not significant at August 31, 2017 and 2016.
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| Inventories | Inventories 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. When necessary, the Company adjusts the carrying value of its inventory to the lower of cost or market, including any costs to sell or dispose of such inventory. Appropriate consideration is given by the Company to obsolescence, excessive inventory levels, product deterioration and other factors when evaluating net realizable value for the purposes of determining the lower of cost or market. Included in inventories are amounts for certain raw materials and components that the Company has provided to its third-party contract manufacturers but that remain unpaid to the Company as of the balance sheet date. The Company’s contract manufacturers package products to the Company’s specifications and, upon order from the Company, ship ready-to-sell inventory to either the Company’s third-party distribution centers or directly to its customers. The Company transfers certain raw materials and components to these contract manufacturers for use in the manufacturing process. Contract manufacturers are obligated to pay the Company for these raw materials and components upon receipt. Amounts receivable from the contract manufacturers as of the balance sheet date related to transfers of these raw materials and components by the Company to its contract manufacturers are considered product held at third-party contract manufacturers and are included in inventories in the accompanying consolidated balance sheets.
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| Property And Equipment | Property and Equipment Property and equipment is stated at cost. Depreciation is computed using the straight-line method based upon estimated useful lives of ten to forty years for buildings and improvements, three to fifteen years for machinery and equipment, three to five years for vehicles, three to ten years for furniture and fixtures and three to five years for software and computer equipment. Depreciation expense totaled $3.9 million, $3.5 million and $3.4 million for fiscal years 2017, 2016 and 2015, respectively. These amounts include factory depreciation expense which is recognized as cost of products sold and totaled $1.1 million for fiscal year 2017 and $0.8 million for each of the fiscal years ended August 31, 2016 and 2015.
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| Software | Software
The Company capitalizes costs related to computer software obtained or developed for internal use. Software obtained for internal use has generally been enterprise-level business and finance software that the Company customizes to meet its specific operational needs. Costs incurred in the application development phase are capitalized and amortized over their useful lives, which are generally three to five years.
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| Goodwill | Goodwill Goodwill represents the excess of the purchase price over the fair value of tangible and intangible assets acquired. The carrying value of goodwill is reviewed for possible impairment in accordance with the authoritative guidance on goodwill, intangibles and other. The Company assesses possible impairments to goodwill at least annually during its second fiscal quarter and otherwise when events or changes in circumstances indicate that an impairment condition may exist. In performing the annual impairment test of its goodwill, the Company considers the fair value concepts of a market participant and the highest and best use for its intangible assets. In addition to the annual impairment test, goodwill is evaluated each reporting period to determine whether events and circumstances would more likely than not reduce the fair value of a reporting unit below its carrying value. When testing goodwill for impairment, the Company first assesses qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. If, after assessing qualitative factors, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing additional quantitative tests is unnecessary. Otherwise, a two-step quantitative test is performed to identify the potential impairment and to measure the amount of goodwill impairment, if any. Any required impairment losses are recorded as a reduction in the carrying amount of the related asset and charged to results of operations. No goodwill impairments were identified by the Company during fiscal years 2017, 2016 and 2015.
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| Long-lived Assets | Long-lived Assets The Company’s long-lived assets consist of property and equipment and definite-lived intangible assets. Long-lived assets are depreciated or amortized, as applicable, on a straight-line basis over their estimated useful lives. The Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and/or its remaining useful life may no longer be appropriate. Any required impairment loss would be measured as the amount by which the asset’s carrying amount exceeds its fair value, which is the amount at which the asset could be bought or sold in a current transaction between willing market participants and would be recorded as a reduction in the carrying amount of the related asset and a charge to results of operations. An impairment loss would be recognized when the sum of the expected future undiscounted net cash flows is less than the carrying amount of the asset. No impairments to its long-lived assets were identified by the Company during fiscal years 2017, 2016 and 2015.
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| Fair Value Of Financial Instruments | Fair Value of Financial Instruments 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 August 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. In addition, the carrying value of long-term borrowings on the Company’s consolidated balance sheets approximate fair value and is also classified as Level 2 within the fair value hierarchy. During the fiscal years ended August 31, 2017, 2016 and 2015, the Company did not record any significant nonrecurring fair value measurements for assets or liabilities in periods subsequent to their initial recognition.
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| Concentration Of Credit Risk | Concentration of Credit Risk Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents, short-term investments and trade accounts receivable. The Company’s policy is to place its cash in high credit quality financial institutions, in investments that include demand deposits, term deposits and callable time deposits. The Company’s trade accounts receivable are derived from customers located in North America, South America, Asia-Pacific, Europe, the Middle East, Africa and India. The Company limits its credit exposure from trade accounts receivable by performing on-going credit evaluations of customers, as well as insuring its trade accounts receivable in selected markets.
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| Insurance Coverage | Insurance Coverage The Company carries insurance policies to cover insurable risks such as property damage, business interruption, product liability, workers’ compensation and other risks, with coverage and other terms that it believes to be adequate and appropriate. These policies may be subject to applicable deductible or retention amounts, coverage limitations and exclusions. The Company does not maintain self-insurance with respect to its material risks; therefore, the Company has not provided for self-insurance reserves as of August 31, 2017 and 2016.
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| Revenue Recognition And Sales Incentives | Revenue Recognition and Sales Incentives Sales are recognized as revenue at the time of delivery to the customer when risks of loss and title have passed. Sales are recorded net of allowances for damaged goods and other sales returns, sales incentives, trade promotions and cash discounts. The Company records the costs of promotional activities such as sales incentives, trade promotions, coupon offers and cash discounts that are given to its customers as a reduction of sales in its consolidated statements of operations. The Company offers on-going trade promotion programs with customers and consumer coupon programs that require the Company to estimate and accrue the expected costs for such programs. Programs include cooperative marketing programs, shelf price reductions, coupons, rebates, consideration and allowances given to retailers for shelf space and/or favorable display positions in their stores and other promotional activities. Costs related to rebates, cooperative advertising and other promotional activities are recorded as a reduction to sales upon delivery of the Company’s products to its customers. Coupon costs are based upon historical redemption rates and are recorded as a reduction to sales as incurred, which is when the coupons are circulated.
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| Cost Of Products Sold | Cost of Products Sold Cost of products sold primarily includes the cost of products manufactured on the Company’s behalf by its third-party contract manufacturers, net of volume and other rebates. Cost of products sold also includes the costs to manufacture WD-40 concentrate, which is done at the Company’s own facilities or at third-party contract manufacturers. When the concentrate is manufactured by the Company, cost of products sold includes direct labor, direct materials and supplies; in-bound freight costs related to purchased raw materials and finished product; and depreciation of machinery and equipment used in the manufacturing process.
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| Selling, General And Administrative Expenses | Selling, General and Administrative Expenses Selling, general and administrative expenses include costs related to selling the Company’s products, such as the cost of the sales force and related sales and broker commissions; shipping and handling costs paid to third-party companies to distribute finished goods from the Company’s third-party contract manufacturers and distribution centers to its customers; other general and administrative costs related to the Company’s business such as general overhead, legal and accounting fees, insurance, and depreciation; and other employee-related costs to support marketing, human resources, finance, supply chain, information technology and research and development activities.
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| Shipping And Handling Costs | Shipping and Handling Costs Shipping and handling costs associated with in-bound freight and movement of product from third-party contract manufacturers to the Company’s third-party warehouses are capitalized in the cost of inventory and subsequently included in cost of sales when recognized in the statement of operations. Shipping and handling costs associated with out-bound transportation are included in selling, general and administrative expenses and are recorded at the time of shipment of product to the Company’s customers. Out-bound shipping and handling costs were $16.4 million, $16.1 million and $15.8 million for fiscal years 2017, 2016 and 2015, respectively.
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| Advertising And Sales Promotion Expenses | Advertising and Sales Promotion Expenses Advertising and sales promotion expenses are expensed as incurred. Advertising and sales promotion expenses include costs associated with promotional activities that the Company pays to third parties, which include costs for advertising (television, print media and internet), administration of coupon programs, consumer promotions, product demonstrations, public relations, agency costs, package design expenses and market research costs. Total advertising and sales promotion expenses were $20.5 million, $22.3 million and $22.9 million for fiscal years 2017, 2016 and 2015, respectively.
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| Research And Development | Research and Development The Company is involved in research and development efforts that include the ongoing development or innovation of new products and the improvement, extension or renovation of existing products or product lines. All research and development costs are expensed as incurred and are included in selling, general and administrative expenses. Research and development expenses were $8.4 million, $7.7 million and $9.0 million in fiscal years 2017, 2016 and 2015, respectively. These expenses include costs associated with general research and development activities, as well as those associated with internal staff, overhead, design testing, market research and consultants.
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| Income Taxes | Income Taxes Current income tax expense is the amount of income taxes expected to be payable for the current year. A deferred income tax liability or asset is established for the expected future tax consequences resulting from the differences in financial reporting and tax bases of assets and liabilities. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be realized. In addition to valuation allowances, the Company provides for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement standards prescribed by the authoritative guidance on income taxes. Amounts for uncertain tax positions are adjusted in periods when new information becomes available or when positions are effectively settled. The Company recognizes accrued interest and penalties related to uncertain tax positions as a component of income tax expense. U.S. federal income tax expense is provided on remittances of foreign earnings and on unremitted foreign earnings that are not indefinitely reinvested. U.S. federal income taxes and foreign withholding taxes are not provided when foreign earnings are indefinitely reinvested. The Company determines whether its foreign subsidiaries will invest their undistributed earnings indefinitely based on the capital needs of the foreign subsidiaries and reassesses this determination each reporting period. Changes to the Company’s determination may be warranted based on the Company’s experience as well as its plans regarding future international operations and expected remittances.
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| Foreign Currency | Foreign Currency The Company translates the assets and liabilities of its foreign subsidiaries into U.S. dollars at current rates of exchange in effect at the end of the reporting period. Income and expense items are translated at rates that approximate the rates in effect at the transaction date. Gains and losses from translation are included in accumulated other comprehensive income or loss. Gains or losses resulting from foreign currency transactions (transactions denominated in a currency other than the entity’s functional currency) are included as other income (expense) in the Company’s consolidated statements of operations. The Company had $0.4 million and $2.4 million of net gains in foreign currency transactions in fiscal years 2017 and 2016, respectively, and $1.7 million of net losses in fiscal year 2015. 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 currencies, 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. 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 August 31, 2017, the Company had a notional amount of $23.4 million outstanding in foreign currency forward contracts, which matured in September 2017. Unrealized net losses related to foreign currency forward contracts were $0.6 million at August 31, 2017, while unrealized net gains and losses were not significant at August 31, 2016. Realized net losses related to foreign currency forward contracts were $0.5 million for the fiscal year ended August 31, 2017, while realized net gains and losses were not significant for the fiscal year ended August 31, 2016.
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| Earnings Per Common Share | Earnings per Common Share Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities that are required to be included in the computation of earnings per common share pursuant to the two-class method. Accordingly, the Company’s outstanding unvested, if any, and outstanding vested stock-based equity awards that provide such nonforfeitable rights to dividend equivalents are included as participating securities in the calculation of earnings per common share (“EPS”) pursuant to the two-class method. The Company calculates EPS using the two-class method, which provides for an allocation of net income between common stock and other participating securities based on their respective participation rights to share in dividends. Basic EPS is calculated by dividing net income available to common shareholders for the period by the weighted-average number of common shares outstanding during the period. Net income available to common shareholders for the period includes dividends paid to common shareholders during the period plus a proportionate share of undistributed net income allocable to common shareholders for the period; the proportionate share of undistributed net income allocable to common shareholders for the period is based on the proportionate share of total weighted-average common shares and participating securities outstanding during the period. Diluted EPS is calculated by dividing net income available to common shareholders for the period by the weighted-average number of common shares outstanding during the period increased by the weighted-average number of potentially dilutive common shares (dilutive securities) that were outstanding during the period if the effect is dilutive. Dilutive securities are comprised of stock options, restricted stock units, market share units and deferred performance units granted under the Company’s prior and current equity incentive plans.
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| Stock-based Compensation | Stock-based Compensation The Company accounts for stock-based equity awards exchanged for employee and non-employee director services in accordance with the authoritative guidance for share-based payments. Under such guidance, stock-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense, net of estimated forfeitures, over the requisite service period. Compensation expense is amortized on a straight-line basis over the requisite service period for the entire award, which is generally the maximum vesting period of the award. The fair value of stock options is determined using a Black-Scholes option pricing model. The fair values of restricted stock unit awards and deferred performance unit awards are based on the fair value of the Company’s common stock on the date that such awards are granted. The fair value of market share unit awards is determined using a Monte Carlo simulation model. For the deferred performance unit awards, the Company adjusts the compensation expense over the service period based upon the expected achievement level of the applicable performance condition. As the grant date fair value of market share unit awards reflects the probabilities of the actual number of such awards expected to vest, compensation expense for such awards is not adjusted based on the expected achievement level of the applicable performance condition. An estimated forfeiture rate is applied and included in the calculation of stock-based compensation expense at the time that the stock-based equity awards are granted and revised, if necessary, in subsequent periods if actual forfeiture rates differ from those estimates. Compensation expense related to the Company’s stock-based equity awards is recorded as selling, general and administrative expenses in the Company’s consolidated statements of operations. The Company calculates its windfall tax benefits additional paid-in capital pool that is available to absorb tax deficiencies in accordance with the short-cut method provided for by the authoritative guidance for share-based payments. As of August 31, 2017, the Company determined that it has a remaining pool of windfall tax benefits.
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| Segment Information | Segment Information The Company discloses certain information about its business segments, which are determined consistent with the way the Company’s Chief Operating Decision Maker organizes and evaluates financial information internally for making operating decisions and assessing performance. In addition, the Chief Operating Decision Maker assesses and measures revenue based on product groups.
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| Recently Adopted Accounting Standards | Recently Adopted Accounting Standards 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 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. The Company adopted this guidance in the fourth quarter of fiscal year 2017 on a prospective basis and there was no impact on its consolidated financial statements and related disclosures.
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| Recently Issued Accounting Standards | 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 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 was permitted. The Company did not adopt this updated guidance early and therefore this guidance will become effective for the Company during the first quarter of fiscal year 2018. The Company 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 2017, its income tax expense for the year would have been reduced by approximately $1.5 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 Consolidated 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 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.
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Inventories (Tables) |
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| Inventories [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule Of Inventories |
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Property And Equipment (Tables) |
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| Property And Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule Of Property And Equipment, Net |
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Goodwill And Other Intangible Assets (Tables) |
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| Goodwill And Other Intangible Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary Of Changes In Carrying Amounts Of Goodwill |
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| Summary Of Definite-Lived Intangible Assets |
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| Summary Of Changes In Carrying Amounts Of Definite-Lived Intangible Assets By Segment |
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| Schedule Of Future Estimated Amortization Expense |
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Accrued And Other Liabilities (Tables) |
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| Accrued And Other Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule Of Accrued Liabilities |
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| Schedule Of Accrued Payroll And Related Expenses |
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Earnings Per Common Share (Tables) |
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| Earnings Per Common Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule Of Reconciliation Of Net Income To Net Income Available To Common Shareholders |
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| Schedule Of Weighted Average Number Of Shares |
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Commitments And Contingencies (Tables) |
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| Commitments And Contingencies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Future Minimum Rental Payments |
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Income Taxes (Tables) |
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| Income Taxes [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule Of Income Before Income Tax, Domestic And Foreign |
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| Schedule Of Components Of Income Tax Expense (Benefit) |
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| Schedule Of Deferred Tax Assets And Liabilities |
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| Schedule Of Effective Income Tax Rate Reconciliation |
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| Schedule Of Unrecognized Tax Benefits Roll Forward |
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Stock-based Compensation (Tables) |
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| Stock Options [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule Of Stock Options Activity |
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| Restricted Stock Units [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule Of Restricted Stock Units Activity |
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| Market Share Units [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule Of Valuation Assumptions |
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| Schedule Of Market Share Units Activity |
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| Deferred Performance Units [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule Of Deferred Performance Share Units |
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Business Segments And Foreign Operations (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Business Segments And Foreign Operations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summarized Information By Reportable Segments |
|
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| Schedule Of Net Sales By Product Group |
|
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| Net Sales And Long-Lived Assets By Geographical Area |
(2) Includes tangible assets and property and equipment, net, attributed to the geographic location in which such assets are located.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis Of Presentation And Summary Of Significant Accounting Policies (Short-term Investments) (Narrative) (Details) - USD ($) $ in Thousands |
Aug. 31, 2017 |
Aug. 31, 2016 |
|---|---|---|
| Basis Of Presentation And Summary Of Significant Accounting Policies [Abstract] | ||
| Short-term investments | $ 80,166 | $ 57,633 |
Basis Of Presentation And Summary Of Significant Accounting Policies (Property And Equipment) (Narrative) (Details) - USD ($) $ in Millions |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Property Plant And Equipment [Line Items] | |||
| Depreciation | $ 3.9 | $ 3.5 | $ 3.4 |
| Cost of goods sold, depreciation | $ 1.1 | $ 0.8 | $ 0.8 |
| Minimum [Member] | Buildings And Improvements [Member] | |||
| Property Plant And Equipment [Line Items] | |||
| Property and equipment, useful life | 10 years | ||
| Minimum [Member] | Machinery And Equipment [Member] | |||
| Property Plant And Equipment [Line Items] | |||
| Property and equipment, useful life | 3 years | ||
| Minimum [Member] | Vehicles [Member] | |||
| Property Plant And Equipment [Line Items] | |||
| Property and equipment, useful life | 3 years | ||
| Minimum [Member] | Furniture And Fixtures [Member] | |||
| Property Plant And Equipment [Line Items] | |||
| Property and equipment, useful life | 3 years | ||
| Minimum [Member] | Software and Computer Equipment [Member] | |||
| Property Plant And Equipment [Line Items] | |||
| Property and equipment, useful life | 3 years | ||
| Maximum [Member] | Buildings And Improvements [Member] | |||
| Property Plant And Equipment [Line Items] | |||
| Property and equipment, useful life | 40 years | ||
| Maximum [Member] | Machinery And Equipment [Member] | |||
| Property Plant And Equipment [Line Items] | |||
| Property and equipment, useful life | 15 years | ||
| Maximum [Member] | Vehicles [Member] | |||
| Property Plant And Equipment [Line Items] | |||
| Property and equipment, useful life | 5 years | ||
| Maximum [Member] | Furniture And Fixtures [Member] | |||
| Property Plant And Equipment [Line Items] | |||
| Property and equipment, useful life | 10 years | ||
| Maximum [Member] | Software and Computer Equipment [Member] | |||
| Property Plant And Equipment [Line Items] | |||
| Property and equipment, useful life | 5 years | ||
Basis Of Presentation And Summary Of Significant Accounting Policies (Software) (Narrative) (Details) |
12 Months Ended |
|---|---|
Aug. 31, 2017 | |
| Minimum [Member] | |
| Finite Lived Intangible Assets [Line Items] | |
| Estimated useful life | 3 years |
| Maximum [Member] | |
| Finite Lived Intangible Assets [Line Items] | |
| Estimated useful life | 5 years |
Basis Of Presentation And Summary Of Significant Accounting Policies (Goodwill) (Narrative) (Details) - USD ($) |
3 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
Feb. 28, 2017 |
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Basis Of Presentation And Summary Of Significant Accounting Policies [Abstract] | ||||
| Impairment of goodwill | $ 0 | $ 0 | $ 0 | $ 0 |
Basis Of Presentation And Summary Of Significant Accounting Policies (Long-lived Assets) (Narrative) (Details) - USD ($) $ in Millions |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Basis Of Presentation And Summary Of Significant Accounting Policies [Abstract] | |||
| Impairment of long-lived assets | $ 0.0 | $ 0.0 | $ 0.0 |
Basis Of Presentation And Summary Of Significant Accounting Policies (Shipping And Handling Costs) (Narrative) (Details) - USD ($) $ in Millions |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Basis Of Presentation And Summary Of Significant Accounting Policies [Abstract] | |||
| Shipping and handling costs | $ 16.4 | $ 16.1 | $ 15.8 |
Basis Of Presentation And Summary Of Significant Accounting Policies (Advertising and Sales Promotion Expenses) (Narrative) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Basis Of Presentation And Summary Of Significant Accounting Policies [Abstract] | |||
| Advertising and sales promotion | $ 20,537 | $ 22,278 | $ 22,876 |
Basis Of Presentation And Summary Of Significant Accounting Policies (Research And Development) (Narrative) (Details) - USD ($) $ in Millions |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Basis Of Presentation And Summary Of Significant Accounting Policies [Abstract] | |||
| Research and development expense | $ 8.4 | $ 7.7 | $ 9.0 |
Basis Of Presentation And Summary Of Significant Accounting Policies (Foreign Currency) (Narrative) (Details) - USD ($) |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Foreign Currency Transactions [Line Items] | |||
| Foreign currency transactions gain (loss), before tax | $ 400,000 | $ 2,400,000 | $ (1,700,000) |
| Foreign currency forward contracts outstanding | 23,400,000 | ||
| Unrealized net losses | 364,000 | (986,000) | $ 2,086,000 |
| Foreign Currency Forward Contracts [Member] | |||
| Foreign Currency Transactions [Line Items] | |||
| Unrealized net losses | 600,000 | 0 | |
| Realized net losses | $ 500,000 | $ 0 | |
Basis Of Presentation And Summary Of Significant Accounting Policies (Recently Issued Accounting Standards) (Narrative) (Details) $ in Millions |
12 Months Ended |
|---|---|
|
Aug. 31, 2017
USD ($)
| |
| Basis Of Presentation And Summary Of Significant Accounting Policies [Abstract] | |
| Possible income tax expense reduction | $ 1.5 |
Inventories (Schedule Of Inventories) (Details) - USD ($) $ in Thousands |
Aug. 31, 2017 |
Aug. 31, 2016 |
|---|---|---|
| Inventories [Abstract] | ||
| Product held at third-party contract manufacturers | $ 3,021 | $ 3,521 |
| Raw materials and components | 3,021 | 2,996 |
| Work-in-process | 215 | 163 |
| Finished goods | 29,083 | 25,113 |
| Total | $ 35,340 | $ 31,793 |
Property And Equipment (Schedule Of Property And Equipment, Net) (Details) - USD ($) $ in Thousands |
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
||
|---|---|---|---|---|---|
| Property Plant And Equipment [Line Items] | |||||
| Subtotal | $ 52,865 | $ 33,852 | |||
| Less: accumulated depreciation and amortization | (23,426) | (22,307) | |||
| Total | [1] | 29,439 | 11,545 | $ 11,376 | |
| Machinery, Equipment and Vehicles [Member] | |||||
| Property Plant And Equipment [Line Items] | |||||
| Subtotal | 17,491 | 14,892 | |||
| Buildings And Improvements [Member] | |||||
| Property Plant And Equipment [Line Items] | |||||
| Subtotal | 16,953 | 4,223 | |||
| Computer And Office Equipment [Member] | |||||
| Property Plant And Equipment [Line Items] | |||||
| Subtotal | 4,552 | 3,605 | |||
| Software [Member] | |||||
| Property Plant And Equipment [Line Items] | |||||
| Subtotal | 7,947 | 7,392 | |||
| Furniture And Fixtures [Member] | |||||
| Property Plant And Equipment [Line Items] | |||||
| Subtotal | 1,608 | 1,286 | |||
| Capital In Progress [Member] | |||||
| Property Plant And Equipment [Line Items] | |||||
| Subtotal | 861 | 2,200 | |||
| Land [Member] | |||||
| Property Plant And Equipment [Line Items] | |||||
| Subtotal | $ 3,453 | $ 254 | |||
| |||||
Goodwill And Other Intangible Assets (Narrative) (Details) - USD ($) |
3 Months Ended | 12 Months Ended | |||
|---|---|---|---|---|---|
Feb. 28, 2017 |
Nov. 30, 2014 |
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Finite Lived Intangible Assets [Line Items] | |||||
| Goodwill | $ 95,597,000 | $ 95,649,000 | $ 96,409,000 | ||
| Impairment of goodwill | $ 0 | 0 | 0 | 0 | |
| Impairment charges | 0 | 0 | 0 | ||
| Estimated fair value | 16,244,000 | $ 19,191,000 | $ 22,961,000 | ||
| GT 85 Limited [Member] | |||||
| Finite Lived Intangible Assets [Line Items] | |||||
| Purchase consideration | $ 4,100,000 | ||||
| Cash paid | 3,700,000 | ||||
| Goodwill | 1,300,000 | ||||
| Customer-Related [Member] | GT 85 Limited [Member] | |||||
| Finite Lived Intangible Assets [Line Items] | |||||
| Purchase consideration | $ 1,700,000 | ||||
| Estimated useful life | 8 years | ||||
| Trade Names [Member] | |||||
| Finite Lived Intangible Assets [Line Items] | |||||
| Estimated fair value | 15,011,000 | ||||
| Trade Names [Member] | GT 85 Limited [Member] | |||||
| Finite Lived Intangible Assets [Line Items] | |||||
| Purchase consideration | $ 900,000 | ||||
| Estimated useful life | 10 years | ||||
| Technology [Member] | |||||
| Finite Lived Intangible Assets [Line Items] | |||||
| Estimated fair value | 33,000 | ||||
| Technology [Member] | GT 85 Limited [Member] | |||||
| Finite Lived Intangible Assets [Line Items] | |||||
| Purchase consideration | $ 200,000 | ||||
| Estimated useful life | 4 years | ||||
| Customer-Based [Member] | |||||
| Finite Lived Intangible Assets [Line Items] | |||||
| Estimated fair value | $ 1,200,000 | ||||
Goodwill And Other Intangible Assets (Summary Of Changes In Carrying Amounts Of Goodwill) (Details) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Goodwill [Line Items] | ||
| Balance, beginning | $ 95,649 | $ 96,409 |
| Translation adjustments | (52) | (760) |
| Balance, ending | 95,597 | 95,649 |
| Americas [Member] | ||
| Goodwill [Line Items] | ||
| Balance, beginning | 85,452 | 85,532 |
| Translation adjustments | (4) | (80) |
| Balance, ending | 85,448 | 85,452 |
| EMEA [Member] | ||
| Goodwill [Line Items] | ||
| Balance, beginning | 8,987 | 9,667 |
| Translation adjustments | (48) | (680) |
| Balance, ending | 8,939 | 8,987 |
| Asia-Pacific [Member] | ||
| Goodwill [Line Items] | ||
| Balance, beginning | 1,210 | 1,210 |
| Translation adjustments | ||
| Balance, ending | $ 1,210 | $ 1,210 |
Goodwill And Other Intangible Assets (Summary Of Definite-Lived Intangible Assets) (Details) - USD ($) $ in Thousands |
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|---|---|---|---|
| Goodwill And Other Intangible Assets [Abstract] | |||
| Gross carrying amount | $ 35,891 | $ 36,009 | |
| Accumulated amortization | (19,647) | (16,818) | |
| Net carrying amount | $ 16,244 | $ 19,191 | $ 22,961 |
Goodwill And Other Intangible Assets (Summary Of Changes In Carrying Amounts Of Definite-Lived Intangible Assets By Segment) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Finite-Lived Intangible Assets [Line Items] | |||
| Beginning balance | $ 19,191 | $ 22,961 | |
| Amortization expense | (2,879) | (2,976) | $ (3,039) |
| Translation adjustments | (68) | (794) | |
| Ending balance | 16,244 | 19,191 | 22,961 |
| Americas [Member] | |||
| Finite-Lived Intangible Assets [Line Items] | |||
| Beginning balance | 14,913 | 17,121 | |
| Amortization expense | (2,207) | (2,208) | |
| Translation adjustments | |||
| Ending balance | 12,706 | 14,913 | 17,121 |
| EMEA [Member] | |||
| Finite-Lived Intangible Assets [Line Items] | |||
| Beginning balance | 4,278 | 5,840 | |
| Amortization expense | (672) | (768) | |
| Translation adjustments | (68) | (794) | |
| Ending balance | 3,538 | 4,278 | 5,840 |
| Asia-Pacific [Member] | |||
| Finite-Lived Intangible Assets [Line Items] | |||
| Beginning balance | |||
| Amortization expense | |||
| Translation adjustments | |||
| Ending balance | |||
Goodwill And Other Intangible Assets (Schedule Of Future Estimated Amortization Expense) (Details) - USD ($) $ in Thousands |
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|---|---|---|---|
| Finite-Lived Intangible Assets [Line Items] | |||
| Net carrying amount | $ 16,244 | $ 19,191 | $ 22,961 |
| Trade Names [Member] | |||
| Finite-Lived Intangible Assets [Line Items] | |||
| Fiscal year 2018 | 2,419 | ||
| Fiscal year 2019 | 2,414 | ||
| Fiscal year 2020 | 2,019 | ||
| Fiscal year 2021 | 1,230 | ||
| Fiscal year 2022 | 1,229 | ||
| Thereafter | 5,700 | ||
| Net carrying amount | 15,011 | ||
| Customer-Based [Member] | |||
| Finite-Lived Intangible Assets [Line Items] | |||
| Fiscal year 2018 | 446 | ||
| Fiscal year 2019 | 259 | ||
| Fiscal year 2020 | 165 | ||
| Fiscal year 2021 | 165 | ||
| Fiscal year 2022 | 165 | ||
| Net carrying amount | 1,200 | ||
| Technology [Member] | |||
| Finite-Lived Intangible Assets [Line Items] | |||
| Fiscal year 2018 | 33 | ||
| Fiscal year 2019 | |||
| Fiscal year 2020 | |||
| Fiscal year 2021 | |||
| Fiscal year 2022 | |||
| Thereafter | |||
| Net carrying amount | $ 33 |
Accrued And Other Liabilities (Schedule Of Accrued Liabilities) (Details) - USD ($) $ in Thousands |
Aug. 31, 2017 |
Aug. 31, 2016 |
|---|---|---|
| Accrued And Other Liabilities [Abstract] | ||
| Accrued advertising and sales promotion expenses | $ 10,889 | $ 9,763 |
| Accrued professional services fees | 1,456 | 1,262 |
| Accrued sales taxes and other taxes | 1,701 | 954 |
| Other | 4,951 | 3,778 |
| Total | $ 18,997 | $ 15,757 |
Accrued And Other Liabilities (Schedule Of Accrued Payroll And Related Expenses) (Details) - USD ($) $ in Thousands |
Aug. 31, 2017 |
Aug. 31, 2016 |
|---|---|---|
| Accrued And Other Liabilities [Abstract] | ||
| Accrued incentive compensation | $ 6,554 | $ 12,203 |
| Accrued payroll | 3,338 | 3,559 |
| Accrued profit sharing | 2,257 | 2,716 |
| Accrued payroll taxes | 1,503 | 1,744 |
| Other | 570 | 644 |
| Total | $ 14,222 | $ 20,866 |
Debt (Narrative) (Details) |
12 Months Ended | ||
|---|---|---|---|
|
Aug. 31, 2017
USD ($)
|
Aug. 31, 2016
USD ($)
|
Nov. 16, 2015
USD ($)
|
|
| Debt Instrument [Line Items] | |||
| Revolving credit facility, amount outstanding | $ 154,000,000 | ||
| Current debt | 20,000,000 | ||
| Line of credit, long-term liability | 134,000,000 | $ 122,000,000 | |
| Revolving credit facility, additional borrowed amount | $ 12,000,000 | ||
| Second Amended Credit Facility [Member] | |||
| Debt Instrument [Line Items] | |||
| Consolidated leverage ratio | 3 | ||
| Consolidated interest coverage ratio | 3 | ||
| Fourth Amended Credit Facility [Member] | |||
| Debt Instrument [Line Items] | |||
| Share buy-back plan, amount authorized | $ 150,000,000 | ||
| Revolving credit facility, expiration date | May 13, 2020 | ||
| Capital expenditures | $ 7,500,000 | ||
| Line Of Credit, Headquarters Office [Member] | |||
| Debt Instrument [Line Items] | |||
| Current debt | 20,000,000 | ||
| Autoborrow Agreement [Member] | |||
| Debt Instrument [Line Items] | |||
| Current debt | 0 | ||
| Maximum [Member] | Fourth Amended Credit Facility [Member] | |||
| Debt Instrument [Line Items] | |||
| Revolving credit facility, amount | 175,000,000 | ||
| 9715 Businesspark Avenue, San Diego [Member] | Fourth Amended Credit Facility [Member] | |||
| Debt Instrument [Line Items] | |||
| Revolving credit facility, amount | $ 18,000,000 |
Share Repurchase Plans (Narrative) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Equity, Class of Treasury Stock [Line Items] | |||
| Total cost of repurchased shares | $ 31,109 | $ 32,131 | $ 30,259 |
| 2016 To 2018 Share Repurchase Program [Member] | |||
| Equity, Class of Treasury Stock [Line Items] | |||
| Share buy-back plan, amount authorized | $ 75,000 | ||
| Share buy-back plan, number of shares repurchased | 290,573 | ||
| Total cost of repurchased shares | $ 31,100 | ||
Earnings Per Common Share (Narrative) (Details) - shares |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Earnings Per Common Share [Abstract] | |||
| Anti-dilutive stock options outstanding | 0 | 4,501 | 1,337 |
Earnings Per Common Share (Schedule Of Reconciliation Of Net Income To Net Income Available To Common Shareholders) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Earnings Per Common Share [Abstract] | |||
| Net income | $ 52,930 | $ 52,628 | $ 44,807 |
| Less: Net income allocated to participating securities | (323) | (334) | (271) |
| Net income available to common shareholders | $ 52,607 | $ 52,294 | $ 44,536 |
Earnings Per Common Share (Schedule Of Weighted Average Number Of Shares) (Details) - shares shares in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Earnings Per Common Share [Abstract] | |||
| Weighted-average common shares outstanding, basic | 14,089 | 14,332 | 14,582 |
| Weighted-average dilutive securities | 34 | 47 | 67 |
| Weighted-average common shares outstanding, diluted | 14,123 | 14,379 | 14,649 |
Related Parties (Narrative) (Details) - USD ($) $ in Millions |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Related Parties [Abstract] | |||
| Sales to Tractor Supply | $ 1.2 | $ 1.2 | $ 1.1 |
| Accounts receivable from Tractor Supply | $ 0.0 | $ 0.0 | |
Commitments And Contingencies (Narrative) (Details) - USD ($) $ in Millions |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Loss Contingencies [Line Items] | |||
| Rent expense | $ 2.1 | $ 1.9 | $ 2.1 |
| Purchase Commitment [Member] | |||
| Loss Contingencies [Line Items] | |||
| Commitment outstanding | 0.0 | ||
| Indemnification Agreement 1 [Member] | |||
| Loss Contingencies [Line Items] | |||
| Liabilities related to indemnification agreement | 0.0 | ||
| Senior Officers And Directors [Member] | Indemnification Agreement 1 [Member] | |||
| Loss Contingencies [Line Items] | |||
| Liabilities related to indemnification agreement | $ 0.0 | ||
Commitments And Contingencies (Future Minimum Rental Payments) (Details) $ in Thousands |
Aug. 31, 2017
USD ($)
|
|---|---|
| Commitments And Contingencies [Abstract] | |
| 2018 | $ 1,856 |
| 2019 | 1,223 |
| 2020 | 893 |
| 2021 | 739 |
| 2022 | 479 |
| Thereafter | $ 470 |
Income Taxes (Narrative) (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
Aug. 31, 2016 |
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Income Tax [Line Items] | ||||
| Operating loss carryforwards | $ 2,400 | $ 2,600 | $ 2,400 | |
| Net deferred tax asset | 200 | 200 | 200 | |
| Tax credit carryforwards | 2,038 | 2,309 | $ 2,038 | |
| Undistributed earnings of foreign subsidiaries | 137,500 | |||
| Deferred tax liability not recognized. Undistributed earnings of foreign subsidiaries that may be repatriated | $ 12,900 | |||
| Provision for income taxes | 29.10% | 27.70% | ||
| Repatriation of foreign earnings | 8,200 | |||
| Material interest or penalties included in income tax expense | $ 0 | $ 0 | ||
| Unrecognized tax benefits | 1,239 | 981 | 1,239 | $ 1,279 |
| Unrecognized tax benefits that would impact the effective tax rate | 900 | 600 | 900 | |
| Unrecognized tax benefits affected by the resolution of tax examinations or expiring statutes of limitation | 400 | |||
| Foreign Tax Authority [Member] | ||||
| Income Tax [Line Items] | ||||
| Tax credit carryforwards | $ 1,900 | $ 2,100 | $ 1,900 | |
Income Taxes (Schedule Of Income before Income Tax, Domestic And Foreign) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||||
|---|---|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|||
| Income Tax [Line Items] | |||||
| United States | $ 42,060 | $ 41,128 | $ 38,044 | ||
| Foreign | [1] | 32,562 | 31,661 | 25,066 | |
| Income before income taxes | 74,622 | 72,789 | 63,110 | ||
| EMEA [Member] | |||||
| Income Tax [Line Items] | |||||
| Foreign | $ 28,100 | $ 28,300 | $ 21,900 | ||
| |||||
Income Taxes (Schedule Of Components Of Income Tax Expense (Benefit)) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Income Taxes [Abstract] | |||
| Current, Federal | $ 10,813 | $ 13,269 | $ 12,302 |
| Current, State | 744 | 894 | 966 |
| Current, Foreign | 7,465 | 7,593 | 5,886 |
| Total current | 19,022 | 21,756 | 19,154 |
| Deferred, United States | 2,627 | (1,100) | (870) |
| Deferred, Foreign | 43 | (495) | 19 |
| Total deferred | 2,670 | (1,595) | (851) |
| Provision for income taxes | $ 21,692 | $ 20,161 | $ 18,303 |
Income Taxes (Schedule Of Deferred Tax Assets And Liabilities) (Details) - USD ($) $ in Thousands |
Aug. 31, 2017 |
Aug. 31, 2016 |
|---|---|---|
| Income Taxes [Abstract] | ||
| Accrued payroll and related expenses | $ 1,252 | $ 1,621 |
| Account receivable | 644 | 498 |
| Reserves and accruals | 2,393 | 2,292 |
| Unrealized exchange loss | 25 | 992 |
| Stock-based compensation expense | 3,213 | 2,976 |
| Uniform capitalization | 1,598 | 1,473 |
| Tax credit carryforwards | 2,309 | 2,038 |
| Other | 1,264 | 2,043 |
| Total gross deferred tax assets | 12,698 | 13,933 |
| Valuation allowance | (2,328) | (2,054) |
| Total net deferred tax assets | 10,370 | 11,879 |
| Property and equipment, net | (2,109) | (558) |
| Amortization of tax goodwill and intangible assets | (26,036) | (26,321) |
| Investments in partnerships | (679) | (744) |
| Total deferred tax liabilities | (28,824) | (27,623) |
| Net deferred tax liabilities | $ (18,454) | $ (15,744) |
Income Taxes (Schedule Of Effective Income Tax Rate Reconciliation) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Income Taxes [Abstract] | |||
| Amount computed at U.S. statutory federal tax rate | $ 26,118 | $ 25,476 | $ 22,088 |
| State income taxes, net of federal tax benefits | 327 | 397 | 578 |
| Effect of foreign operations | (4,277) | (4,382) | (3,221) |
| Benefit from qualified domestic production deduction | (1,295) | (1,190) | (1,131) |
| Other | 819 | (140) | (11) |
| Provision for income taxes | $ 21,692 | $ 20,161 | $ 18,303 |
Income Taxes (Schedule Of Unrecognized Tax Benefits Roll Forward) (Details) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Income Taxes [Abstract] | ||
| Unrecognized tax benefits, Beginning of fiscal year | $ 1,239 | $ 1,279 |
| Net decreases - prior period tax positions | (68) | |
| Net increases - current period tax positions | 228 | 211 |
| Expirations of statute of limitations for assessment | (382) | (251) |
| Settlements | (36) | |
| Unrecognized tax benefits, End of fiscal year | $ 981 | $ 1,239 |
Stock-based Compensation (Narrative) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Number of shares authorized under stock plan | 1,000,000 | ||
| Number of shares available for grant | 979,546 | ||
| Allocated share-based compensation expense | $ 4,100 | $ 3,700 | $ 2,800 |
| Employee service share-based, Tax benefit from compensation expense | $ 1,400 | $ 1,200 | $ 900 |
| Restricted Stock Units [Member] | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Vesting period | 3 years | ||
| Compensation cost not yet recognized | $ 800 | ||
| Remaining weighted-average vesting periods | 1 year 6 months | ||
| Market Share Units [Member] | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Vesting period | 3 years | ||
| Compensation cost not yet recognized | $ 1,600 | ||
| Remaining weighted-average vesting periods | 1 year 8 months 12 days | ||
| Deferred Performance Units [Member] | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Vesting period | 1 year | ||
| Compensation cost not yet recognized | $ 0 | ||
Stock-based Compensation (Schedule of Stock Options Activity) (Details) - USD ($) $ / shares in Units, $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Income tax benefit (expense) from stock-based award | $ 1,539 | $ 2,064 | $ 1,208 |
| Stock Options [Member] | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Outstanding, Number of Shares | 27,820 | ||
| Granted, Number of Shares | |||
| Exercised, Number of Shares | (21,860) | ||
| Forfeited or expired, Number of Shares | |||
| Outstanding, Number of Shares | 5,960 | 27,820 | |
| Exercisable, Number of Shares | 5,960 | ||
| Outstanding, Weighted-Average Exercise Price Per Share | $ 35.59 | ||
| Granted, Weighted-Average Exercise Price Per Share | |||
| Exercised, Weighted-Average Exercise Price Per Share | 35.47 | ||
| Forfeited or expired, Weighted-Average Exercise Price Per Share | |||
| Outstanding, Weighted-Average Exercise Price Per Share | 36.03 | $ 35.59 | |
| Exercisable, Weighted-Average Exercise Price Per Share | $ 36.03 | ||
| Outstanding, Weighted-Average Remaining Contractual Term Per Share | 1 month 6 days | ||
| Exercisable, Weighted-Average Remaining Contractual Term Per Share | 1 month 6 days | ||
| Outstanding, Aggregate Intrinsic Value | $ 435 | ||
| Exercisable, Aggregate Intrinsic Value | 435 | ||
| Total intrinsic value of stock options exercised | 1,600 | $ 2,500 | 3,300 |
| Income tax benefit (expense) from stock-based award | $ 400 | $ 700 | $ 1,100 |
Stock-based Compensation (Schedule Of Restricted Stock Units Activity) (Details) - USD ($) $ / shares in Units, $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Income tax benefit (expense) from stock-based award | $ 1,539 | $ 2,064 | $ 1,208 |
| Restricted Stock Units [Member] | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Outstanding, Number of Shares | 130,035 | ||
| Granted, Number of Shares | 21,501 | ||
| Converted to common shares, Number of Shares | (34,479) | ||
| Forfeited, Number of Shares | (287) | ||
| Outstanding, Number of Shares | 116,770 | 130,035 | |
| Vested, Number of Shares | 87,258 | ||
| Outstanding, Weighted-Average Grant Date Fair Value Per Share | $ 54.80 | ||
| Granted, Weighted-Average Grant Date Fair Value Per Share | 109.23 | $ 95.89 | $ 69.35 |
| Converted to common shares, Weighted-Average Grant Date Fair Value Per Share | 58.71 | ||
| Forfeited, Weighted-Average Grant Date Fair Value Per Share | 81.44 | ||
| Outstanding, Weighted-Average Grant Date Fair Value Per Share | 63.61 | $ 54.80 | |
| Vested, Weighted-Average Grant Date Fair Value Per Share | $ 52.78 | ||
| Outstanding, Aggregate Intrinsic Value | $ 12,722 | ||
| Vested, Aggregate Intrinsic Value | 9,507 | ||
| Total intrinsic value of stock-based awards converted into common shares | 3,600 | $ 2,800 | $ 1,800 |
| Income tax benefit (expense) from stock-based award | $ 1,300 | $ 1,000 | $ 600 |
Stock-based Compensation (Schedule Of Market Share Units Activity) (Details) - USD ($) $ / shares in Units, $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Income tax benefit (expense) from stock-based award | $ 1,539 | $ 2,064 | $ 1,208 |
| Market Share Units [Member] | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Outstanding, Number of Shares | 45,700 | ||
| Granted, Number of Shares | 14,683 | ||
| Performance factor adjustment, Number of Shares | 10,974 | ||
| Converted to common shares, Number of Shares | (25,825) | 0 | |
| Forfeited, Number of Shares | (613) | ||
| Outstanding, Number of Shares | 44,919 | 45,700 | |
| Outstanding, Weighted-Average Grant Date Fair Value Per Share | $ 87.82 | ||
| Granted, Weighted-Average Grant Date Fair Value Per Share | 90.91 | $ 120.99 | $ 71.66 |
| Performance factor adjustment, Weighted-Average Grant Date Fair Value Per Share | 73.44 | ||
| Converted to common shares, Weighted-Average Grant Date Fair Value Per Share | 71.20 | ||
| Forfeited, Weighted-Average Grant Date Fair Value Per Share | 82.51 | ||
| Outstanding, Weighted-Average Grant Date Fair Value Per Share | $ 94.95 | $ 87.82 | |
| Outstanding, Aggregate Intrinsic Value | $ 4,894 | ||
| Expected volatility | 21.10% | 22.20% | 22.00% |
| Risk-free interest rate | 1.00% | 0.90% | 0.80% |
| Expected dividend yield | 0.00% | 0.00% | 0.00% |
| Expected volatility period | 2 years 10 months 21 days | 2 years 10 months 21 days | 2 years 10 months 17 days |
| Total intrinsic value of stock-based awards converted into common shares | $ 2,800 | $ 3,700 | |
| Income tax benefit (expense) from stock-based award | $ 900 | $ 1,200 | |
| Minimum [Member] | Market Share Units [Member] | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Percent of original target number of vested shares | 0.00% | ||
| Maximum [Member] | Market Share Units [Member] | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Percent of original target number of vested shares | 200.00% | ||
Stock-based Compensation (Schedule Of Deferred Performance Share Units) (Details) - Deferred Performance Units [Member] - USD ($) $ / shares in Units, $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Outstanding, Number of Shares | 26,323 | ||
| Granted, Number of Shares | 25,882 | ||
| Performance factor adjustment, Number of Shares | (21,240) | ||
| Converted to common shares, Number of Shares | (89) | 0 | 0 |
| Forfeited, Number of Shares | |||
| Outstanding, Number of Shares | 30,876 | 26,323 | |
| Vested, Number of Shares | 4,994 | ||
| Outstanding, Weighted-Average Grant Date Fair Value Per Share | $ 94.54 | ||
| Granted, Weighted-Average Grant Date Fair Value Per Share | 110.19 | $ 94.54 | $ 75.14 |
| Performance factor adjustment, Weighted-Average Grant Date Fair Value Per Share | 94.54 | ||
| Forfeited, Weighted-Average Grant Date Fair Value Per Share | |||
| Outstanding, Weighted-Average Grant Date Fair Value Per Share | 107.66 | $ 94.54 | |
| Vested, Weighted-Average Grant Date Fair Value Per Share | $ 94.54 | ||
| Outstanding, Aggregate Intrinsic Value | $ 3,364 | ||
| Vested, Aggregate Intrinsic Value | $ 544 | ||
| Minimum [Member] | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Percent of original target number of vested shares | 0.00% | ||
| Maximum [Member] | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Percent of original target number of vested shares | 100.00% | ||
Other Benefit Plans (Details) - USD ($) $ in Millions |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Deferred Compensation Arrangement with Individual, Postretirement Benefits [Line Items] | |||
| Defined contribution plan, employer matching contribution, percent of match | 50.00% | ||
| Defined contribution plan, employer matching contribution, percent of employees' gross pay | 6.60% | ||
| Defined contribution plan, maximum annual contributions per employee percent | 10.00% | ||
| Discretionary non-elective contribution, percentage | 5.00% | ||
| Pension Plan, Defined Benefit [Member] | |||
| Deferred Compensation Arrangement with Individual, Postretirement Benefits [Line Items] | |||
| Defined contribution plan, cost recognized | $ 3.3 | $ 3.2 | $ 3.1 |
| International Pension Plans Defined Benefit [Member] | |||
| Deferred Compensation Arrangement with Individual, Postretirement Benefits [Line Items] | |||
| Defined contribution plan, cost recognized | $ 1.4 | $ 1.5 | $ 1.4 |
Business Segments and Foreign Operations (Summarized Information By Reportable Segments) (Details) $ in Thousands |
12 Months Ended | |||||
|---|---|---|---|---|---|---|
|
Aug. 31, 2017
USD ($)
item
|
Aug. 31, 2016
USD ($)
|
Aug. 31, 2015
USD ($)
|
||||
| Segment Reporting Information [Line Items] | ||||||
| Number of reportable segments | item | 3 | |||||
| Net sales | $ 380,506 | $ 380,670 | $ 378,150 | |||
| Income from operations | 75,909 | 71,348 | 65,390 | |||
| Depreciation and amortization expense | 6,769 | 6,465 | 6,464 | |||
| Interest income | 508 | 683 | 584 | |||
| Interest expense | 2,582 | 1,703 | 1,205 | |||
| Unallocated Corporate [Member] | ||||||
| Segment Reporting Information [Line Items] | ||||||
| Income from operations | [1] | (24,548) | (23,920) | (24,059) | ||
| Depreciation and amortization expense | [1] | 155 | 30 | 31 | ||
| Americas [Member] | ||||||
| Segment Reporting Information [Line Items] | ||||||
| Net sales | 184,929 | 191,397 | 187,344 | |||
| Income from operations | 48,303 | 48,404 | 46,674 | |||
| Depreciation and amortization expense | 4,270 | 4,071 | 4,078 | |||
| Interest income | 8 | 5 | 9 | |||
| Interest expense | 2,570 | 1,689 | 1,197 | |||
| EMEA [Member] | ||||||
| Segment Reporting Information [Line Items] | ||||||
| Net sales | 136,771 | 135,235 | 136,847 | |||
| Income from operations | 35,389 | 31,702 | 30,173 | |||
| Depreciation and amortization expense | 2,090 | 2,084 | 2,102 | |||
| Interest income | 389 | 485 | 417 | |||
| Asia-Pacific [Member] | ||||||
| Segment Reporting Information [Line Items] | ||||||
| Net sales | 58,806 | 54,038 | 53,959 | |||
| Income from operations | 16,765 | 15,162 | 12,602 | |||
| Depreciation and amortization expense | 254 | 280 | 253 | |||
| Interest income | 111 | 193 | 158 | |||
| Interest expense | $ 12 | $ 14 | $ 8 | |||
| ||||||
Business Segments And Foreign Operations (Schedule Of Net Sales By Product Group) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
| Revenue from External Customer [Line Items] | |||
| Net sales | $ 380,506 | $ 380,670 | $ 378,150 |
| Maintenance Products [Member] | |||
| Revenue from External Customer [Line Items] | |||
| Net sales | 342,295 | 339,974 | 333,306 |
| Homecare And Cleaning Products [Member] | |||
| Revenue from External Customer [Line Items] | |||
| Net sales | $ 38,211 | $ 40,696 | $ 44,844 |
Business Segments And Foreign Operations (Net Sales And Long-Lived Assets By Geographical Area) (Details) - USD ($) $ in Thousands |
12 Months Ended | |||||
|---|---|---|---|---|---|---|
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2015 |
||||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||||
| Net sales | $ 380,506 | $ 380,670 | $ 378,150 | |||
| Long-lived assets | [1] | 29,439 | 11,545 | 11,376 | ||
| United States [Member] | ||||||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||||
| Net sales | 150,086 | 158,139 | 153,116 | |||
| Long-lived assets | [1] | 23,346 | 6,419 | 5,955 | ||
| International [Member] | ||||||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||||
| Net sales | 230,420 | 222,531 | 225,034 | |||
| Long-lived assets | [1] | $ 6,093 | $ 5,126 | $ 5,421 | ||
| ||||||
Subsequent Events (Narrative) (Details) - $ / shares |
12 Months Ended | |
|---|---|---|
Oct. 10, 2017 |
Aug. 31, 2017 |
|
| Subsequent Events [Line Items] | ||
| Dividend payable, declared date | Oct. 10, 2017 | |
| Dividends payable, date to be paid | Oct. 31, 2017 | |
| Dividend payable, record date | Oct. 20, 2017 | |
| Subsequent Events [Member] | ||
| Subsequent Events [Line Items] | ||
| Cash dividend declared | $ 0.49 |