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, 2018
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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 every Interactive Data File required to be submitted 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 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, 2018 was approximately $1,695,560,161.
As of October 17, 2018, there were 13,836,690 shares of the registrant’s common stock outstanding.
Documents Incorporated by Reference:
The Proxy Statement for the annual meeting of stockholders on December 11, 2018 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, 2018
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 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 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; the impact of the “Tax Cuts and Job Act”; 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,” “target,” “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, increased market penetration and the development of new and unique delivery systems; (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
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Flexible Straw, WD-40 Smart Straw®, WD-40 Trigger Pro®, WD-40 Specialist®, WD-40 Bike™, and 3-IN-ONE Professional Garage Door Lube™.
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, particularly those in the U.S., it has continued to sell products of these brands but with a reduced level of marketing investment.
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. and many countries in Europe, as well as parts of Canada, Latin America, 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:
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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 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., Canada and the United Kingdom. Spot Shot products are 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/Solvol - 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.
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.
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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 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, China, South Korea and India. Although the Company has definitive minimum purchase obligations included in the contract terms with certain of its contract manufacturers, when such obligations have been included, they have either been immaterial or the minimum amounts have been such that they are well below the volume of goods that the Company has historically purchased. 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 $7.0 million, $8.4 million, and $7.7 million in fiscal years 2018, 2017 and 2016, 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.
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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.
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, 2018, the Company employed 480 people worldwide: 178 by the U.S. parent corporation; 203 by the U.K. subsidiary; 57 by the China subsidiary; 22 by the Australia subsidiary; 11 by the Canada subsidiary; 7 by the Malaysia 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. The Company’s five core strategic initiatives include: (i) maximizing WD-40 Multi-Use Product sales through geographic expansion and increased market penetration and the development of new and unique delivery systems; (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. 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
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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.
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 62% of consolidated net sales in fiscal year 2018 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, Asia, Australia, and Europe; |
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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 United States. In addition, recent developments in the U.S. political climate have introduced greater uncertainty with respect to tax policies, trade relations, tariffs and government regulations affecting trade between the U.S. and other countries. These developments, as well as the risks outlined above, could have a material adverse effect on the Company’s business, financial condition and results of operations.
Approximately 41% of the Company’s revenues in fiscal year 2018 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 operating 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 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. Additional volatility in foreign currencies may result as the U.K. negotiates and executes its impending exit from the European Union. 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 reported 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
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complexities and risks, particularly in China, Russia and other 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.
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. In addition, the Company’s brand value depends on its ability to maintain a positive consumer perception of its corporate integrity and brand culture. Negative claims or publicity involving the Company, its products, or any of its key employees could seriously damage the Company’s reputation and brand image, regardless of whether such claims are accurate. 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 and end users 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. Although the Company is engaged in e-commerce with respect to its products, if it is not successful in expanding sales in such alternative retail channels or it experiences challenges with operating in such channels, including challenges associated with the increased demand for non-flammable air shippable products, the Company’s financial condition and results of operations may be negatively impacted. In addition, 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
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price of oil directly impacts the cost of petroleum-based specialty chemicals which are indexed to the price of crude oil. Fluctuations in oil and diesel fuel prices have also historically impacted the Company’s cost of transporting its products, compounded recently by increased regulations imposed on the freight industry and additional macroeconomic factors which have resulted in increased freight 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 its 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.
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.
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 that 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
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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 has concluded that its current products do not contain such conflict minerals in its annual evaluations to date, 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 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.
In addition, certain countries and other jurisdictions in which the Company operates have data protection laws that impose strict regulations on the Company. For instance, The European Commission approved the General Data Protection Regulation (“GDPR”) which became effective for the Company beginning in May 2018. GDPR required certain operational changes to be made with regard to how the Company receives and processes personal data of residents of the European Union. Non-compliance with GDPR would result in significant penalties being imposed on the Company. In addition, other international governmental authorities are considering similar types of legislative and regulatory requirements concerning protection of personal data.
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, regulations issued governing the safe storage and transportation of dangerous goods, and regulations issued by the U.S. Consumer Product Safety Commission, the U.S. Environmental Protection Agency, the U.S. Federal Trade Commission, as well as 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
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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.
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.
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. The Company cannot guarantee that its security measures will prevent cyberattacks resulting in breaches of the Company’s or its third-party service providers’ databases and systems. Techniques used in these attacks change frequently and may be difficult to detect for periods of time. Although the Company has policies and procedures in place governing (i) the timely investigation of cybersecurity incidents, (ii) the timely disclosure of any related material nonpublic information resulting from a material cybersecurity incident, and (iii) the safeguarding against insider trading of directors, officers, and other corporate insiders between the period of investigation and the public disclosure of such an incident; cybersecurity incidents themselves, such as the release of sensitive data from the Company’s databases and systems, could adversely affect the Company’s business, financial condition and results of operations. The increasing number of information technology security threats and the development of more sophisticated cyberattacks, including ransomware, 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. Further, such an incident could also materially increase the costs that the Company already incurs to protect against such risks.
In addition, system failure, malfunction or loss of data that 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. The Company’s information systems could be damaged or cease to function properly due to a number of other reasons as well, including catastrophic events and power outages. Although the Company has certain business continuity plans in place to address such service interruptions, there is no guarantee that these
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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 that 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 other 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 2018. 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. 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 divestiture.
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, including those 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 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
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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.
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.
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 on such matters, see Part IV – Item 15, “Exhibits, Financial Statement Schedules” Note 12 – Income Taxes, included in this report.
In addition, changes in tax rules may materially affect, either adversely or favorably, the Company’s future financial results or the way management conducts its business. For example, on December 22, 2017 the “Tax Cuts and Jobs Act” (the “Tax Act”) was signed into law and became effective beginning January 1, 2018. The Tax Act significantly changed U.S. tax law and tax rates, as well as mandated the application of a one-time “toll tax” on unremitted foreign earnings, among other things. During fiscal year 2018, the Company recorded provisional amounts for the income tax effects of these changes in tax law and tax rates. It is possible that items reflected as provisional amounts may change materially following review of historical records, refinement of calculations, modifications of assumptions and further interpretation of the Tax Act based on U.S. Treasury regulations and guidance from the Internal Revenue Service and state tax authorities. In addition, the Company reevaluated its indefinite reinvestment assertion for its foreign subsidiaries during fiscal year 2018. In May 2018, the Company completed this reevaluation and no longer considers unremitted foreign earnings of any of its subsidiaries to be indefinitely reinvested. For additional information on the Tax Act, the impact of potential changes in provisional amounts, and the change in indefinite reinvestment assertions for certain foreign subsidiaries , see Part IV – Item 15, “Exhibits, Financial Statement Schedules” Note 12 – Income Taxes, included in this report.
Although many impacts of the Tax Act are favorable for the Company both in the near term and long term, the Tax Act also authorizes the Treasury Department to issue regulations with respect to the new provisions. The Company cannot predict how the changes in the Tax Act, regulations, or other guidance issued under it, including conforming or non-conforming state tax rules, might affect the Company’s business, financial condition and results of operations. In addition, there can be no assurance that U.S. tax laws, including the corporate income tax rate, will not undergo significant additional changes in the near future.
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The Company may not have sufficient cash to service its indebtedness or to pay cash dividends.
The Company’s debt consists of fixed rate senior notes and a revolving credit facility. Management has used the proceeds of the revolving credit facility primarily for stock repurchases. 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 its borrowing agreements. In addition, the Company’s borrowing agreements include 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.
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.
Item 1B. Unresolved Staff Comments
None.
Americas
The Company owns and occupies an office located at 9715 Businesspark Avenue, San Diego, California 92131, which houses both corporate employees and employees in the Company’s Americas segment. In addition, the Company owns and utilizes a plant facility located at 1061 Cudahy Place, San Diego, California 92110. The Company also leases a regional sales office in Miami, Florida, a research and development office in Pine Brook, 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. The Company purchased a new office building and related land in February 2018, also located in Milton Keynes, and is in the process of renovating this office building. The Company expects to complete these renovations late in fiscal year 2019 and will relocate employees of the Company’s EMEA segment who are located in the U.K. to this office building upon its completion. In addition, the Company also leases another office in the United Kingdom and spaces for its branch offices in Germany, France, Italy, Spain, Portugal and the Netherlands.
14
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.
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, 2018:
|
|
|
|
|
|
|
|
|
Name, Age and Year Elected to Current Position |
|
Title |
||||
|
Garry O. Ridge |
|
62 |
|
1997 |
|
President and Chief Executive Officer |
|
Jay W. Rembolt |
67 |
2008 |
Vice President, Finance, Treasurer and Chief Financial Officer |
|||
|
Stanley A. Sewitch |
65 |
2012 |
Vice President, Global Organization Development |
|||
|
Richard T. Clampitt |
|
63 |
|
2014 |
|
Vice President, General Counsel and Corporate Secretary |
|
Michael L. Freeman |
|
65 |
|
2016 |
|
Chief Strategy Officer |
|
Geoffrey J. Holdsworth |
56 |
1997 |
Managing Director, Asia-Pacific |
|||
|
William B. Noble |
|
60 |
|
1996 |
|
Managing Director, EMEA |
|
Steven A. Brass |
|
52 |
|
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 was named as Corporate Secretary on October 15, 2013 and joined the Company in 2014 as Vice President, General Counsel and Corporate Secretary. 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 under the trading symbol WDFC. 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, as well as the quarterly cash dividend declared per share.
|
|
|||||||||||||||||
|
|
Fiscal Year 2018 |
Fiscal Year 2017 |
|||||||||||||||
|
|
High |
Low |
Dividend |
High |
Low |
Dividend |
|||||||||||
|
First Quarter |
$ |
120.00 |
$ |
106.30 |
$ |
0.49 |
$ |
121.10 |
$ |
101.35 |
$ |
0.42 | |||||
|
Second Quarter |
$ |
129.85 |
$ |
115.55 |
$ |
0.54 |
$ |
119.90 |
$ |
100.65 |
$ |
0.49 | |||||
|
Third Quarter |
$ |
141.20 |
$ |
122.50 |
$ |
0.54 |
$ |
113.25 |
$ |
100.60 |
$ |
0.49 | |||||
|
Fourth Quarter |
$ |
178.25 |
$ |
136.75 |
$ |
0.54 |
$ |
114.10 |
$ |
103.80 |
$ |
0.49 | |||||
|
|
|||||||||||||||||
On October 17, 2018, the last reported sales price of the Company’s common stock on the NASDAQ Global Select Market was $157.95 per share, and there were 13,836,690 shares of common stock outstanding held by approximately 634 holders of record.
Dividends
The Company has historically paid regular quarterly cash dividends on its common stock. In December 2017, the Board of Directors declared a 10% increase in the regular quarterly cash dividend, increasing it from $0.49 per share to $0.54 per share. On October 9, 2018, the Company’s Board of Directors declared a cash dividend of $0.54 per share payable on October 31, 2018 to shareholders of record on October 19, 2018.
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 was authorized to acquire up to $75.0 million of its outstanding shares through August 31, 2018. The timing and amount of repurchases were based on terms and conditions that were 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, 2018, the Company repurchased 465,879 shares at a total cost of $53.7 million under this $75.0 million plan.
On June 19, 2018, the Company’s Board of Directors approved a new share buy-back plan. Under the plan, which became effective on September 1, 2018 and will remain in effect through August 31, 2020, the Company is authorized to acquire up to $75.0 million of its outstanding shares 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 thereto.
16
The following table provides information with respect to all purchases made by the Company during the three months ended August 31, 2018. All purchases listed below were made in the open market at prevailing market prices. Purchase transactions between June 1, 2018 and July 13, 2018 and between August 17, 2018 and August 31, 2018 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 |
7,800 |
$ |
142.42 | 7,800 |
$ |
24,995,393 | ||||||
|
July 1 - July 31 |
7,600 |
$ |
158.18 | 7,600 |
$ |
23,793,099 | ||||||
|
August 1 - August 31 |
14,900 |
$ |
169.04 | 14,900 |
$ |
- |
(1) |
|||||
|
Total |
30,300 |
$ |
159.47 | 30,300 | ||||||||
|
|
||||||||||||
(1) On August 31, 2018, the previous share buy-back plan which was approved on June 21, 2016 expired with less than the entire $75.0 million of authorized treasury share purchases having been executed. As a result, no remaining amount of shares may be purchased under this plan. The new June 19, 2018 approved $75.0 million share buy-back plan became effective beginning September 1, 2018.
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, |
|||||||||||||
|
|
2018 |
2017 |
2016 |
2015 |
2014 |
|||||||||
|
Net sales |
$ |
408,518 |
$ |
380,506 |
$ |
380,670 |
$ |
378,150 |
$ |
382,997 | ||||
|
Cost of products sold |
183,255 | 166,621 | 166,301 | 177,972 | 184,144 | |||||||||
|
Gross profit |
225,263 | 213,885 | 214,369 | 200,178 | 198,853 | |||||||||
|
Operating expenses |
146,659 | 137,976 | 143,021 | 134,788 | 135,116 | |||||||||
|
Income from operations |
78,604 | 75,909 | 71,348 | 65,390 | 63,737 | |||||||||
|
Interest and other (expense) income, net |
(3,426) | (1,287) | 1,441 | (2,280) | (778) | |||||||||
|
Income before income taxes |
75,178 | 74,622 | 72,789 | 63,110 | 62,959 | |||||||||
|
Provision for income taxes |
9,963 | 21,692 | 20,161 | 18,303 | 19,213 | |||||||||
|
Net income |
$ |
65,215 |
$ |
52,930 |
$ |
52,628 |
$ |
44,807 |
$ |
43,746 | ||||
|
|
||||||||||||||
|
Earnings per common share: |
||||||||||||||
|
Basic |
$ |
4.65 |
$ |
3.73 |
$ |
3.65 |
$ |
3.05 |
$ |
2.89 | ||||
|
Diluted |
$ |
4.64 |
$ |
3.72 |
$ |
3.64 |
$ |
3.04 |
$ |
2.87 | ||||
|
Dividends per share |
$ |
2.11 |
$ |
1.89 |
$ |
1.64 |
$ |
1.48 |
$ |
1.33 | ||||
|
Weighted-average shares outstanding - |
||||||||||||||
|
diluted |
13,962 | 14,123 | 14,379 | 14,649 | 15,148 | |||||||||
|
Total assets |
$ |
317,059 |
$ |
369,717 |
$ |
339,668 |
$ |
339,257 |
$ |
347,680 | ||||
|
Long-term obligations (1) |
$ |
75,667 |
$ |
154,907 |
$ |
140,579 |
$ |
133,427 |
$ |
26,354 | ||||
|
|
||||||||||||||
(1) Long-term obligations include long-term debt, deferred tax liabilities, net and other long-term liabilities.
17
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.
18
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, 2018:
|
· |
Consolidated net sales increased $28.0 million, or 7%, for fiscal year 2018 compared to the prior fiscal year. Changes in foreign currency exchange rates had a favorable impact of $10.5 million on consolidated net sales for fiscal year 2018. Thus, on a constant currency basis, net sales would have increased by $17.5 million, or 5%, for fiscal year 2018 compared to the prior fiscal year. This favorable impact from changes in foreign currency exchange rates mainly came from our EMEA segment, which accounted for 37% of our consolidated sales for the fiscal year ended August 31, 2018. |
|
· |
Consolidated net sales for the WD-40 Specialist product line were $31.4 million which is a 22% increase for fiscal year 2018 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 55.1% for fiscal year 2018 compared to 56.2% for the prior fiscal year. |
|
· |
Consolidated net income increased $12.3 million, or 23%, for fiscal year 2018 compared to the prior fiscal year. Changes in foreign currency exchange rates had a favorable impact of $1.9 million on consolidated net income for fiscal year 2018. Thus, on a constant currency basis, net income would have increased by $10.4 million, or 20%, for fiscal year 2018 compared to the prior fiscal year. |
|
· |
Diluted earnings per common share for fiscal year 2018 were $4.64 versus $3.72 in the prior fiscal year. |
|
· |
Net income and diluted earnings per common share were favorably impacted for fiscal year 2018 by the U.S. “Tax Cuts and Jobs Act”, which became effective for the Company on January 1, 2018 and resulted in a lower effective income tax rate from period to period as well as a favorable remeasurement of the Company’s deferred tax liability of $6.8 million during fiscal year 2018. |
|
· |
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, 2017 through August 31, 2018, the Company repurchased 175,306 shares at an average price of $128.99 per share, for a total cost of $22.6 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, increased market penetration and the development of new and unique delivery systems; (ii) leveraging the WD-40 brand by growing the WD-40 Specialist product line; (iii) leveraging the strengths of the Company through broadened product and revenue base; (iv) attracting, developing and retaining talented people; and (v) operating with excellence.
19
Results of Operations
Fiscal Year Ended August 31, 2018 Compared to Fiscal Year Ended August 31, 2017
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 |
||||||||||
|
|
2018 |
2017 |
Dollars |
Percent |
|||||||
|
Net sales: |
|||||||||||
|
Maintenance products |
$ |
372,391 |
$ |
342,295 |
$ |
30,096 | 9% | ||||
|
Homecare and cleaning products |
36,127 | 38,211 | (2,084) |
(5)% |
|||||||
|
Total net sales |
408,518 | 380,506 | 28,012 | 7% | |||||||
|
Cost of products sold |
183,255 | 166,621 | 16,634 | 10% | |||||||
|
Gross profit |
225,263 | 213,885 | 11,378 | 5% | |||||||
|
Operating expenses |
146,659 | 137,976 | 8,683 | 6% | |||||||
|
Income from operations |
$ |
78,604 |
$ |
75,909 |
$ |
2,695 | 4% | ||||
|
Net income |
$ |
65,215 |
$ |
52,930 |
$ |
12,285 | 23% | ||||
|
Earnings per common share - diluted |
$ |
4.64 |
$ |
3.72 |
$ |
0.92 | 25% | ||||
|
|
|||||||||||
Net Sales by Segment
The following table summarizes net sales by segment (in thousands, except percentages):
|
|
|||||||||||
|
|
Fiscal Year Ended August 31, |
||||||||||
|
|
Change from |
||||||||||
|
|
2018 |
2017 |
Dollars |
Percent |
|||||||
|
Americas |
$ |
192,878 |
$ |
184,929 |
$ |
7,949 | 4% | ||||
|
EMEA |
150,878 | 136,771 | 14,107 | 10% | |||||||
|
Asia-Pacific |
64,762 | 58,806 | 5,956 | 10% | |||||||
|
Total |
$ |
408,518 |
$ |
380,506 |
$ |
28,012 | 7% | ||||
|
|
|||||||||||
20
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 |
||||||||||
|
|
2018 |
2017 |
Dollars |
Percent |
|||||||
|
Maintenance products |
$ |
170,160 |
$ |
159,167 |
$ |
10,993 | 7% | ||||
|
Homecare and cleaning products |
22,718 | 25,762 | (3,044) |
(12)% |
|||||||
|
Total |
$ |
192,878 |
$ |
184,929 |
$ |
7,949 | 4% | ||||
|
% of consolidated net sales |
47% | 49% | |||||||||
|
|
|||||||||||
Sales in the Americas segment, which includes the U.S., Canada and Latin America, increased to $192.9 million, up $7.9 million, or 4%, for the fiscal year ended August 31, 2018 compared to the prior fiscal year. Changes in foreign currency exchange rates had a favorable impact on sales for the Americas segment from period to period. Sales for the fiscal year ended August 31, 2018 translated at the exchange rates in effect for the prior fiscal year would have been $192.5 million in the Americas segment. Thus, on a constant currency basis, sales would have increased by $7.6 million for the fiscal year ended August 31, 2018 compared to the prior fiscal year.
Sales of maintenance products in the Americas segment increased $11.0 million, or 7%, for the fiscal year ended August 31, 2018 compared to the prior fiscal year. This sales increase was mainly driven by higher sales of maintenance products in the U.S. and Latin America, which were up $8.0 million and $2.3 million, or 6% and 10% respectively, from period to period. In addition, sales of maintenance products also increased by $0.7 million in Canada, up 8%, from period to period. The sales increase in the U.S. was primarily due to the success of certain online promotional and advertising activities which were conducted in the first quarter of fiscal year 2018 as well as certain customers buying product in advance of a price increase, particularly on WD-40 Multi-Use Product, which took place at the beginning of the fourth quarter of fiscal year 2018. In addition, the sales increase in the U.S. was also attributable to higher sales of WD-40 EZ-REACH Flexible Straw product, which were up $2.9 million, or 29%, from period to period. The sales increase in Latin America from period to period was primarily due to successful promotional programs which were conducted in the third quarter of fiscal year 2018, higher sales in Mexico due to improved market and economic conditions, new distribution for the WD-40 Multi-Use Product in Central America and higher sales in Chile due to successful promotional programs. The sales increase in Canada was primarily driven by successful promotional programs which were conducted in the third quarter of fiscal year 2018. Also contributing to the overall sales increase of the maintenance products in the Americas segment from period to period were higher sales of the WD-40 Specialist product line, which were up $0.7 million, or 5%, from period to period due to new distribution, particularly of certain new products within this product line during fiscal year 2018.
Sales of homecare and cleaning products in the Americas segment decreased $3.1 million, or 12%, for the fiscal year ended August 31, 2018 compared to the prior fiscal year. This sales decrease was driven primarily by a decrease in sales of the Carpet Fresh, 2000 Flushes and Spot Shot brand products, which were down 37%, 14% and 10%, 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, 80% of sales came from the U.S., and 20% of sales came from Canada and Latin America combined for the fiscal year ended August 31, 2018 compared to the prior fiscal year when 81% of sales came from the U.S., and 19% of sales came from Canada and Latin America combined.
21
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 |
||||||||||
|
|
2018 |
2017 |
Dollars |
Percent |
|||||||
|
Maintenance products |
$ |
144,932 |
$ |
131,562 |
$ |
13,370 | 10% | ||||
|
Homecare and cleaning products |
5,946 | 5,209 | 737 | 14% | |||||||
|
Total (1) |
$ |
150,878 |
$ |
136,771 |
$ |
14,107 | 10% | ||||
|
% of consolidated net sales |
37% | 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 50% of its sales are generated in Euro and 20% 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 $150.9 million, up $14.1 million, or 10%, for the fiscal year ended August 31, 2018 compared to the prior fiscal year. Changes in foreign currency exchange rates had a favorable impact on sales for the EMEA segment from period to period. Sales for the fiscal year ended August 31, 2018 translated at the exchange rates in effect for the prior fiscal year would have been $141.7 million in the EMEA segment. Thus, on a constant currency basis, sales would have increased by $4.9 million, or 4%, for the fiscal year ended August 31, 2018 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). Sales in the direct markets increased $13.5 million, or 15%, for the fiscal year ended August 31, 2018 compared to the prior fiscal year primarily due to a sales increase of $8.0 million, or 13%, of the WD-40 Multi-Use Product across all markets. This increase in sales was also a result of the favorable impacts of changes in foreign currency exchange rates, specifically the strengthening of the Pound Sterling against the U.S. Dollar, as well as a higher level of promotional activities, particularly in the do-it-yourself (“DIY”) and retail channels. Also contributing to the overall sales increase in the direct markets was higher sales of the WD-40 Specialist product line, which were up $3.5 million, or 45%, from period to period due to new distribution and a higher level of promotional activities, particularly in France, the U.K. and the Germanics regions. Sales from direct markets accounted for 68% of the EMEA segment’s sales for the fiscal year ended August 31, 2018 compared to 65% 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 $0.6 million, or 1%, for the fiscal year ended August 31, 2018 compared to the prior fiscal year, primarily due to higher sales of WD-40 Multi-Use Product in Northern Europe and the Middle East as a result of various successful promotional programs in those regions. This sales increase was almost completely offset by lower sales in Eastern Europe from period to period. Although there were increased sales in various countries in Eastern Europe from period to period, sales in Russia declined by 33%, which resulted in an overall decline in sales in this region. The declines in Russia were due to continued instability in the region and the timing of orders from the distributor. The distributor markets accounted for 32% of the EMEA segment’s total sales for the fiscal year ended August 31, 2018, compared to 35% for the prior fiscal year.
22
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 |
||||||||||
|
|
2018 |
2017 |
Dollars |
Percent |
|||||||
|
Maintenance products |
$ |
57,299 |
$ |
51,567 |
$ |
5,732 | 11% | ||||
|
Homecare and cleaning products |
7,463 | 7,239 | 224 | 3% | |||||||
|
Total |
$ |
64,762 |
$ |
58,806 |
$ |
5,956 | 10% | ||||
|
% of consolidated net sales |
16% | 15% | |||||||||
|
|
|||||||||||
Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region, increased to $64.8 million, up $6.0 million, or 10%, for the fiscal year ended August 31, 2018 compared to the prior fiscal year. Changes in foreign currency exchange rates had a favorable impact on sales for the Asia-Pacific segment from period to period. Sales for the fiscal year ended August 31, 2018 translated at the exchange rates in effect for the prior fiscal year would have been $63.8 million in the Asia-Pacific segment. Thus, on a constant currency basis, sales would have increased by $5.0 million, or 9%, for the fiscal year ended August 31, 2018 compared to the prior fiscal year.
Sales in Asia, which represented 72% of the total sales in the Asia-Pacific segment, increased $6.0 million, or 14%, for the fiscal year ended August 31, 2018 compared to the prior fiscal year. Sales in the Asia distributor markets increased $3.6 million, or 14%, primarily due to a higher sales of the WD-40 Multi-Use Product in the Philippines, Taiwan and South Korea markets as a result of successful promotion programs as well as the timing of customer orders from period to period. In addition, sales in Indonesia returned to more normal levels in the fourth quarter of fiscal year 2018 as result of the successful transition to a new marketing distributor in this region during the year. Sales in China increased $2.4 million, or 16%, for the fiscal year ended August 31, 2018 compared to the prior fiscal year. Changes in foreign currency exchange rates had a favorable impact on sales in China. On a constant currency basis, sales would have increased by $1.7 million, or 11%, from period to period primarily due to a higher level of promotional activities and many customers buying product in advance of a price increase that went into effect at the beginning of fiscal year 2019.
Sales in Australia remained constant at $17.8 million for each of the fiscal years ended August 31, 2018 and 2017. Although sales in Australia remained constant from period to period, on a constant currency basis, sales decreased slightly by 1% primarily due to a lower sales of the WD-40 Multi-Use Product as a result of a major customer reducing their inventory levels of aerosol can products due to certain regulatory constraints.
Gross Profit
Gross profit increased to $225.3 million for the fiscal year ended August 31, 2018 compared to $213.9 million for the prior fiscal year. As a percentage of net sales, gross profit decreased to 55.1% for the fiscal year ended August 31, 2018 compared to 56.2% for the prior fiscal year.
Gross margin was negatively impacted by 1.3 percentage points from period to period due to unfavorable 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 higher during fiscal year 2018 compared to the prior fiscal year, thus resulting in negative impacts to our gross margin from period to period. 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. Gross margin was also negatively impacted by 0.2 percentage points from period to period due to higher warehousing and in-bound freight costs in all three segments. Advertising, promotional and other discounts that we give to our customers also increased from period to period which negatively impacted gross margin by 0.1 percentage points. These unfavorable impacts to gross margin were partially offset by 0.5 percentage points from period to period primarily due to sales price increases implemented in the EMEA and Asia-Pacific segments late in fiscal year 2017 and the first half of fiscal year 2018, as well as sales price increases implemented in the Americas segment in the fourth quarter of fiscal year 2018.
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
23
manufacturers and include these costs in selling, general and administrative expenses. These costs totaled $17.7 million and $16.4 million for the fiscal years ended August 31, 2018 and 2017, respectively.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses for the fiscal year ended August 31, 2018 increased $6.8 million to $121.4 million from $114.6 million for the prior fiscal year. As a percentage of net sales, SG&A expenses decreased to 29.7% for the fiscal year ended August 31, 2018 from 30.1% for the prior fiscal year. The increase in SG&A expenses was primarily attributable to the unfavorable impact of changes in foreign currency exchange rates of $2.8 million from period to period, as well as increases in employee-related costs, depreciation expense and general office overhead costs, freight costs, and a higher level of expenses associated with travel and meetings from period to period. Employee-related costs, which include salaries, incentive compensation, profit sharing, stock-based compensation and other fringe benefits, increased by $2.7 million. This increase was primarily due to increased headcount, higher earned incentive compensation and annual compensation increases that take effect in the first quarter of the fiscal year. Depreciation expense and general office overhead costs increased $0.9 million primarily due to the depreciation and expenses associated with the Company’s new San Diego, California office building, which was completed in August 2017. Freight costs associated with shipping products to our customers increased $0.7 million primarily due to higher sales volumes in all three segments from period to period, as well as various macroeconomic factors impacting the freight industry which have resulted in increased shipping costs. Travel and meeting expenses increased $0.3 million due to a higher level of travel expenses associated with various sales meetings and activities in support of our strategic initiatives. In addition, other miscellaneous expenses also increased in total by $0.7 million period over period, primarily due to an increase in charitable contributions and bad debt expense. These overall increases were slightly offset by a decrease in professional services costs and research and development costs from period to period. Professional service costs decreased $0.8 million due to a favorable legal judgment of $1.5 million received and recorded in the fourth quarter of fiscal year 2018 (for additional information, see Part IV – Item 15, “Exhibits, Financial Statement Schedules” Note 11 – Commitments and Contingencies, included in this report), which was partially offset by the increased use of professional services in the EMEA segment from period to period primarily due to the implementation of the General Data Protection Regulation which became effective for the Company beginning in May 2018. In addition, research and development costs, including new product exploration expenses, decreased $0.5 million from period to period due to decreases in such spending in the Americas segment.
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, 2018 and 2017 were $7.0 million and $8.4 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, 2018 increased $1.8 million to $22.3 million from $20.5 for the prior fiscal year. As a percentage of net sales, these expenses increased to 5.5% for the fiscal year ended August 31, 2018 from 5.4% for the prior fiscal year. Changes in foreign currency exchange rates had an unfavorable impact on such expenses of $0.6 million from period to period. Thus, on a constant currency basis, advertising and sales promotion expenses for fiscal year 2018 would have increased by $1.2 million, primarily due to corporate funded costs associated with increasing the Company’s digital presence and building brand awareness in all three segments from period to period. Investment in global advertising and sales promotion expenses for fiscal year 2019 is expected to be between 5.5% and 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 $19.7 million and $17.5 million for the fiscal years ended August 31, 2018 and 2017, respectively. Therefore, our total investment in advertising and sales promotion activities totaled $42.0 million and $38.0 million for the fiscal years ended August 31, 2018 and 2017, respectively.
24
Amortization of Definite-lived Intangible Assets Expense
Amortization of our definite-lived intangible assets remained relatively constant at $3.0 million and $2.9 million for the fiscal years ended August 31, 2018 and 2017, 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 |
||||||||||
|
|
2018 |
2017 |
Dollars |
Percent |
|||||||
|
Americas |
$ |
48,954 |
$ |
48,303 |
$ |
651 | 1% | ||||
|
EMEA |
36,241 | 35,389 | 852 | 2% | |||||||
|
Asia-Pacific |
19,098 | 16,765 | 2,333 | 14% | |||||||
|
Unallocated corporate (1) |
(25,689) | (24,548) | (1,141) | 5% | |||||||
|
Total |
$ |
78,604 |
$ |
75,909 |
$ |
2,695 | 4% | ||||
|
|
|||||||||||
|
(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 $49.0 million, up $0.7 million, or 1%, for the fiscal year ended August 31, 2018 compared to the prior fiscal year, primarily due to a $7.9 million increase in sales, which was partially offset by a lower gross margin and higher operating expenses. As a percentage of net sales, gross profit for the Americas segment decreased from 54.4% to 53.5% period over period. This decrease in the gross margin was primarily due to the combined negative impacts of increased costs of petroleum-based specialty chemicals and aerosol cans, as well as higher warehousing and in-bound freight costs from period to period. These unfavorable impacts were partially offset by a lower level of advertising, promotional and other discounts that we gave to our customers and the impact of sales price increases from period to period. The higher sales in the Americas segment were accompanied by a $2.0 million increase in total operating expenses period over period due to higher employee-related expenses, primarily those associated with earned incentive compensation, as well as higher professional service costs. These increases in operating expenses were partially offset by a lower level of advertising and sales promotion expenses, decreased research and development costs, and lower overhead costs from period to period. Operating income as a percentage of net sales decreased from 26.1% to 25.4% period over period.
EMEA
Income from operations for the EMEA segment increased to $36.2 million, up $0.9 million, or 2%, for the fiscal year ended August 31, 2018 compared to the prior fiscal year, primarily due to a $14.1 million increase in sales, which was significantly offset by a lower gross margin and higher operating expenses. As a percentage of net sales, gross profit for the EMEA segment decreased from 59.6% to 57.7% period over period primarily due to the combined negative impacts of increased costs of petroleum-based specialty chemicals and aerosol cans as well as a higher level of advertising, promotional and other discounts that we gave to our customers from period to period. These unfavorable impacts were partially offset by sales price increases from period to period. The higher sales in the EMEA segment were accompanied by a $4.8 million increase in total operating expenses period over period, primarily due to the unfavorable impacts of changes in foreign currency exchange rates, as well as increased headcount, higher freight costs, higher professional services costs and increased advertising and sales promotion expenses from period to period. These increases in operating expenses were partially offset by lower earned incentive compensation from period to period. Operating income as a percentage of net sales decreased from 25.9% to 24.0% period over period.
25
Asia-Pacific
Income from operations for the Asia-Pacific segment increased to $19.1 million, up $2.3 million, or 14%, for the fiscal year ended August 31, 2018 compared to the prior fiscal year, primarily due to a $6.0 million increase in sales, which was partially offset by a lower gross margin and higher operating expenses. As a percentage of net sales, gross profit for the Asia-Pacific segment decreased from 54.2% to 54.0% period over period primarily due to the negative impact of increased costs of petroleum-based specialty chemicals and a higher level of advertising, promotional and other discounts that we gave to our customers from period to period. These unfavorable impacts were mostly offset by sales price increases and favorable sales mix changes from period to period. The higher sales in the Asia-Pacific segment were accompanied by a $0.8 million increase in total operating expenses period over period, primarily due to increased advertising and sales promotion expenses and higher freight costs. Operating income as a percentage of net sales increased from 28.5% to 29.5% period over period.
Non-Operating Items
The following table summarizes non-operating income and expenses for our consolidated operations (in thousands):
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2018 |
2017 |
Change |
|||||
|
Interest income |
$ |
454 |
$ |
508 |
$ |
(54) | ||
|
Interest expense |
$ |
(4,219) |
$ |
(2,582) |
$ |
(1,637) | ||
|
Other income |
$ |
339 |
$ |
787 |
$ |
(448) | ||
|
Provision for income taxes |
$ |
9,963 |
$ |
21,692 |
$ |
(11,729) | ||
|
|
||||||||
Interest Income
Interest income remained relatively constant for the fiscal year ended August 31, 2018 compared to the prior fiscal year.
Interest Expense
Interest expense increased $1.6 million for the fiscal year ended August 31, 2018 compared to the prior fiscal year primarily due to higher interest rates and an increased average outstanding balance on our revolving credit facility period over period. Interest expense also increased from period to period due to the interest associated with the $20.0 million Series A Notes which were issued in November 2017.
Other Income
Other income decreased by $0.4 million for the fiscal year ended August 31, 2018 compared to the prior fiscal year primarily due to a decrease of $0.2 million in net foreign currency exchange gains from period to period, as well as a $0.2 million miscellaneous income item recorded in our Asia-Pacific segment in the third quarter of fiscal year 2017 that did not reoccur in fiscal year 2018. The 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, 2018 compared to the prior fiscal year.
Provision for Income Taxes
The provision for income taxes was 13.3% of income before income taxes for the fiscal year ended August 31, 2018 compared to 29.1% for the prior fiscal year. The decrease in the effective income tax rate from period to period was primarily due to the favorable impact of the reduced tax rate resulting from the “Tax Cuts and Jobs Act” (the “Tax Act”), which became effective during the second quarter of the Company’s fiscal year 2018. Since the Company has a fiscal year which ends on August 31, the Company is subject to a “blended” corporate federal statutory rate in its fiscal year 2018 which is calculated based on the applicable tax rates before and after passage of the Tax Act and the number of days in the fiscal year. As a result of this calculation, the Company’s blended corporate federal statutory tax rate for fiscal year 2018 is 25.7%, which is more than 9 percentage points lower than the statutory rate of 35% in the prior fiscal year. The Company also recorded two discrete items related to the Tax Act during fiscal year 2018, a $6.8 million provisional remeasurement of the Company’s net deferred tax liability and a $0.3 million provisional benefit related to the toll tax net of foreign tax credits, both of which lowered the Company’s effective income tax rate from period to period. For additional information on the impacts of the Tax Act on the Company’s provision for income taxes and its consolidated financial statements, see Part IV – Item 15, “Exhibits, Financial Statement Schedules” Note 12 – Income Taxes, included in this report.
26
The decrease in the effective income tax rate from period to period was also driven in part by the adoption of ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”, in the first quarter of the Company’s fiscal year 2018, which resulted in excess tax benefits from settlements of stock-based equity awards of $0.7 million being recognized in the provision for income taxes, whereas such benefits were recognized as an increase to additional paid-in capital in prior periods. In addition, the effective income tax rate for the fiscal year ended August 31, 2017 was higher due to the unfavorable impact of a non-recurring 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.
Net Income
Net income was $65.2 million, or $4.64 per common share on a fully diluted basis, for fiscal year 2018 compared to $52.9 million, or $3.72 per common share on a fully diluted basis, for the prior fiscal year. Changes in foreign currency exchange rates year over year had a favorable impact of $1.9 million on net income for fiscal year 2018. Thus, on a constant currency basis, net income for fiscal year 2018 would have been $63.3 million.
27
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) |
- |
||||
|
|
|||||||||||
28
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 fiscal year 2016. Changes in foreign currency exchange rates did not have a significant 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 fiscal year 2016. 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 fiscal year 2016, as well as new distribution and successful promotional programs in several countries in South America. 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 fiscal year 2016. 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 fiscal year 2016 when 83% of sales came from the U.S., and 17% of sales came from Canada and Latin America combined.
29
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 fiscal year 2016. 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 fiscal year 2016 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 fiscal year 2016.
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 fiscal year 2016.
We experienced sales increases throughout most of the EMEA direct markets for the fiscal year ended August 31, 2017 compared to fiscal year 2016 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 fiscal year 2016.
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 fiscal year 2016 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 fiscal year 2016.
30
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 fiscal year 2016. Although changes in foreign currency exchange rates did not have a significant 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 fiscal year 2016. Sales in the Asia distributor markets increased $2.2 million, or 9%, primarily attributable to successful promotional programs and expanded distribution in the Asia 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 fiscal year 2016. 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 fiscal year 2016. 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 fiscal year 2016 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 fiscal year 2016. 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 fiscal year 2016.
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 during fiscal year 2017 compared to fiscal year 2016 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. 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 in the EMEA segment over the last twelve months also positively impacted gross margin by 0.1 percentage points from period to period.
31
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 fiscal year 2016. 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 fiscal year 2016. 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 fiscal year 2016. 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 fiscal year 2016.
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 fiscal year 2016. As a percentage of net sales, these expenses decreased to 5.4% for the fiscal year ended August 31, 2017 from 5.9% for fiscal year 2016. 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.
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.
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.
32
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% | |||||||
|
Total |
$ |
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 fiscal year 2016, 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 fiscal year 2016, 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 fiscal year 2016, 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.
33
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 fiscal year 2016.
Interest Expense
Interest expense increased $0.9 million for the fiscal year ended August 31, 2017 compared to fiscal year 2016 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 fiscal year 2016 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 fiscal year 2016.
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 fiscal year 2016. 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 fiscal year 2016. 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.
34
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 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, |
|||||||
|
|
2018 |
2017 |
2016 |
|||||
|
Gross margin - GAAP |
55% | 56% | 56% | |||||
|
Cost of doing business as a percentage of net sales - non-GAAP |
34% | 35% | 36% | |||||
|
EBITDA as a percentage of net sales - non-GAAP (1) |
21% | 22% | 21% | |||||
|
|
||||||||
|
(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, |
|||||||
|
|
2018 |
2017 |
2016 |
|||||
|
Total operating expenses - GAAP |
$ |
146,659 |
$ |
137,976 |
$ |
143,021 | ||
|
Amortization of definite-lived intangible assets |
(2,951) | (2,879) | (2,976) | |||||
|
Depreciation (in operating departments) |
(3,725) | (2,789) | (2,744) | |||||
|
Cost of doing business |
$ |
139,983 |
$ |
132,308 |
$ |
137,301 | ||
|
Net sales |
$ |
408,518 |
$ |
380,506 |
$ |
380,670 | ||
|
Cost of doing business as a percentage of net sales - non-GAAP |
34% | 35% | 36% | |||||
|
|
||||||||
35
EBITDA (in thousands, except percentages):
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2018 |
2017 |
2016 |
|||||
|
Net income - GAAP |
$ |
65,215 |
$ |
52,930 |
$ |
52,628 | ||
|
Provision for income taxes |
9,963 | 21,692 | 20,161 | |||||
|
Interest income |
(454) | (508) | (683) | |||||
|
Interest expense |
4,219 | 2,582 | 1,703 | |||||
|
Amortization of definite-lived |
||||||||
|
intangible assets |
2,951 | 2,879 | 2,976 | |||||
|
Depreciation |
4,849 | 3,890 | 3,489 | |||||
|
EBITDA |
$ |
86,743 |
$ |
83,465 |
$ |
80,274 | ||
|
Net sales |
$ |
408,518 |
$ |
380,506 |
$ |
380,670 | ||
|
EBITDA as a percentage of net sales - non-GAAP |
21% | 22% | 21% | |||||
|
|
||||||||
Liquidity and Capital Resources
Overview
The Company’s financial condition and liquidity remain strong. Net cash provided by operations was $64.8 million for fiscal year 2018 compared to $55.6 million for fiscal year 2017. 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 unsecured Credit Agreement with 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. In November 2017, the Company also entered into a Note Purchase and Private Shelf Agreement, pursuant to which the Company agreed to sell $20.0 million aggregate principal amount of Series A Notes to certain purchasers. See Note 7 – Debt for additional information on this note agreement. The Company used the proceeds from the Series A Notes to pay down $20.0 million of short-term borrowings held under the Credit Agreement during fiscal year August 31, 2018. The $20.0 million of short term borrowings under the Credit Agreement were drawn in fiscal year 2017 primarily to fund the purchase and build out of the Company’s new San Diego, California office building, purchased in September 2016 and completed for occupancy in August 2017. The new office building houses both corporate employees and employees in the Company’s Americas segment.
As a result of the “Tax Cuts and Jobs Act” (the “Tax Act”), which became effective for the Company beginning January 1, 2018, we began reevaluating our indefinite reinvestment assertion for our foreign subsidiaries. In May 2018, we completed this reevaluation and changed our indefinite reinvestment assertion for certain of our foreign subsidiaries. As a result, we no longer consider unremitted earnings of any of our foreign subsidiaries to be indefinitely reinvested. For additional information on the Tax Act, see Part IV—Item 15, “Exhibits, Financial Statement Schedules”, Note 12 — Income Taxes, included in this report. The costs associated with repatriating unremitted foreign earnings, including U.S. state income taxes and foreign withholding taxes, are immaterial to our consolidated financial statements. In the fourth quarter of fiscal year 2018, we repatriated a portion of our unremitted foreign earnings in the amount of $79.6 million from our U.K. subsidiary and used these funds towards repaying $80.0 million of outstanding draws on our line of credit. These repayments on our line of credit were slightly offset by new borrowings of $12.8 million as a result of $10.0 million borrowed under the revolving credit facility and $2.8 million in net borrowings under the autoborrow agreement. We regularly convert many of our draws on our line of credit to new draws with new maturity dates and interest rates. As of August 31, 2018, we had a $64.0 million balance of outstanding draws on the revolving credit facility, of which $44.0 million was classified as long-term and $20.0 million was classified as short-term. In addition, we paid $0.4 million in principal payments on our Series A Notes during fiscal year 2018. There were no other letters of credit outstanding or restrictions on the amount available on this line of credit or the Series A Notes. Per the terms of both the Note Agreement and the Credit 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, 2018, we were in compliance with all debt covenants and believe it is unlikely we will fail to
36
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.
We believe that our future cash from domestic and international 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. At August 31, 2018, we had a total of $49.1 million in cash and cash equivalents and short-term investments. Although we currently hold a significant amount of debt, primarily due to draws on our credit facility made by our entity in the United States, we do not foresee any ongoing issues with repaying these loans and we closely monitor the use of this credit facility.
The following table summarizes our cash flows by category for the periods presented (in thousands):
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2018 |
2017 |
2016 |
|||||
|
Net cash provided by operating activities |
$ |
64,822 |
$ |
55,572 |
$ |
65,302 | ||
|
Net cash provided by (used in) investing activities |
71,207 | (42,291) | (20,920) | |||||
|
Net cash used in financing activities |
(121,409) | (26,838) | (43,234) | |||||
|
Effect of exchange rate changes on cash and cash equivalents |
(2,836) | (252) | (4,153) | |||||
|
Net increase (decrease) in cash and cash equivalents |
$ |
11,784 |
$ |
(13,809) |
$ |
(3,005) | ||
|
|
||||||||
Operating Activities
Net cash provided by operating activities increased $9.2 million to $64.8 million for fiscal year 2018 from $55.6 million for fiscal year 2017. 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, 2018 was net income of $65.2 million, which increased $12.3 million from period to period. The changes in our working capital from period to period were primarily attributable to the remeasurement of the Company’s net deferred income tax liability as a result of the Tax Act’s reduction in the U.S. corporate federal statutory tax rate, as well as increases in the trade accounts receivable balance due to increased sales and the timing of payments received from customers from period to period. These changes in our working capital were significantly offset by much lower decreases in accrued payroll and related expenses due to lower earned incentive payouts in the first quarter of fiscal year 2018 compared to the same period of the prior fiscal year.
Net cash provided by operating activities decreased $9.7 million to $55.6 million for fiscal year 2017 from $65.3 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.
Investing Activities
Net cash provided by investing activities was $71.2 million for fiscal year 2018 compared to net cash used in investing activities of $42.3 million for fiscal year 2017. This change was primarily due to net maturities of short-term investments of $83.3 million during fiscal year 2018 compared to $22.6 million in net purchases of short-term investment made in fiscal year 2017. The $83.3 million net maturity for fiscal year 2018 was entirely due to a short-term investment held by our U.K. subsidiary which matured in April 2018 and was not reinvested. Also contributing to the change in total net cash inflows and outflows was a decrease of $7.8 million in capital expenditures, primarily related to $16.4 million in cash outflows during fiscal year 2017 for the purchase and buildout of the Company’s San Diego office building which was acquired during the first quarter of fiscal year 2017, partially
37
offset by the £5.6 million purchase and buildout of the Company’s new office building located in Milton Keynes, England which was acquired during the second quarter of fiscal year 2018 ($7.6 million in U.S. Dollars as converted at average exchange rates for fiscal year 2018). These increases in net cash inflows were slightly offset by $0.2 million in cash paid pursuant to the execution of a settlement agreement in October 2017 that provided for the Company’s acquisition of the EZ REACH trade name.
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.
Financing Activities
Net cash used in financing activities increased $94.6 million to $121.4 million for fiscal year 2018 from $26.8 million for fiscal year 2017 primarily due to $87.2 million in net repayments of the Company’s revolving line of credit during fiscal year 2018, compared to $32.0 million in net proceeds from the revolving line of credit in fiscal year 2017. Also contributing to the increase in total cash outflows was an increase of $2.8 million in dividends paid, a $0.6 million decrease in proceeds from the issuance of common stock upon the exercise of stock options and a $0.1 million increase in shares withheld to cover taxes upon conversions of equity awards from period to period. These increases in cash outflows from financing activities were partially offset by $20.0 million in proceeds from the Company’s Series A Notes issued in November 2017, slightly offset by $0.4 million in principal payments made on these, as well as a decrease of $8.5 million for treasury stock purchases from period to period.
Net cash used in financing activities decreased $16.4 million to $26.8 million for fiscal year 2017 from $43.2 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. In addition, shares withheld to cover taxes upon conversions of equity awards decreased $0.9 million from period to period. These decreases in cash outflows from financing activities were partially offset by an increase of $3.1 million in dividends paid and a $0.5 million decrease in proceeds from the issuance of common stock upon the exercise of stock options 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 $2.8 million, $0.3 million and $4.2 million for fiscal years 2018, 2017 and 2016, 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
The information required by this item is incorporated by reference to Part IV—Item 15, “Exhibits, Financial Statement Schedules” Note 8 — Share Repurchase Plans, included in this report.
Dividends
The Company has historically paid regular quarterly cash dividends on its common stock. In December 2017, the Board of Directors declared a 10% increase in the regular quarterly cash dividend, increasing it from $0.49 per share to $0.54 per share. On October 9, 2018, the Company’s Board of Directors declared a cash dividend of $0.54 per share payable on October 31, 2018 to shareholders of record on October 19, 2018. 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.
38
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, 2018 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 |
|||||||||
|
Leases |
$ |
6,959 |
$ |
2,003 |
$ |
2,685 |
$ |
1,073 |
$ |
1,198 | ||||
|
|
||||||||||||||
The Company was committed under non-cancellable capital and operating leases at August 31, 2018. The Company's capital leases were not significant as of August 31, 2018. The following summarizes other commitments which are excluded from the contractual obligations table above as of August 31, 2018:
|
· |
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 have definitive minimum purchase obligations included in the contract terms with certain of our contract manufacturers, when such obligations have been included, they have either been immaterial or the minimum amounts have been such that they are well below the volume of goods that the Company has historically purchased. 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. The amounts for inventory purchased under termination commitments have been immaterial. |
|
· |
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, 2018, we had $64.0 million of outstanding draws on this credit facility and $2.8 million in net borrowings outstanding under the autoborrow agreement. Based on our most recent cash projections and anticipated business activities, we do not expect to borrow additional amounts on this credit facility during fiscal year 2019. The Company intends to repay $20.0 million in outstanding draws on the line of credit within the next twelve months. As a result, the Company has classified $20.0 million of outstanding draws on this credit facility as short-term as of August 31, 2018. In addition to our credit facility, we hold senior notes under a Note Purchase and Private Shelf Agreement by and among the Company and its note purchasers in the amount of $19.6 million as of August 31, 2018. These senior notes bear interest at 3.39% per annum and will mature on November 15, 2032. Principal payments are required semi-annually beginning on May 15, 2018 in equal installments of $0.4 million through May 15, 2032, and the remaining outstanding principal in the amount of $8.4 million will become due on November 15, 2032. For additional details on these borrowings, refer to the information set forth in Part IV—Item 15, “Exhibits, Financial Statement Schedules” Note 7 – Debt. |
|
· |
At August 31, 2018, the liability recorded for uncertain tax positions, excluding associated interest and penalties, was approximately $1.0 million. We have estimated that up to $0.2 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
39
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.
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, 2018 were to differ by 10%, the impact on net sales would be approximately $0.9 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.
As a result of the “Tax Cuts and Jobs Act” (the “Tax Act”), which became effective beginning January 1, 2018, the U.S. has transitioned from a worldwide tax system to a modified territorial tax system, under which corporations are primarily taxed on income earned within the country’s borders, rather than on a worldwide basis. We are still required to make assertions on whether our foreign subsidiaries will invest their undistributed earnings indefinitely and these assertions are based on the capital needs of the foreign subsidiaries. Due to the passage of the Tax Act, we began reevaluating the indefinite reinvestment assertion for our foreign subsidiaries. In May 2018, we completed this reevaluation and changed our indefinite reinvestment assertion for certain of our foreign subsidiaries. As a result, we no longer consider unremitted earnings of any of our foreign subsidiaries to be indefinitely reinvested. For additional information on the Tax Act, see Part IV—Item 15, “Exhibits, Financial Statement Schedules” Note 12 — Income Taxes, included in this report.
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 2018, 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 ASC 350-20, “Goodwill”, companies are permitted to first assess qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test. In addition, we early adopted ASU 2017-04 “Simplifying the Test for Goodwill Impairment” in the second quarter of fiscal year 2018. The amendments in this updated guidance simplify how an entity is
40
required to test goodwill for impairment if a quantitative approach is used during the annual goodwill impairment test. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures. See “Recently Adopted Accounting Standards” within Part IV—Item 15, “Exhibits, Financial Statement Schedules” Note 2 – Basis of Presentation and Summary of Significant Accounting Policies, included in this report, for additional information on ASU 2017-04. During the fiscal year 2018 annual 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, including the anticipated impacts of the Tax Act; (4) other entity specific events, such as changes in management or key personnel; and (5) events affecting our 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 quantitative analysis was not required. As a result, we concluded that no impairment of our goodwill existed as of February 28, 2018. We also did not identify or record any impairment losses related to our goodwill during our annual impairment tests performed in fiscal years 2017 and 2016.
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, 2018.
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 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, 2018, 2017 and 2016.
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, “Exhibits, Financial Statement Schedules” 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, “Exhibits, Financial Statement Schedules” Note 10 — Related Parties, included in this report.
41
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.
Commodity Price Risk
Petroleum-based specialty chemicals and aerosol cans constitute a significant portion of the cost of many of the Company’s maintenance products. 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. If there are significant increases in the costs of crude oil, the Company’s gross margins and operating results will be negatively impacted. The Company does not currently have a strategy or policy to enter into transactions to hedge crude oil price volatility, but the Company regularly reviews this policy based on market conditions and other factors.
Interest Rate Risk
As of August 31, 2018, the Company had a $66.8 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.
42
Item 8. Financial Statements and Supplementary Data
The Company’s consolidated financial statements at August 31, 2018 and 2017 and for each of the three fiscal years in the period ended August 31, 2018, 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, 2018 |
|||||||||||||
|
|
1st |
2nd |
3rd |
4th |
Total |
|||||||||
|
Net sales |
$ |
97,597 |
$ |
101,256 |
$ |
107,025 |
$ |
102,640 |
$ |
408,518 | ||||
|
Gross profit |
$ |
54,197 |
$ |
55,758 |
$ |
58,658 |
$ |
56,650 |
$ |
225,263 | ||||
|
Net Income (1) |
$ |
12,630 |
$ |
14,818 |
$ |
16,130 |
$ |
21,637 |
$ |
65,215 | ||||
|
Diluted earnings per common share (1) |
$ |
0.90 |
$ |
1.05 |
$ |
1.15 |
$ |
1.54 |
$ |
4.64 | ||||
|
|
||||||||||||||
|
|
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 | ||||
|
|
||||||||||||||
|
(1) |
Net income and diluted earnings per common share were favorably impacted due to a $7.1 million provisional tax benefit recorded during the fourth quarter of fiscal year 2018 associated with the toll tax, net of foreign tax credits, under the U.S. Tax Cuts and Jobs Act (the “Tax Act”). For additional information on the Tax Act and the impact of potential changes in provisional amounts, see Part IV – Item 15, “Exhibits, Financial Statement Schedules” Note 12 – Income Taxes, included in this report. |
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, 2018, 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.
43
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, 2018.
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, 2018, 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, 2018, 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 2018 Annual Meeting of Stockholders on December 11, 2018 (“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.”
44
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, 2018:
|
|
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|
|
Number of securities |
|||||||
|
|
remaining available for |
|||||||
|
|
Number of securities to |
future issuance under |
||||||
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|
be issued upon exercise |
Weighted-average exercise |
equity compensation plans |
|||||
|
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of outstanding options, |
price of outstanding options |
(excluding securities |
|||||
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|
warrants and rights |
warrants and rights |
reflected in column (a)) |
|||||
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(a) |
(b) |
(c) |
|||||
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Plan category |
||||||||
|
Equity compensation plans |
||||||||
|
approved by security holders |
188,284 |
(1) |
$ |
- |
786,364 | |||
|
Equity compensation plans not |
||||||||
|
approved by security holders |
n/a |
n/a |
n/a |
|||||
|
|
188,284 |
(1) |
$ |
- |
786,364 | |||
|
|
||||||||
(1) Includes 115,308 securities to be issued pursuant to outstanding restricted stock units; 42,208 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 30,768 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.
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.”
45
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-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 |
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F-8 |
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(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 8, 2018. |
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10(e) |
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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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10(m) |
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10(n) |
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10(o) |
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10(p) |
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10(q) |
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10(r) |
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10(s) |
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10(t) |
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10(u) |
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10(v) |
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10(w) |
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10(x) |
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10(y) |
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10(z) |
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10(aa) |
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10(ab) |
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10(ac) |
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10(ad) |
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10(ae) |
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21 |
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23 |
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Consent of Independent Registered Public Accounting Firm dated October 22, 2018. |
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31(a) |
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31(b) |
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32(a) |
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Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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|
32(b) |
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
||
|
101. INS |
|
XBRL Instance Document |
|
|
||
|
101. SCH |
|
XBRL Taxonomy Extension Schema Document |
47
|
|
||
|
101. CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
||
|
101. DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
||
|
101. LAB |
|
XBRL Taxonomy Extension Labels Linkbase Document |
|
|
||
|
101. PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
Not applicable.
48
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 |
|
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Registrant |
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/s/ JAY W. REMBOLT |
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JAY W. REMBOLT |
|
|
Vice President, Finance |
|
|
Treasurer and Chief Financial Officer |
|
|
Date: October 22, 2018 |
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 |
|
|
GARRY O. RIDGE |
|
|
Chief Executive Officer and Director |
|
|
(Principal Executive Officer) |
|
|
Date: October 22, 2018 |
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|
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/s/ PETER D. BEWLEY |
|
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PETER D. BEWLEY, Director |
|
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Date: October 22, 2018 |
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/s/ DANIEL T. CARTER |
|
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DANIEL T. CARTER, Director |
|
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Date: October 22, 2018 |
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/s/ MELISSA CLAASSEN |
|
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MELISSA CLAASSEN, Director |
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Date: October 22, 2018 |
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/s/ ERIC P. ETCHART |
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ERIC P. ETCHART, Director |
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Date: October 22, 2018 |
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/s/ LINDA A. LANG |
|
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LINDA A. LANG, Director |
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Date: October 22, 2018 |
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/s/ DAVID B. PENDARVIS |
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DAVID B. PENDARVIS, Director |
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Date: October 22, 2018 |
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/s/ DANIEL E. PITTARD |
|
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DANIEL E. PITTARD, Director |
|
|
Date: October 22, 2018 |
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/s/ GREGORY A. SANDFORT |
|
|
GREGORY A. SANDFORT, Director |
|
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Date: October 22, 2018 |
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/s/ NEAL E. SCHMALE |
|
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NEAL E. SCHMALE, Director |
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Date: October 22, 2018 |
49
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of WD-40 Company
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the consolidated financial statements, including the related notes, as listed in the index appearing under Item 15(a)(1) of WD-40 Company and its subsidiaries (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of August 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of August 31, 2018 and 2017 and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2018 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, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated 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 under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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.
Definition and Limitations of Internal Control over Financial Reporting
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.
F-1
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 22, 2018
We have served as the Company’s auditor since at least 1972. We have not been able to determine the specific year we began serving as auditor of the Company.
F-2
|
|
|||||
|
WD-40 COMPANY |
|||||
|
(In thousands, except share and per share amounts) |
|||||
|
|
|||||
|
|
August 31, |
August 31, |
|||
|
|
2018 |
2017 |
|||
|
Assets |
|||||
|
Current assets: |
|||||
|
Cash and cash equivalents |
$ |
48,866 |
$ |
37,082 | |
|
Short-term investments |
219 | 80,166 | |||
|
Trade accounts receivable, less allowance for doubtful |
|||||
|
accounts of $340 and $240 at August 31, 2018 |
|||||
|
and 2017, respectively |
69,025 | 64,259 | |||
|
Inventories |
36,536 | 35,340 | |||
|
Other current assets |
13,337 | 8,007 | |||
|
Total current assets |
167,983 | 224,854 | |||
|
Property and equipment, net |
36,357 | 29,439 | |||
|
Goodwill |
95,621 | 95,597 | |||
|
Other intangible assets, net |
13,513 | 16,244 | |||
|
Deferred tax assets, net |
511 | 495 | |||
|
Other assets |
3,074 | 3,088 | |||
|
Total assets |
$ |
317,059 |
$ |
369,717 | |
|
|
|||||
|
Liabilities and Shareholders' Equity |
|||||
|
Current liabilities: |
|||||
|
Accounts payable |
$ |
19,115 |
$ |
20,898 | |
|
Accrued liabilities |
26,240 | 18,997 | |||
|
Accrued payroll and related expenses |
14,823 | 14,222 | |||
|
Short-term borrowings |
23,600 | 20,000 | |||
|
Income taxes payable |
2,125 | 1,306 | |||
|
Total current liabilities |
85,903 | 75,423 | |||
|
Long-term borrowings |
62,800 | 134,000 | |||
|
Deferred tax liabilities, net |
11,050 | 18,949 | |||
|
Other long-term liabilities |
1,817 | 1,958 | |||
|
Total liabilities |
161,570 | 230,330 | |||
|
|
|||||
|
Commitments and Contingencies (Note 11) |
|||||
|
|
|||||
|
Shareholders' equity: |
|||||
|
Common stock ― authorized 36,000,000 shares, $0.001 par value; |
|||||
|
19,729,774 and 19,688,238 shares issued at August 31, 2018 and 2017, |
|||||
|
respectively; and 13,850,413 and 13,984,183 shares outstanding at |
|||||
|
August 31, 2018 and 2017, respectively |
20 | 20 | |||
|
Additional paid-in capital |
153,469 | 150,692 | |||
|
Retained earnings |
351,266 | 315,764 | |||
|
Accumulated other comprehensive income (loss) |
(27,636) | (28,075) | |||
|
Common stock held in treasury, at cost ― 5,879,361 and 5,704,055 |
|||||
|
shares at August 31, 2018 and 2017, respectively |
(321,630) | (299,014) | |||
|
Total shareholders' equity |
155,489 | 139,387 | |||
|
Total liabilities and shareholders' equity |
$ |
317,059 |
$ |
369,717 | |
|
|
|||||
|
See accompanying notes to consolidated financial statements. |
|||||
|
|
|||||
F-3
|
|
||||||||
|
WD-40 COMPANY |
||||||||
|
(In thousands, except per share amounts) |
||||||||
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2018 |
2017 |
2016 |
|||||
|
|
||||||||
|
Net sales |
$ |
408,518 |
$ |
380,506 |
$ |
380,670 | ||
|
Cost of products sold |
183,255 | 166,621 | 166,301 | |||||
|
Gross profit |
225,263 | 213,885 | 214,369 | |||||
|
|
||||||||
|
Operating expenses: |
||||||||
|
Selling, general and administrative |
121,394 | 114,560 | 117,767 | |||||
|
Advertising and sales promotion |
22,314 | 20,537 | 22,278 | |||||
|
Amortization of definite-lived intangible assets |
2,951 | 2,879 | 2,976 | |||||
|
Total operating expenses |
146,659 | 137,976 | 143,021 | |||||
|
|
||||||||
|
Income from operations |
78,604 | 75,909 | 71,348 | |||||
|
|
||||||||
|
Other income (expense): |
||||||||
|
Interest income |
454 | 508 | 683 | |||||
|
Interest expense |
(4,219) | (2,582) | (1,703) | |||||
|
Other income |
339 | 787 | 2,461 | |||||
|
Income before income taxes |
75,178 | 74,622 | 72,789 | |||||
|
Provision for income taxes |
9,963 | 21,692 | 20,161 | |||||
|
Net income |
$ |
65,215 |
$ |
52,930 |
$ |
52,628 | ||
|
|
||||||||
|
Earnings per common share: |
||||||||
|
Basic |
$ |
4.65 |
$ |
3.73 |
$ |
3.65 | ||
|
Diluted |
$ |
4.64 |
$ |
3.72 |
$ |
3.64 | ||
|
|
||||||||
|
Shares used in per share calculations: |
||||||||
|
Basic |
13,929 | 14,089 | 14,332 | |||||
|
Diluted |
13,962 | 14,123 | 14,379 | |||||
|
|
||||||||
|
See accompanying notes to consolidated financial statements. |
||||||||
|
|
||||||||
F-4
|
|
||||||||
|
WD-40 COMPANY |
||||||||
|
(In thousands) |
||||||||
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2018 |
2017 |
2016 |
|||||
|
|
||||||||
|
Net income |
$ |
65,215 |
$ |
52,930 |
$ |
52,628 | ||
|
Other comprehensive income (loss): |
||||||||
|
Foreign currency translation adjustment |
439 | (777) | (18,576) | |||||
|
Total comprehensive income |
$ |
65,654 |
$ |
52,153 |
$ |
34,052 | ||
|
|
||||||||
|
See accompanying notes to consolidated financial statements. |
||||||||
|
|
||||||||
F-5
|
|
|||||||||||||||||||||
|
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, 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 | |||||||
|
Issuance of common stock under share-based |
|||||||||||||||||||||
|
compensation plan, net of shares withheld for taxes |
41,536 | (1,607) | (1,607) | ||||||||||||||||||
|
Stock-based compensation |
4,195 | 4,195 | |||||||||||||||||||
|
Cash dividends ($2.11 per share) |
(29,585) | (29,585) | |||||||||||||||||||
|
Acquisition of treasury stock |
175,306 | (22,616) | (22,616) | ||||||||||||||||||
|
Foreign currency translation adjustment |
439 | 439 | |||||||||||||||||||
|
Cumulative effect of change in accounting principle |
189 | (128) | 61 | ||||||||||||||||||
|
Net income |
65,215 | 65,215 | |||||||||||||||||||
|
Balance at August 31, 2018 |
19,729,774 |
$ |
20 |
$ |
153,469 |
$ |
351,266 |
$ |
(27,636) | 5,879,361 |
$ |
(321,630) |
$ |
155,489 | |||||||
|
|
|||||||||||||||||||||
|
See accompanying notes to consolidated financial statements. |
|||||||||||||||||||||
|
|
|||||||||||||||||||||
F-6
|
|
||||||||
|
WD-40 COMPANY |
||||||||
|
(In thousands) |
||||||||
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2018 |
2017 |
2016 |
|||||
|
Operating activities: |
||||||||
|
Net income |
$ |
65,215 |
$ |
52,930 |
$ |
52,628 | ||
|
Adjustments to reconcile net income to net cash provided by |
||||||||
|
operating activities: |
||||||||
|
Depreciation and amortization |
7,800 | 6,769 | 6,465 | |||||
|
Net gains on sales and disposals of property and equipment |
(164) | (115) | (75) | |||||
|
Deferred income taxes |
(7,186) | 1,608 | (2,227) | |||||
|
Stock-based compensation |
4,195 | 4,138 | 3,655 | |||||
|
Unrealized foreign currency exchange losses (gains), net |
(302) | 364 | (986) | |||||
|
Provision for bad debts |
121 | (138) | 52 | |||||
|
Changes in assets and liabilities: |
||||||||
|
Trade accounts receivable |
(5,635) | 482 | (9,936) | |||||
|
Inventories |
(1,299) | (3,487) | (1,001) | |||||
|
Other assets |
(5,353) | (3,514) | 1,557 | |||||
|
Accounts payable and accrued liabilities |
6,107 | 2,827 | 2,871 | |||||
|
Accrued payroll and related expenses |
590 | (6,632) | 8,120 | |||||
|
Other long-term liabilities and income taxes payable |
733 | 340 | 4,179 | |||||
|
Net cash provided by operating activities |
64,822 | 55,572 | 65,302 | |||||
|
|
||||||||
|
Investing activities: |
||||||||
|
Purchases of property and equipment |
(12,356) | (20,150) | (4,354) | |||||
|
Proceeds from sales of property and equipment |
458 | 430 | 301 | |||||
|
Purchases of intangible assets |
(175) |
- |
- |
|||||
|
Purchases of short-term investments |
(83,704) | (27,136) | (24,899) | |||||
|
Maturities of short-term investments |
166,984 | 4,565 | 8,032 | |||||
|
Net cash provided by (used in) investing activities |
71,207 | (42,291) | (20,920) | |||||
|
|
||||||||
|
Financing activities: |
||||||||
|
Treasury stock purchases |
(22,616) | (31,109) | (32,131) | |||||
|
Dividends paid |
(29,585) | (26,808) | (23,669) | |||||
|
Proceeds from issuance of common stock |
215 | 775 | 1,200 | |||||
|
Proceeds from issuance of long-term senior notes |
20,000 |
- |
- |
|||||
|
Repayments of long-term senior notes |
(400) |
- |
- |
|||||
|
Net (repayments) proceeds from revolving credit facility |
(87,200) | 32,000 | 14,000 | |||||
|
Shares withheld to cover taxes upon conversion of equity awards |
(1,823) | (1,696) | (2,634) | |||||
|
Net cash used in financing activities |
(121,409) | (26,838) | (43,234) | |||||
|
Effect of exchange rate changes on cash and cash equivalents |
(2,836) | (252) | (4,153) | |||||
|
Net increase (decrease) in cash and cash equivalents |
11,784 | (13,809) | (3,005) | |||||
|
Cash and cash equivalents at beginning of period |
37,082 | 50,891 | 53,896 | |||||
|
Cash and cash equivalents at end of period |
$ |
48,866 |
$ |
37,082 |
$ |
50,891 | ||
|
|
||||||||
|
Supplemental cash flow information: |
||||||||
|
Cash paid for: |
||||||||
|
Interest |
$ |
4,286 |
$ |
2,625 |
$ |
1,573 | ||
|
Income taxes, net of tax refunds received |
$ |
10,478 |
$ |
21,933 |
$ |
16,494 | ||
|
|
||||||||
|
See accompanying notes to consolidated financial statements. |
||||||||
|
|
||||||||
F-7
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, sports 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 $0.2 million and $80.2 million at August 31, 2018 and 2017, respectively. The decrease in short-term investments during fiscal year 2018 was due to the maturity of the Company’s callable time deposits held by its U.K. subsidiary. These deposits matured in April 2018 and were not reinvested. As of August 31, 2018, the Company’s short-term investment balance consisted of term deposits that are subject to penalty for early redemption before their maturity.
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, 2018 and 2017.
F-8
Inventories
Inventories are stated at the lower of cost or net realizable value. 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 net realizable value, 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 net realizable value.
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 $4.8 million, $3.9 million and $3.5 million for fiscal years 2018, 2017 and 2016, respectively. These amounts include factory depreciation expense which is recognized as cost of products sold and totaled $1.1 million for each of the fiscal years 2018 and 2017, respectively, and $0.8 million for fiscal year 2016.
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 a 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 a quantitative test is unnecessary. Otherwise, a 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 2018, 2017 and 2016.
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-9
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 2018, 2017 and 2016.
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, 2018, 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 borrowings held under the Company’s revolving credit facility approximates fair value due to the variable nature of underlying interest rates, which generally reflect market conditions and such borrowings are classified as Level 2 within the fair value hierarchy. The Company’s fixed rate long-term borrowings consist of senior notes which are also classified as Level 2 within the fair value hierarchy and are recorded at carrying value. The Company estimates that the fair value of its senior notes was approximately $18.8 million as of August 31, 2018, which was determined based on a discounted cash flow analysis using current market interest rates for instruments with similar terms, compared to its carrying value of $19.6 million. During the fiscal years ended August 31, 2018, 2017 and 2016, 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, 2018 and 2017.
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-10
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 $17.7 million, $16.4 million and $16.1 million for fiscal years 2018, 2017 and 2016, 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 $22.3 million, $20.5 million and $22.3 million for fiscal years 2018, 2017 and 2016, 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 $7.0 million, $8.4 million and $7.7 million in fiscal years 2018, 2017 and 2016, 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.
As a result of the “Tax Cuts and Jobs Act” (the “Tax Act”) which became effective beginning January 1, 2018, the U.S. has transitioned from a worldwide tax system to a modified territorial tax system, under which corporations are primarily taxed on income earned within the country’s borders, rather than on a worldwide basis. The Company is still required to make assertions on whether its foreign subsidiaries will invest their undistributed earnings indefinitely and these assertions are based on the capital needs of the foreign subsidiaries. Due to the passage of the Tax Act, the Company began reevaluating the indefinite reinvestment assertion for its foreign subsidiaries. In May 2018, the Company completed this reevaluation and changed its indefinite reinvestment assertion for certain of its foreign subsidiaries. As a result, the Company no longer considers unremitted
F-11
earnings of any of its foreign subsidiaries to be indefinitely reinvested. For additional information on the Tax Act, see Note 12 — Income Taxes, included in this report.
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 in the Company’s consolidated statements of operations. The Company had $0.1 million, $0.4 million and $2.4 million of net gains in foreign currency transactions in fiscal years 2018, 2017 and 2016, respectively.
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, 2018, the Company had a notional amount of $23.1 million outstanding in foreign currency forward contracts, which matured in September 2018. Unrealized net gains related to foreign currency forward contracts were not significant at August 31, 2018, while unrealized net losses were $0.6 million at August 31, 2017. Realized net losses related to foreign currency forward contracts were not significant for the fiscal year ended August 31, 2018, while realized net losses were $0.5 million for the fiscal year ended August 31, 2017. Both unrealized and realized net gains and losses are recorded in other income on the Company’s consolidated statements of operations.
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 various types of stock-based equity awards 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. Stock-based equity awards are measured at the grant date, based on the estimated fair value of the award, and are recognized as stock-based compensation expense on a straight-line basis over the requisite service period of the entire award, net of the impacts of award forfeitures as they occur. The requisite service period is generally the maximum vesting period of the award. 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.
F-12
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. The Company records any excess tax benefits or deficiencies from settlements of its stock-based equity awards within the provision for income taxes on the Company’s consolidated statements of operations in the reporting periods in which the settlement of the equity awards occur.
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 March 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-05, “Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”, to add various SEC paragraphs pursuant to the issuance of SEC Staff Accounting Bulletin No. 118 (“SAB 118”), to ASC 740 “Income Taxes”. SAB 118 was issued by the SEC in December 2018 to provide immediate guidance for accounting implications of U.S. tax reform under the “Tax Cuts and Jobs Act” (the “Tax Act”), which became effective for the Company on January 1, 2018. The Company has evaluated the potential impacts of SAB 118 and has applied this guidance to its consolidated financial statements and related disclosures beginning in the second quarter of its fiscal year 2018. For additional information on SAB 118 and the impacts of the Tax Act on the Company’s consolidated financial statements and related disclosures, see Note 12 — Income Taxes, included in this report.
In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment”. The amendments in this updated guidance simplify how an entity is required to test goodwill for impairment due to concerns that were raised about the cost and complexity of annual impairment tests under the existing standard. This updated guidance eliminates Step 2 of the previous two-step quantitative model for goodwill impairment tests. Step 2 required an entity to calculate an implied fair value, which includes 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. Step 1 will be referred to simply as a “quantitative goodwill impairment test” subsequent to the Company’s adoption of this updated guidance, since Step 2 has been eliminated and “steps” are no longer referred to within the updated guidance. However, the updated guidance still permits the Company to first conduct a qualitative assessment to determine whether it is necessary to perform a quantitative goodwill impairment test. 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 early adopted this guidance in its fiscal year 2018 during the second quarter, the period in which the Company performs its annual goodwill impairment test. The guidance was adopted on a prospective basis and is applicable to all of the Company’s future annual goodwill impairment tests. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements and related disclosures. See Note 5 – Goodwill and Other Intangible Assets for additional information on the Company’s goodwill.
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 became effective for the Company during the first quarter of its fiscal year 2018. The impacts of the adoption by the Company of ASU No. 2016-09 in fiscal year 2018 were as follows:
|
· |
The Company recorded excess tax benefits of $0.7 million within the provision for income taxes for fiscal year 2018 from settlements of stock-based equity awards. Prior to the adoption of this new guidance, these amounts would have been recorded as an increase to additional paid-in capital. |
|
· |
The Company elected to change its policy related to forfeitures of stock-based equity awards upon adoption of this new guidance such that it will now recognize the impacts of forfeitures as they occur rather than recognizing them based on an estimated forfeiture rate. As a result, the Company recorded a cumulative-effect adjustment to retained earnings.
F-13 |
This adjustment to retained earnings and the impact of this change in policy for forfeitures on the Company’s consolidated financial statements was not material. |
|
· |
The Company elected to apply the presentation requirements for the statement of cash flows related to excess tax benefits from settlements of stock-based equity awards retrospectively for all periods presented which resulted in an increase of $1.5 million and $2.1 million, respectively, to both net cash provided by operating activities and net cash used in financing activities for fiscal years 2017 and 2016, respectively. |
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The Company’s presentation in the statement of cash flows of employee taxes paid upon settlement of certain stock-based equity awards via shares withheld by the Company for tax-withholding purposes also changed as a result of the adoption of this new guidance since the Company previously reported such activity as an operating activity rather than a financing activity. As required, the Company applied this change in presentation for the statement of cash flows retrospectively for all periods presented which resulted in an increase of $1.7 million and $2.6 million, respectively, to both net cash provided by operating activities and net cash used in financing activities for fiscal years 2017 and 2016, respectively. |
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· |
The Company excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of its diluted earnings per share for the fiscal year ended August 31, 2018. The resulting increase in the Company’s diluted weighted average common shares outstanding was not material. |
Recently Issued Accounting Standards
In August 2018, the FASB issued ASU No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The updated guidance also requires an entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. This guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of evaluating the impacts of this guidance on its consolidated financial statements and related disclosures.
In June 2018, the FASB issued ASU No. 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”. The amendments in this updated guidance simplifies the accounting for nonemployee share-based payment transactions by expanding the scope of ASC 718 “Stock Compensation” to include share-based payment transactions for acquiring goods and services from nonemployees. Additionally, the amendments clarify that any share-based payment awards issued to customers should be evaluated under ASC 606 “Revenue from Contracts with Customers” (“ASC 606”). This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption of ASC 606. 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 February 2018, the FASB issued ASU No. 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, to optionally allow entities to reclassify stranded tax effects, resulting from the Tax Act, from accumulated other comprehensive income to retained earnings. Since the amendments within this guidance only relate to the reclassification of the income tax effects associated with the Tax Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. The amendments in this updated guidance should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. corporate federal income tax rate in the Tax Act is recognized. 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, as such stranded tax effects are immaterial.
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 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 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
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income statement. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that reporting period. 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, 2019. The Company will adopt this new guidance following the optional transition method described in ASU No. 2018-11, “Leases – Targeted Improvements” which was issued in July 2018, rather than the original modified retrospective approach that requires entities to apply the guidance at the beginning of the earliest period presented in the financial statements. Under the optional transition method, the Company will recognize the cumulative effect of initially applying the guidance as an adjustment to the opening balance of retained earnings on September 1, 2019. Therefore, the requirements of this guidance will apply only for periods presented that are after the date of adoption and will not affect comparative periods The Company is in the process of evaluating the impacts of this 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. The Company will adopt this new guidance following the modified retrospective approach on September 1, 2018. Management performed a detailed review of the Company’s customer contracts which was focused principally on, but not limited to, identifying the point in time at which the control of goods transfers to customers. Management has also completed both its qualitative and quantitative analysis of this new guidance. Although the Company does not expect a significant impact on consolidated net sales for the Company as a result of this new guidance, management expects a slight change in the timing for recognizing revenue for certain of its customers. In addition, the Company has finalized all of the necessary updates to its accounting policies, internal controls, processes and information systems regarding revenue recognition, and it is also in the process of drafting new disclosures as required under the new guidance.
Note 3. Inventories
Inventories consisted of the following (in thousands):
|
|
|||||
|
|
August 31, |
August 31, |
|||
|
|
2018 |
2017 |
|||
|
Product held at third-party contract manufacturers |
$ |
2,841 |
$ |
3,021 | |
|
Raw materials and components |
3,692 | 3,021 | |||
|
Work-in-process |
448 | 215 | |||
|
Finished goods |
29,555 | 29,083 | |||
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Total |
$ |
36,536 |
$ |
35,340 | |
|
|
|||||
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Note 4. Property and Equipment
Property and equipment, net, consisted of the following (in thousands):
|
|
|||||
|
|
August 31, |
August 31, |
|||
|
|
2018 |
2017 |
|||
|
Machinery, equipment and vehicles |
$ |
17,848 |
$ |
17,491 | |
|
Buildings and improvements |
17,100 | 16,953 | |||
|
Computer and office equipment |
5,046 | 4,552 | |||
|
Software |
9,481 | 7,947 | |||
|
Furniture and fixtures |
1,820 | 1,608 | |||
|
Capital in progress |
8,042 | 861 | |||
|
Land |
3,453 | 3,453 | |||
|
Subtotal |
62,790 | 52,865 | |||
|
Less: accumulated depreciation and amortization |
(26,433) | (23,426) | |||
|
Total |
$ |
36,357 |
$ |
29,439 | |
|
|
|||||
At August 31, 2018, capital in progress on the balance sheet included £5.6 million Pound Sterling ($7.3 million in U.S. Dollars as converted at exchange rates as of August 31, 2018) associated with capital costs related to the purchase of the Company’s new office building and related land in Milton Keynes, England, which will house employees of the Company’s EMEA segment that are based in the United Kingdom. The Company expects to incur additional capital costs related to the buildout of the acquired building and for the purchase of new furniture, fixtures and equipment. Upon completion of the buildout, the Company will place these assets into service and reclassify the amounts recorded in capital in progress to the respective fixed asset categories, which includes amounts attributable to the land. Since all assets associated with this new office building are denominated in Pound Sterling, amounts will fluctuate in U.S. Dollars from period to period due to changes in foreign currency exchange rates. For further information, see the Liquidity and Capital Resources section in Part II—Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
Note 5. Goodwill and Other Intangible Assets
Acquisitions
During the first quarter of fiscal year 2018, the Company entered into a confidential settlement agreement with FirstPower Group, LLC (“FirstPower”) for dismissal of FirstPower’s trademark infringement complaint against the Company relating to use of the words, “EZ-REACH” for the Company’s WD-40 EZ-REACH Flexible Straw product. The settlement agreement provided for the Company’s acquisition of FirstPower’s trademark rights associated with the words “EZ REACH” for lubricating oil products for a purchase consideration of $0.2 million. The Company has used the words “EZ-REACH” since the introduction of the WD-40 EZ-REACH Flexible Straw product in fiscal year 2015.
The entire purchase consideration of $0.2 million was paid in cash upon execution of the settlement agreement and was allocated to the trade name-related intangible assets category. The Company began to amortize this definite-lived intangible asset on a straight-line basis over an estimated useful life of five years in the first quarter of fiscal year 2018. This acquisition did not have a material impact on the Company’s condensed consolidated financial statements.
Goodwill
The following table summarizes the changes in the carrying amounts of goodwill by segment (in thousands):
|
|
|||||||||||
|
|
Americas |
EMEA |
Asia-Pacific |
Total |
|||||||
|
Balance as of August 31, 2016 |
$ |
85,452 |
$ |
8,987 |
$ |
1,210 |
$ |
95,649 | |||
|
Translation adjustments |
(4) | (48) |
- |
(52) | |||||||
|
Balance as of August 31, 2017 |
85,448 | 8,939 | 1,210 | 95,597 | |||||||
|
Translation adjustments |
1 | 23 |
- |
24 | |||||||
|
Balance as of August 31, 2018 |
$ |
85,449 |
$ |
8,962 |
$ |
1,210 |
$ |
95,621 | |||
|
|
|||||||||||
During the second quarter of fiscal year 2018, the Company performed its annual goodwill impairment test. The annual goodwill impairment test was performed at the reporting unit level as required by the authoritative guidance as of the Company’s most recent goodwill impairment testing date, November 30, 2017. During the fiscal year 2018 annual goodwill impairment test, the
F-16
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, including the anticipated impacts of the “Tax Cuts and Jobs Act”, which was signed into law on December 22, 2017 and became effective beginning January 1, 2018; (4) other entity specific events, such as changes in management or key personnel; and (5) events affecting the Company’s reporting units, such as a change in the composition of net assets or any expected dispositions. Based on the results of this qualitative assessment, the Company determined that it is more likely than not that the carrying value of each of its reporting units is less than its fair value as of the goodwill impairment testing date and, thus, a quantitative analysis was not required. As a result, the Company concluded that no impairment of its goodwill existed as of February 28, 2018.
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, 2018, 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, EZ REACH 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, |
|||
|
|
2018 |
2017 |
|||
|
Gross carrying amount |
$ |
36,122 |
$ |
35,891 | |
|
Accumulated amortization |
(22,609) | (19,647) | |||
|
Net carrying amount |
$ |
13,513 |
$ |
16,244 | |
|
|
|||||
There has been no impairment charge for the period ended August 31, 2018 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, 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 | |||||||
|
Amortization expense |
(2,237) | (714) |
- |
(2,951) | |||||||
|
EZ REACH trade name |
175 |
- |
- |
175 | |||||||
|
Translation adjustments |
- |
45 |
- |
45 | |||||||
|
Balance as of August 31, 2018 |
$ |
10,644 |
$ |
2,869 |
$ |
- |
$ |
13,513 | |||
|
|
|||||||||||
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 |
|||
|
Fiscal year 2019 |
$ |
2,455 |
$ |
260 | |
|
Fiscal year 2020 |
2,055 | 166 | |||
|
Fiscal year 2021 |
1,266 | 166 | |||
|
Fiscal year 2022 |
1,266 | 166 | |||
|
Fiscal year 2023 |
1,020 |
- |
|||
|
Thereafter |
4,693 |
- |
|||
|
Total |
$ |
12,755 |
$ |
758 | |
|
|
|||||
F-17
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, |
|||
|
|
2018 |
2017 |
|||
|
Accrued advertising and sales promotion expenses |
$ |
11,972 |
$ |
10,889 | |
|
Accrued professional services fees |
1,712 | 1,456 | |||
|
Accrued sales taxes and other taxes |
1,642 | 1,701 | |||
|
Accrued liability forward contract (1) |
6,893 |
- |
|||
|
Other |
4,021 | 4,951 | |||
|
Total |
$ |
26,240 |
$ |
18,997 | |
|
|
|||||
|
(1) |
This accrued liability relates to a foreign currency forward contract that the Company’s U.K. subsidiary entered into with Bank of America to sell U.S. Dollars and receive Pound Sterling. This foreign currency forward contract matured on August 30, 2018, but the settlement of the currencies in the amount of $6.9 million did not occur until September 4, 2018. As a result, as of August 31, 2018, the Company owed Bank of America $6.9 million which was recorded in accrued and other liabilities. Bank of America also owed the Company $6.9 million equivalent in Pound Sterling and this was recorded in other current assets as of August 31, 2018. |
Accrued payroll and related expenses consisted of the following (in thousands):
|
|
|||||
|
|
August 31, |
August 31, |
|||
|
|
2018 |
2017 |
|||
|
Accrued incentive compensation |
$ |
6,719 |
$ |
6,554 | |
|
Accrued payroll |
3,792 | 3,338 | |||
|
Accrued profit sharing |
2,561 | 2,257 | |||
|
Accrued payroll taxes |
1,236 | 1,503 | |||
|
Other |
515 | 570 | |||
|
Total |
$ |
14,823 |
$ |
14,222 | |
|
|
|||||
Note 7. Debt
As of August 31, 2018, the Company held borrowings under two separate agreements as detailed below.
Note Purchase and Private Shelf Agreement
On November 15, 2017, the Company entered into the Note Purchase and Private Shelf Agreement (the “Note Agreement”) by and among the Company, PGIM, Inc. (“Prudential”), and certain affiliates and managed accounts of Prudential (the “Note Purchasers”), pursuant to which the Company agreed to sell $20.0 million aggregate principal amount of senior notes (the “Series A Notes”) to certain of the Note Purchasers. The Series A Notes will bear interest at 3.39% per annum and will mature on November 15, 2032, unless earlier paid by the Company. Principal payments are required semi-annually beginning on May 15, 2018 in equal installments of $0.4 million through May 15, 2032, and the remaining outstanding principal in the amount of $8.4 million will become due on November 15, 2032. Interest is also payable semi-annually beginning on May 15, 2018. The Company used the proceeds to pay down $20.0 million of short-term borrowings under the Company’s existing $175.0 million unsecured Credit Agreement during fiscal year 2018. On February 23, 2018, this Note Agreement was amended (the “Note Amendment”) in connection with the purchase of the Company’s new office building and related land located in Milton Keynes, England, (the “Property”). The Note Amendment amends the Note Agreement to permit the Company to spend an aggregate amount not to exceed $15.0 million for the acquisition and improvement costs for the Property through the end of the Company’s fiscal year 2019. During the twelve months ended August 31, 2018, the Company repaid $0.4 million in principal on the Series A Notes pursuant to its semi-annual principal payment requirements.
F-18
Pursuant to the Note Agreement, the Company may from time to time offer for sale, in one or a series of transactions, additional senior notes of the Company (the “Shelf Notes”) in an aggregate principal amount of up to $105.0 million. The Shelf Notes will have a maturity date of no more than 15½ years after the date of original issuance and may be issued no later than November 15, 2020. The Shelf Notes, if issued, would bear interest at a rate per annum as agreed upon amongst the Company and the purchasing parties and would have such other particular terms, as would be set forth in a confirmation of acceptance executed by the purchasing parties prior to the closing of each purchase and sale transaction. To date, the Company has issued no Shelf Notes. Pursuant to the Note Agreement, the Series A Notes and any Shelf Notes (collectively, the "Notes") can be prepaid at the Company’s sole discretion, in whole at any time or in part from time to time, at 100% of the principal amount of the Notes being prepaid, together with accrued and unpaid interest thereon as well as an additional make-whole payment with respect to such Notes.
Credit Agreement
On June 17, 2011, the Company entered into an unsecured Credit Agreement (the “Credit Agreement”) with Bank of America, N.A. (“Bank of America”). Since June 17, 2011, this unsecured credit agreement has been amended six times, most recently on November 15, 2017, (the “Fifth Amendment”) and on February 23, 2018, (the “Sixth Amendment”). The Fifth Amendment amended certain provisions and covenants in the Credit Agreement to generally conform them to the corresponding provisions and covenants contained in the Note Agreement and permits the Company to incur indebtedness arising under the Note Agreement in an aggregate principal amount not to exceed the $20.0 million, the amount of the Series A Notes sold pursuant to the Note Agreement in November 2017. The Sixth Amendment amended the Credit Agreement to permit the Company to spend an aggregate amount not to exceed $15.0 million for the acquisition and improvement costs for the Company’s new office building and related land in Milton Keynes, England, through the end of the Company’s fiscal year 2019. The Sixth Amendment also permits the Company to incur an additional $15.0 million of indebtedness under the Note Agreement by issuance and sale of Shelf Notes pursuant to the Note Agreement.
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. In addition, as allowed per the terms of the Credit Agreement, the Company and Bank of America entered into an autoborrow agreement providing for the automatic advance of revolving loans in U.S. Dollars to the Company’s designated account at Bank of America. This agreement was entered into during the second quarter of fiscal year 2016 and this agreement has been in effect since that time. 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 $2.8 million in net borrowings outstanding under the autoborrow agreement as of August 31, 2018.
During the first half of fiscal year 2018, the Company repaid $20.0 million in borrowings outstanding under the line of credit by utilizing the proceeds from the $20.0 million in Series A Notes issued in November 2017 and subsequently borrowed $10.0 million under the revolving credit facility during the remainder of fiscal year 2018. In addition, as a result of the “Tax Cuts and Jobs Act” (the “Tax Act”) which became effective beginning January 1, 2018, the Company began reevaluating its indefinite reinvestment assertion for its foreign subsidiaries. In May 2018, the Company completed this reevaluation and changed its indefinite reinvestment assertion for certain of its foreign subsidiaries. As a result, the Company no longer considers unremitted earnings of any of its foreign subsidiaries to be indefinitely reinvested. For additional information on the Tax Act, see Note 12 — Income Taxes, included in this report. The Company repatriated a portion of its unremitted foreign earnings during the fourth quarter of fiscal year 2018 in the amount of $79.6 million from its U.K. subsidiary and used these funds towards repaying $80.0 million of outstanding draws on the line of credit.
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. Outstanding draws on the line of credit which the Company intends to repay in less than twelve months are classified as short-term. Outstanding draws for which management has the ability and intent to refinance with successive short-term borrowings for a period of at least twelve months are classified as long-term. As of August 31, 2018, the Company had a balance of $64.0 million of outstanding draws on the line of credit, of which $44.0 million was classified as long-term based on management’s ability and intent to refinance with successive short-term borrowings for a period of at least twelve months. The remaining $20.0 million of outstanding draws was classified as short-term as of August 31, 2018.
F-19
Short-term and long-term borrowings consisted of the following (in thousands):
|
|
|||||
|
|
August 31, |
August 31, |
|||
|
|
2018 |
2017 |
|||
|
Short-term borrowings: |
|||||
|
Revolving credit facility, short-term |
$ |
20,000 |
$ |
20,000 | |
|
Revolving credit facility, autoborrow feature |
2,800 |
- |
|||
|
Series A Notes, current portion of long-term debt |
800 |
- |
|||
|
Total short-term borrowings |
23,600 | 20,000 | |||
|
|
|||||
|
Long-term borrowings: |
|||||
|
Revolving credit facility |
44,000 | 134,000 | |||
|
Series A Notes |
18,800 |
- |
|||
|
Total long-term borrowings |
62,800 | 134,000 | |||
|
Total |
$ |
86,400 |
$ |
154,000 | |
|
|
|||||
Both the Note Agreement and the Credit Agreement contain representations, warranties, events of default and remedies, as well as affirmative, negative and other financial covenants customary for these types of agreements. These covenants include, among other things, certain limitations on the ability of the Company and its subsidiaries to incur indebtedness, create liens, dispose of assets, make investments, repurchase shares of the Company’s capital stock and enter into certain merger or consolidation transactions. Each agreement also includes a most favored lender provision which requires that any time any other lender has the benefit of one or more financial or operational covenants that is different than, or similar to, but more restrictive than those contained in its own agreement, those covenants shall be immediately and automatically incorporated by reference in the other lender’s agreement.
Both the Note Agreement and the Credit Agreement require the Company to adhere to the same financial covenants. 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. |
As of August 31, 2018 the Company was in compliance with all debt covenants under both the Note Agreement and the Credit Agreement.
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 was authorized to acquire up to $75.0 million of its outstanding shares through August 31, 2018. The timing and amount of repurchases were based on terms and conditions that were 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, 2018, the Company repurchased 465,879 shares at a total cost of $53.7 million under this $75.0 million plan. During fiscal year 2018, the Company repurchased 175,306 shares at an average price of $128.99 per share, for a total cost of $22.6 million
On June 19, 2018, the Company’s Board of Directors approved a new share buy-back plan. Under the plan, which became effective on September 1, 2018 and will remain in effect through August 31, 2020, the Company is authorized to acquire up to $75.0 million of its outstanding shares 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 thereto.
F-20
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, |
|||||||
|
|
2018 |
2017 |
2016 |
|||||
|
Net income |
$ |
65,215 |
$ |
52,930 |
$ |
52,628 | ||
|
Less: Net income allocated to participating securities |
(423) | (323) | (334) | |||||
|
Net income available to common shareholders |
$ |
64,792 |
$ |
52,607 |
$ |
52,294 | ||
|
|
||||||||
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, |
|||||||
|
|
2018 |
2017 |
2016 |
|||||
|
Weighted-average common shares outstanding, basic |
13,929 | 14,089 | 14,332 | |||||
|
Weighted-average dilutive securities |
33 | 34 | 47 | |||||
|
Weighted-average common shares outstanding, diluted |
13,962 | 14,123 | 14,379 | |||||
|
|
||||||||
There were no anti-dilutive stock-based equity awards outstanding for the fiscal years ended August 31, 2018 and 2017. For the fiscal year ended August 31, 2016, weighted-average stock-based equity awards outstanding that are non-participating securities in the amount of 4,501 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 $1.4 million for fiscal year 2018 and $1.2 million for each of the fiscal years 2017 and 2016, respectively. Accounts receivable from Tractor Supply were $0.5 million as of August 31, 2018 and were not significant as of August 31, 2017.
Note 11. Commitments and Contingencies
Leases
The Company was committed under certain non-cancellable capital and operating leases at August 31, 2018. The Company's capital leases were not significant as of August 31, 2018. The Company’s leases provide for the following future fiscal year minimum payments (in thousands):
|
|
|||||||||||||||||
|
|
2019 |
2020 |
2021 |
2022 |
2023 |
Thereafter |
|||||||||||
|
Leases |
$ |
2,003 |
$ |
1,517 |
$ |
1,168 |
$ |
694 |
$ |
379 |
$ |
1,198 | |||||
|
|
|||||||||||||||||
Rent expense was $2.0 million, $2.1 million, and $1.9 million for the fiscal years ended August 31, 2018, 2017 and 2016, respectively.
F-21
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 has definitive minimum purchase obligations included in the contract terms with certain of its contract manufacturers, when such obligations have been included, they have either been immaterial or the minimum amounts have been such that they are well below the volume of goods that the Company has historically purchased. 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, 2018, 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. Except as disclosed herein, there are no unasserted claims or pending proceedings for claims against the Company that the Company believes will result in a probable loss for the Company and, as to claims that the Company believes may result in a reasonably possible loss, the Company believes that no reasonably possible outcome of any such claim will have a materially adverse impact on the Company’s financial condition, results of operations or cash flows.
On or about July 31, 2018, claims for damages were asserted against the Company in an “Amended Statement of Claim” filed in a civil proceeding in Malaysia before the High Court of Malaya at Shah Alam in the State of Selangor Darul Ehsan, Civil Suit No. BA-22NCvC-531-09/2017 (the “Malay Litigation”). The Malay Litigation was first filed in September 2017 by Sunway Winstar Sdn. Bhd. (“Sunway”) against a former employee of Sunway and the former employee’s new employer, Ekotrends Capital Sdn. Bdh (“Ekotrends”). Sunway was a marketing distributor for the Company for the country of Malaysia from 2004 until 2017. Ekotrends is an affiliate of Bun Seng Hardware Sdn. Bdh. (“Bun Seng”), the Company’s current marketing distributor for Malaysia. The Malay Litigation asserted that the former employee and Ekotrends misappropriated confidential information, including customer lists, associated with Sunway’s terminated relationship as the Company’s exclusive marketing distributor. By order of the court following the Company’s motion to intervene in order to protect and assert its right to ownership of the customer lists and other confidential information associated with the Company’s business in Malaysia, Sunway filed its Amended Statement of Claim to add Bun Seng as a defendant and to assert new and separate claims against the Company alleging conspiracy with Ekotrends and Bun Seng to injure the business and reputation of Sunway.
The Company denies the allegations asserted by Sunway and will vigorously defend itself in the Malay Litigation. The Company believes that an unfavorable outcome in the Malay Litigation is not probable, but that an award of damages is reasonably possible. Due to uncertainty as to the theories for recovery of damages asserted by Sunway against the Company and as to results in proceedings under Malaysian law, the Company is unable to estimate the possible loss or range of loss.
On June 11, 2018, the United States Supreme Court denied a petition for a writ of certiorari filed by IQ Products Company on January 10, 2018. IQ Products Company was seeking Supreme Court review of the September 13, 2017 decision of the Fifth Circuit Court of Appeals that affirmed a judgment entered in favor of the Company by the federal district court for the Southern District of Texas on August 25, 2016. The judgment obligated IQ Products Company to pay to the Company the sum of approximately $1.5 million, including post-judgment interest from August 25, 2016. The Company received this $1.5 million in July 2018 and recorded the amount as a reduction to its selling, general and administrative expenses in its consolidated financial statements in the fourth quarter of fiscal year 2018. For further information on the risks the Company faces from existing and future claims, suits, investigations and proceedings, see the Company’s risk factors disclosed in Part I―Item 1A, “Risk Factors,” included in this report.
F-22
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, 2018.
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, 2018.
Note 12. Income Taxes
Income before income taxes consisted of the following (in thousands):
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2018 |
2017 |
2016 |
|||||
|
United States |
$ |
42,634 |
$ |
42,060 |
$ |
41,128 | ||
|
Foreign (1) |
32,544 | 32,562 | 31,661 | |||||
|
Income before income taxes |
$ |
75,178 |
$ |
74,622 |
$ |
72,789 | ||
|
|
||||||||
|
(1) |
Included in these amounts are income before income taxes for the EMEA segment of $27.4 million, $28.1 million and $28.3 million for the fiscal years ended August 31, 2018, 2017 and 2016, respectively. |
The provision for income taxes consisted of the following (in thousands):
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2018 |
2017 |
2016 |
|||||
|
Current: |
||||||||
|
Federal |
$ |
10,100 |
$ |
10,813 |
$ |
13,269 | ||
|
State |
651 | 744 | 894 | |||||
|
Foreign |
6,750 | 7,465 | 7,593 | |||||
|
Total current |
17,501 | 19,022 | 21,756 | |||||
|
|
||||||||
|
Deferred: |
||||||||
|
United States |
(7,496) | 2,627 | (1,100) | |||||
|
Foreign |
(42) | 43 | (495) | |||||
|
Total deferred |
(7,538) | 2,670 | (1,595) | |||||
|
Provision for income taxes |
$ |
9,963 |
$ |
21,692 |
$ |
20,161 | ||
|
|
||||||||
F-23
Deferred tax assets and deferred tax liabilities consisted of the following (in thousands):
|
|
|||||
|
|
August 31, |
August 31, |
|||
|
|
2018 |
2017 |
|||
|
Deferred tax assets: |
|||||
|
Accrued payroll and related expenses |
$ |
916 |
$ |
1,252 | |
|
Accounts receivable |
303 | 644 | |||
|
Reserves and accruals |
1,496 | 2,393 | |||
|
Stock-based compensation expense |
2,321 | 3,213 | |||
|
Uniform capitalization |
959 | 1,598 | |||
|
Tax credit carryforwards |
2,790 | 2,309 | |||
|
Other |
938 | 1,289 | |||
|
Total gross deferred tax assets |
9,723 | 12,698 | |||
|
Valuation allowance |
(2,505) | (2,328) | |||
|
Total net deferred tax assets |
7,218 | 10,370 | |||
|
|
|||||
|
Deferred tax liabilities: |
|||||
|
Property and equipment, net |
(1,305) | (2,109) | |||
|
Amortization of tax goodwill and intangible assets |
(16,108) | (26,036) | |||
|
Investments in partnerships |
(222) | (679) | |||
|
Other |
(122) |
- |
|||
|
Total deferred tax liabilities |
(17,757) | (28,824) | |||
|
Net deferred tax liabilities |
$ |
(10,539) |
$ |
(18,454) | |
|
|
|||||
The Company had state net operating loss (“NOL”) carryforwards of $3.0 million and $2.6 million as of August 31, 2018 and 2017, respectively, which generated a net deferred tax asset of $0.2 million for each of the fiscal years 2018 and 2017. The state NOL carryforwards, if unused, will expire between fiscal year 2019 and 2038. The Company also had tax credit carryforwards of $2.8 million and $2.3 million as of August 31, 2018 and 2017, respectively, of which $2.5 million and $2.1 million, respectively, is attributable to U.K. tax credit carryforwards, which do not expire. Future utilization of the U.K. tax credit carryforwards and certain state NOL carryforwards 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 the U.K. tax credit carryforwards and certain state NOL 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, |
|||||||
|
|
2018 |
2017 |
2016 |
|||||
|
Amount computed at U.S. statutory federal tax rate |
$ |
19,298 |
$ |
26,118 |
$ |
25,476 | ||
|
State income taxes, net of federal tax benefits |
453 | 327 | 397 | |||||
|
Effect of foreign operations |
(1,412) | (4,277) | (4,382) | |||||
|
Benefit from qualified domestic production deduction |
(1,121) | (1,295) | (1,190) | |||||
|
Tax Cuts and Jobs Act: |
||||||||
|
Remeasurement of deferred income taxes |
(6,762) |
- |
- |
|||||
|
Toll tax, net of foreign tax credits |
(282) |
- |
- |
|||||
|
Benefit from Stock Compensation |
(725) |
- |
- |
|||||
|
Other |
514 | 819 | (140) | |||||
|
Provision for income taxes |
$ |
9,963 |
$ |
21,692 |
$ |
20,161 | ||
|
|
||||||||
F-24
On December 20, 2017 the United States House of Representatives and the Senate passed the “Tax Cuts and Jobs Act” (the “Tax Act”), which was signed into law on December 22, 2017 and became effective beginning January 1, 2018. Due to the complexity of the Tax Act, the SEC issued guidance in SAB 118 which clarifies the accounting for income taxes under ASC 740 if information is not yet available, prepared or analyzed in reasonable detail to complete the accounting for income tax effects of the Tax Act. SAB 118 provides for a measurement period of up to one year after the enactment of the Tax Act, during which time the required analyses and accounting must be completed. During the measurement period, (i) income tax effects of the Tax Act must be reported if the accounting has been completed; (ii) provisional amounts must be reported for income tax effects of the Tax Act for which the accounting is incomplete but a reasonable estimate can be determined; and (iii) provisional amounts are not required to be reported for income tax effects of the Tax Act for which a reasonable estimate cannot be determined. During fiscal year 2018, the Company recorded provisional amounts for the income tax effects of the changes in tax law and tax rates, as reasonable estimates were determined by management during this period. These estimates include the remeasurement of the deferred income tax balance on the Company’s consolidated balance sheets due to the reduction in the corporate federal statutory tax rate from 35% to 21%, as well as the application of a mandatory one-time “toll tax” on unremitted foreign earnings.
The combined impact of the remeasurement of deferred income taxes and the measurement of the toll tax, both of which were recorded as provisional amounts and discrete items, resulted in a net favorable impact of $7.1 million to the Company’s provision for income taxes for the fiscal year ended August 31, 2018. The initial remeasurement of the Company’s net deferred income tax liability was recorded during the second quarter of fiscal year 2018 and resulted in a reduction of the net liability of $6.9 million. This provisional benefit was decreased by $0.1 million during the fourth quarter of fiscal year 2018 to reflect year-end deferred balances remeasured at the new applicable statutory tax rates, which resulted in a total provisional benefit of $6.8 million for fiscal year 2018. The Company’s initial provisional estimate of the deemed toll tax, net of foreign tax credits, was recorded as a charge to the provision for income taxes of $6.8 million during the second quarter of fiscal year 2018. As part of its year-end procedures, the Company completed additional analysis that significantly revised management’s estimate of this provisional amount. As a result of this analysis, the Company recorded a $7.1 million tax benefit during the fourth quarter of fiscal year 2018 to reflect a total provisional benefit related to the toll tax of $0.3 million for fiscal year 2018. This provisional benefit reflects the Company’s revised analysis, which estimates that foreign tax credits associated with the toll tax are expected to exceed amounts payable under the toll tax. These provisional tax benefits may be reduced or eliminated by future legislation. If such legislation is enacted, the Company will record the impact of the legislation in the quarter of enactment.
The determination of the impact of the income tax effects of the items reflected as provisional amounts may change, possibly materially, following additional review of historical records, refinement of calculations, modifications of assumptions, or future legislation, as well as further interpretation of the Tax Act based on U.S. Treasury regulations and guidance from the Internal Revenue Service and state tax authorities. The Company will report revised provisional amounts in accordance with SAB 118 when additional information and guidance has become available.
As a result of the Tax Act, the Company has been reevaluating its indefinite reinvestment assertion for its foreign subsidiaries. In May 2018, the Company completed this reevaluation and decided to change its assertion for its U.K., China and Australia subsidiaries such that unremitted earnings for these subsidiaries are no longer considered to be indefinitely reinvested. The Company did not change its assertion for its Canada or Malaysia subsidiaries as a result of its reevaluation and neither previously had an assertion of indefinite reinvestment of unremitted earnings. As a result, the Company no longer considers unremitted foreign earnings of any of its subsidiaries to be indefinitely reinvested. The Company repatriated a portion of its unremitted foreign earnings during the fourth quarter of fiscal year 2018 in the amount of $79.6 million from its U.K. subsidiary and used these funds towards repaying $80.0 million of outstanding draws on its line of credit. The costs associated with repatriating unremitted foreign earnings, including U.S. state income taxes and foreign withholding taxes, are immaterial to the Company’s consolidated financial statements.
Management will continue to review the Tax Act and is still in the process of determining the full impacts of the Tax Act on the Company. Management expects that the Company will lose the benefit from the Qualified Production Deduction in fiscal year 2019 but also expects to acquire certain benefits from the Foreign Derived Intangible Income section of the Tax Act. Other significant sections of the new tax law, including the Global Intangible Low-Taxed Income (“GILTI”) and the Base Erosion Anti-Abuse Tax (“BEAT”), do not apply to the Company’s fiscal year 2018. The Company will continue to evaluate the GILTI and the BEAT to determine whether they will have any significant impact on the Company’s consolidated financial statements in future years.
F-25
The provision for income taxes was 13.3% and 29.1% of income before income taxes for the fiscal years ended August 31, 2018 and 2017, respectively. The decrease in the effective income tax rate from period to period was primarily due to the favorable impacts of the reduced tax rate resulting from the Tax Act, which became effective during the second quarter of the Company’s fiscal year. Since the Company has a fiscal year which ends on August 31st, the Company is subject to a “blended” corporate federal statutory rate in its fiscal year 2018 which is calculated based on the applicable tax rates before and after passage of the Tax Act and the number of days in the fiscal year. As a result of this calculation, the Company’s blended federal statutory tax rate for fiscal year 2018 is 25.7% which is more than 9 percentage points lower than the statutory rate of 35% in the prior fiscal year. The Company also recorded two discrete items related to the Tax Act during fiscal year 2018, the $6.8 million provisional remeasurement of the Company’s net deferred tax liability and the $0.3 million provisional benefit related to the toll tax, both of which lowered the Company’s effective income tax rate from period to period. The decrease in the effective income tax rate from period to period was also driven in part by the adoption of ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”, in the first quarter of the Company’s fiscal year 2018 which resulted in excess tax benefits from settlements of stock-based equity awards of $0.7 million being recognized in the provision for income taxes, whereas such benefits were recognized as an increase to additional paid-in capital in prior periods. In addition, the effective income tax rate for the fiscal year ended August 31, 2017 was higher due to the unfavorable impact of a non-recurring 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.
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, |
||||
|
|
2018 |
2017 |
|||
|
Unrecognized tax benefits - beginning of fiscal year |
$ |
981 |
$ |
1,239 | |
|
Net increases (decreases) - prior period tax positions |
62 | (68) | |||
|
Net increases - current period tax positions |
263 | 228 | |||
|
Expirations of statute of limitations for assessment |
(197) | (382) | |||
|
Settlements |
(71) | (36) | |||
|
Unrecognized tax benefits - end of fiscal year |
$ |
1,038 |
$ |
981 | |
|
|
|||||
Gross unrecognized tax benefits totaled $1.0 million for each of the fiscal years ended August 31, 2018 and 2017, of which $0.9 million and $0.6 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, 2018 and 2017. The total balance of accrued interest and penalties related to uncertain tax positions was also immaterial at August 31, 2018 and 2017.
The Company is subject to taxation in the U.S. and in various state and foreign jurisdictions. Due to expired statutes and closed audits, the Company’s federal income tax returns for years prior to fiscal year 2016 are not subject to examination by the U.S. Internal Revenue Service. Generally, for the majority of state and foreign jurisdictions where the Company does business, periods prior to fiscal year 2014 are no longer subject to examination. The Company has estimated that up to $0.2 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, 2018, 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, 2018, the Company had granted awards of restricted stock units (“RSUs”), market share units (“MSUs”) and deferred performance units (“DPUs”) under the 2016 Plan. Additionally, as of August 31, 2018, there were still outstanding RSUs, MSUs and DPUs which had been granted under the Company’s prior equity incentive plan. 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, 2018, 786,364 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 shares not previously issued, or treasury shares. The Company has historically issued new authorized shares not previously issued upon the settlement of the various stock-based equity awards under its equity incentive plans.
F-26
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 $4.2 million, $4.1 million and $3.7 million for the fiscal years ended August 31, 2018, 2017 and 2016, respectively. The Company recognized income tax benefits related to such stock-based compensation of $1.1 million, $1.4 million and $1.2 million for the fiscal years ended August 31, 2018, 2017 and 2016, respectively. As of August 31, 2018, the total unamortized compensation cost related to non-vested stock-based equity awards was $0.6 million and $1.7 million for RSUs and MSUs, respectively, which the Company expects to recognize over remaining weighted-average vesting periods of 1.6 and 1.8 years for RSUs and MSUs, respectively. No unamortized compensation cost for DPUs remained as of August 31, 2018.
F-27
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, 2017 |
5,960 |
$ |
36.03 | ||||||||
|
Granted |
- |
$ |
- |
||||||||
|
Exercised |
(5,960) |
$ |
36.03 | ||||||||
|
Forfeited or expired |
- |
$ |
- |
||||||||
|
Outstanding at August 31, 2018 |
- |
$ |
- |
- |
$ |
- |
|||||
|
Exercisable at August 31, 2018 |
- |
$ |
- |
- |
$ |
- |
|||||
|
|
|||||||||||
The total intrinsic value of stock options exercised was $0.5 million, $1.6 million and $2.5 million for the fiscal years ended August 31, 2018, 2017 and 2016, respectively.
The income tax benefits from stock options exercised totaled $0.1 million, $0.4 million and $0.7 million for the fiscal years ended August 31, 2018, 2017 and 2016, 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):
|
|
||||||||
|
|
Weighted-Average |
|||||||
|
|
Grant Date |
|||||||
|
|
Number of |
Fair Value |
Aggregate |
|||||
|
Restricted Stock Units |
Shares |
Per Share |
Intrinsic Value |
|||||
|
Outstanding at August 31, 2017 |
116,770 |
$ |
63.61 | |||||
|
Granted |
24,114 |
$ |
111.71 | |||||
|
Converted to common shares |
(24,471) |
$ |
76.58 | |||||
|
Forfeited |
(1,105) |
$ |
104.24 | |||||
|
Outstanding at August 31, 2018 |
115,308 |
$ |
70.52 |
$ |
20,461 | |||
|
Vested at August 31, 2018 |
87,309 |
$ |
59.22 |
$ |
15,493 | |||
|
|
||||||||
The weighted-average grant date fair value of all RSUs granted during the fiscal years ended August 31, 2018, 2017 and 2016 was $111.71, $109.23 and $95.89, respectively. The total intrinsic value of all RSUs converted to common shares was $2.8 million, $3.6 million and $2.8 million for the fiscal years ended August 31, 2018, 2017 and 2016, respectively.
The income tax benefits from RSUs converted to common shares totaled $0.7 million, $1.3 million and $1.0 million for the fiscal years ended August 31, 2018, 2017 and 2016, respectively.
F-28
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, |
|||||||
|
|
2018 |
2017 |
2016 |
|||||
|
Expected volatility |
20.4% | 21.1% | 22.2% | |||||
|
Risk-free interest rate |
1.6% | 1.0% | 0.9% | |||||
|
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, 2018, 2017 and 2016, 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):
|
|
||||||||
|
|
Weighted-Average |
|||||||
|
|
Grant Date |
|||||||
|
|
Number of |
Fair Value |
Aggregate |
|||||
|
Market Share Units |
Shares |
Per Share |
Intrinsic Value |
|||||
|
Outstanding at August 31, 2017 |
44,919 |
$ |
94.95 | |||||
|
Granted |
15,729 |
$ |
101.93 | |||||
|
Performance factor adjustments |
12,194 |
$ |
76.04 | |||||
|
Converted to common shares |
(27,589) |
$ |
74.30 | |||||
|
Forfeited |
(3,045) |
$ |
91.87 | |||||
|
Outstanding at August 31, 2018 (1) |
42,208 |
$ |
105.81 |
$ |
7,490 | |||
|
|
||||||||
|
(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, 2018, 2017 and 2016 was $101.93, $90.91 and $120.99, respectively. The total intrinsic value of all MSUs converted to common shares was $3.0 million, 2.8 million and $3.7 million for the fiscal years ended August 31, 2018, 2017 and 2016, respectively.
The income tax benefits from MSUs converted to common shares totaled $0.8 million, $0.9 million and $1.2 million for the fiscal years ended August 31, 2018, 2017 and 2016, respectively.
F-29
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, 2017 |
30,876 |
$ |
107.66 | |||||
|
Granted |
26,906 |
$ |
110.65 | |||||
|
Performance factor adjustments |
(25,882) |
$ |
110.19 | |||||
|
Converted to common shares |
(192) |
$ |
94.54 | |||||
|
Forfeited |
(940) |
$ |
110.65 | |||||
|
Outstanding at August 31, 2018 |
30,768 |
$ |
108.14 |
$ |
5,460 | |||
|
Vested at August 31, 2018 |
4,802 |
$ |
94.54 |
$ |
852 | |||
|
|
||||||||
The weighted-average grant date fair value of all DPUs granted during the fiscal years ended August 31, 2018, 2017 and 2016 was $110.65, $110.19 and $94.54, respectively. The total intrinsic value of all DPUs converted to common shares was not significant for each of the fiscal years ended August 31, 2018 and 2017, and no DPUs were converted to common shares during the fiscal year ended August 31, 2016.
The income tax benefits from DPUs converted to common shares were not significant for each of the fiscal years ended August 31, 2018 and 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 for each of the fiscal years 2018 and 2017, respectively, and $3.2 million for fiscal years 2016.
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 $1.6 million, $1.4 million and $1.5 million for the fiscal years ended August 31, 2018, 2017 and 2016, respectively.
F-30
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. Also included in corporate overhead costs for fiscal year 2018 are corporate funded advertising and sales promotion expenses focused on increasing the Company’s digital presence and building brand awareness.
|
|
||||||||||||||
|
|
Unallocated |
|||||||||||||
|
|
Americas |
EMEA |
Asia-Pacific |
Corporate (1) |
Total |
|||||||||
|
Fiscal Year Ended August 31, 2018 |
||||||||||||||
|
Net sales |
$ |
192,878 |
$ |
150,878 |
$ |
64,762 |
$ |
- |
$ |
408,518 | ||||
|
Income from operations |
$ |
48,954 |
$ |
36,241 |
$ |
19,098 |
$ |
(25,689) |
$ |
78,604 | ||||
|
Depreciation and |
||||||||||||||
|
amortization expense |
$ |
4,142 |
$ |
2,561 |
$ |
313 |
$ |
784 |
$ |
7,800 | ||||
|
Interest income |
$ |
13 |
$ |
320 |
$ |
121 |
$ |
- |
$ |
454 | ||||
|
Interest expense |
$ |
4,209 |
$ |
- |
$ |
10 |
$ |
- |
$ |
4,219 | ||||
|
|
||||||||||||||
|
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 | ||||
|
|
||||||||||||||
|
(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, |
|||||||
|
|
2018 |
2017 |
2016 |
|||||
|
Maintenance products |
$ |
372,391 |
$ |
342,295 |
$ |
339,974 | ||
|
Homecare and cleaning products |
36,127 | 38,211 | 40,696 | |||||
|
Total |
$ |
408,518 |
$ |
380,506 |
$ |
380,670 | ||
|
|
||||||||
F-31
Net sales and long-lived assets by geographic area are as follows (in thousands):
|
|
||||||||
|
|
Fiscal Year Ended August 31, |
|||||||
|
|
2018 |
2017 |
2016 |
|||||
|
Net Sales by Geography: |
||||||||
|
United States |
$ |
154,986 |
$ |
150,086 |
$ |
158,139 | ||
|
International |
253,532 | 230,420 | 222,531 | |||||
|
Total |
$ |
408,518 |
$ |
380,506 |
$ |
380,670 | ||
|
|
||||||||
|
Long-lived Assets by Geography (2) : |
||||||||
|
United States |
$ |
21,986 |
$ |
23,346 |
$ |
6,419 | ||
|
International |
14,371 | 6,093 | 5,126 | |||||
|
Total |
$ |
36,357 |
$ |
29,439 |
$ |
11,545 | ||
|
|
||||||||
(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 9, 2018, the Company’s Board of Directors declared a cash dividend of $0.54 per share payable on October 31, 2018 to shareholders of record on October 19, 2018.
F-32
ARTICLE I
The name of the corporation (the “Corporation”) is:
WD-40 COMPANY
ARTICLE II
The address of the Corporation’s registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the Corporation’s registered agent at such address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware.
ARTICLE IV
The Corporation is authorized to issue only one class of stock, to be designated “Common Stock.” The total number of shares of Common Stock which the Corporation is authorized to issue is Thirty-Six Million (36,000,000), with a par value of $0.001 per share.
ARTICLE V
In addition to the requirements of applicable law and the other provisions of this Certificate of Incorporation:
1. The affirmative vote or consent of eighty-five percent (85%) of the outstanding shares of Voting Stock (defined below) of the Corporation shall be required for the adoption or authorization of a Business Combination (defined below) unless:
(a) The Board of Directors of the Corporation shall have approved the proposed Business Combination prior to the date a Controlling Person (defined below) who proposes to enter into or be a party to or be involved in the Business Combination first became a Controlling Person; or
(b) (i) The Business Combination will result in an involuntary sale, redemption, cancellation or other termination of ownership of all shares of Voting Stock of the Corporation owned by stockholders who do not vote in favor of, or consent in writing to, the Business Combination and the cash or fair value of other readily marketable consideration to be received by such stockholders for such shares shall at least be equal to the Minimum Price Per Share (defined below); and
(ii) A proxy statement responsive to the requirements of the Securities Exchange Act of 1934 (defined below) will be mailed to the stockholders of the Corporation for the purposes of soliciting stockholder approval of the proposed Business Combination. Such proxy statement shall allow individual Directors to express their opinion as to the relative merits of the proposed Business Combination in a prominent place therein; and
(iii) After the Controlling Person who proposes to enter into or be a party to or be involved in the Business Combination has become a Controlling Person and prior to the consummation of the proposed Business Combination:
(1) except as approved by a unanimous vote of the Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding preferred stock;
(2) there shall have been (A) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a unanimous vote of the Directors, and (B) an increase in such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split), recapitalization, reorganization, or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure so to increase such annual rate is approved by a unanimous vote of the Directors; and
(3) such Controlling Person shall have not become the Beneficial Owner (defined below) of any additional shares of Voting Stock except as part of the transaction which results in such Controlling Person becoming a Controlling Person; and
(iv) After such Controlling Person has become a Controlling Person, such Controlling Person shall not have received the benefit, directly or indirectly (except proportionately, solely in such Controlling Person’s capacity as a stockholder of the Corporation), of any loans, advances, guarantees, pledges, or other financial assistance or any tax credits or other tax advantage provided by the Corporation, whether in anticipation of or in connection with the proposed Business Combination or otherwise.
2. For purposes of this Article V, the following definitions shall apply:
(a) An “Affiliate” of the specified Person (defined below) shall mean a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with the Person specified.
(b) An “Associate” of a specified Person shall mean (1) any corporation or organization of which such Person is an officer or partner or is, directly or indirectly the Beneficial Owner of five percent (5%) or more of any class of equity securities, (2) any trust or other estate in which such Person has a five percent (5%) or larger beneficial interest of any nature or as to which such Person serves as trustee or in a similar fiduciary capacity, (3) any spouse of such Person, and (4) any relative of such Person, or any relative of a spouse of such Person, who has the same residence as such Person or spouse.
(c) “Beneficial Ownership” of shares of Voting Stock shall include without limitation (i) all shares directly or indirectly owned by a Person, by an Affiliate of such Person or by an Associate of such Person or such Affiliate, (ii) all shares which such Person, Affiliate, or Associate has the right to acquire through the exercise of any option, warrant or right (whether or not currently exercisable), through the conversion of a security, pursuant to the power to revoke a trust, discretionary account or similar arrangement, or pursuant to the automatic termination of a trust, discretionary account or similar arrangement, and (iii) all shares which are beneficially owned, directly or indirectly, by any other Person with whom such first-mentioned Person, Affiliate, or Associate has, directly or indirectly, any contract, arrangement, understanding, relationship or otherwise (including without limitation any written or unwritten agreement to act in concert but specifically excluding any participation agreement, arrangement, understanding or relationship between or among any two or more commercial banks made or established in connection with and in furtherance of a bona fide lending arrangement with the Corporation and/or one or more Subsidiaries (defined below)) with respect to exercise of the voting power (which includes the power to vote or to direct the voting of such shares) or investment power (which includes the power to dispose or to direct the disposition of such shares, or both) incident to ownership of such shares.
(d) “Business Combination” shall mean (1) any merger or consolidation of the Corporation with or into a Controlling Person or Affiliate of a Controlling Person or Associate of such Controlling Person or Affiliate, (2) any sale, lease, exchange, transfer or other disposition, including without limitation a mortgage or any other security device, in a single transaction or series of related transactions, of all or any Substantial Part (defined below) of the assets of the Corporation, including without limitation any voting securities of a Subsidiary, or of a Subsidiary, to a Controlling Person or Affiliate of a Controlling Person or Associate of such Controlling Person or Affiliate, (3) any merger into the Corporation, or into a Subsidiary, of a Controlling Person or an Affiliate of a Controlling Person or an Associate of such Controlling Person or Affiliate, (4) any sale, lease, exchange, transfer or other disposition to the Corporation or a Subsidiary of all or any part of the assets of a Controlling Person or Affiliate of a Controlling Person or Associate of such Controlling Person or Affiliate, but not including any dispositions of assets which, if included with all other dispositions consummated during the same fiscal year of the Corporation by the same Controlling Person, Affiliates thereof and Associates of such Controlling Person or Affiliates, would not result in dispositions during such year by all such Persons of assets having an aggregate fair value (determined at the time of disposition of the respective assets) in excess of one percent (1%) of the total consolidated assets of the Corporation (as shown on its certified balance sheet as of the end of the fiscal year preceding the proposed
disposition), provided, however, that in no event shall any disposition of assets be excepted from stockholder approval by reason of
the preceding exclusion if such disposition when included with all other dispositions consummated during the same, and immediately preceding nine, fiscal years of the Corporation by the same Controlling Person, Affiliates thereof and Associates of such Controlling Person or Affiliates, would result in dispositions by all such Persons of assets having an aggregate fair value (determined at the time of disposition of the respective assets) in excess of five percent (5%) of the total consolidated assets of the Corporation (as shown on its certified balance sheet as of the end of the fiscal year preceding the proposed disposition), (5) any reclassification of Common Stock of the Corporation, or any recapitalization involving Common Stock of the Corporation, consummated within ten years after the Controlling Person who proposes such reclassification or recapitalization becomes a Controlling Person, and (6) any agreement, contract or other arrangement providing for any of the transactions described in this definition of Business Combination, but, notwithstanding anything to the contrary herein, Business Combination shall not include any transaction involving a Controlling Person or Affiliate of a Controlling Person or Associate of such Controlling Person or Affiliate which is to be consummated or become effective after such Controlling Person has been a Controlling Person for at least ten years. A Person who is or was a Controlling Person as of (i) the time any definitive agreement relating to a Business Combination is entered into, (ii) the record date for the determination of stockholders entitled to notice of and to vote on a Business Combination, or (iii) immediately prior to the consummation of a Business Combination shall be deemed to be a Controlling Person for purposes of this definition.
(e) “Control” of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.
(f) “Controlling Person” shall mean any Person who Beneficially Owns a number of shares of Voting Stock of the Corporation, whether or not such number includes shares not then outstanding or entitled to vote, which exceeds a number equal to ten percent (10%) of the outstanding shares of Voting Stock of the Corporation, but does not include any one or a group of more than one of the members of the Board of Directors of the Corporation who (i) were members of the Board of Directors on the date this Article V became effective, (ii) are members of the Board of Directors promptly following the merger of WD-40 Company, a California corporation, with and into the Corporation, or (iii) were first elected as Directors prior to the date a Controlling Person who proposes to enter into or be a party to or be involved in a Business Combination became a Controlling Person.
(g) “Minimum Price Per Share” shall mean the sum of (a) the higher of (i) the highest gross per share price paid or agreed to be paid to acquire any shares of Voting Stock of the Corporation Beneficially Owned by a Controlling Person, provided such payment or agreement to make payment was made within ten years immediately prior to the record date set to determine the stockholders entitled to vote or consent to the Business Combination in question, or (ii) the highest per share closing public market price for such Voting Stock during such ten-year period, plus (b) the aggregate amount, if any, by which ten percent (10%) for each year, beginning on the date on which such Controlling Person became a Controlling Person, of such higher per share price exceeds the aggregate amount of all Common Stock dividends per share paid in cash since the date on which such Person became a Controlling Person. The calculation of the Minimum Price Per Share shall require appropriate adjustments for capital changes, including without limitation stock splits, stock dividends and reverse stock splits.
(h) “Person” shall mean an individual, a corporation, a partnership, an association, a limited liability company, a joint-stock company, a trust, any unincorporated organization, a government or political subdivision thereof and any other entity (other than the Corporation, its Subsidiaries or a trustee holding stock for the benefit of employees of the Corporation or its Subsidiaries, or any one of them, pursuant to one or more employee benefit plans or arrangements).
(i) “Securities Exchange Act of 1934” shall mean the Securities Exchange Act of 1934, as amended from time to time, as well as any successor or replacement statute.
(j) “Subsidiary” shall mean any corporation more than twenty-five percent (25%) of whose outstanding securities representing the right to vote for the election of Directors is Beneficially Owned by the Corporation and/or one or more Subsidiaries.
(k) “Substantial Part” shall mean more than ten percent (10%) of the total assets of the corporation in question, as shown on its certified balance sheet as of the end of the most recent fiscal year ending prior to the time the determination is being made.
(l) “Voting Stock” of the Corporation shall mean all outstanding shares of Capital Stock of the Corporation entitled to vote generally in the election of Directors, and each reference to a proportion of shares of Voting Stock shall refer to such proportion of the votes entitled to be cast by such shares.
3. This Article V shall not be altered, changed or repealed unless the amendment effecting such alteration, change or repeal shall have received the affirmative vote or consent of eighty-five percent (85%) of the outstanding shares of Common Stock of the Corporation; PROVIDED, HOWEVER, that this Paragraph 3 shall not apply to, and such vote shall not be required for, any such alteration, change or repeal recommended to stockholders by a unanimous vote of the Directors and any such alteration, change or repeal so recommended shall require only the vote, if any, required under the applicable provisions of the General Corporation Law of the State of Delaware (as amended from time to time).
4. A Controlling Person shall be subject to all fiduciary and other standards of conduct and obligations imposed by law.
5. The provisions of this Article V are severable: if any provision is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions shall continue in full force without being impaired or invalidated in any way.
ARTICLE VI
The number of Directors which constitute the whole Board of Directors of the Corporation shall be as specified in the Bylaws of the Corporation.
ARTICLE VII
In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, amend, rescind or repeal the Bylaws of the Corporation.
ARTICLE VIII
Elections need not be by ballot unless otherwise specified in the Bylaws of the Corporation; PROVIDED, HOWEVER, that all elections for Directors must be by ballot upon any demand made by a stockholder at the meeting and before the voting begins.
ARTICLE IX
Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books of the Corporation may be kept (subject to any provision contained in the General Corporation Law of the State of Delaware) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.
ARTICLE X
The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
ARTICLE XI
1. A Director’s liability to the Corporation for breach of any duty to the Corporation or its stockholders shall be limited to the fullest extent permissible by the laws of the State of Delaware as now in effect or hereafter amended. In particular, no Director shall be liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a Director, except for liability (a) for any breach of the Director’s duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the General Corporation Law of the State of Delaware, as the same exists or hereafter may be amended, or (d) for any transaction from which the Director derived an improper personal benefit.
2. Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of a Director existing at the time of such repeal or modification.
3. If the General Corporation Law of the State of Delaware is amended to authorize corporate action further eliminating or limiting the liability of directors, then a Director, in addition to the circumstances in which he or she is not now liable, shall be free of liability to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended.
ARTICLE XII
1. The Corporation shall be authorized to indemnify its officers, Directors, employees and agents to the fullest extent permitted by the General Corporation Law of the State of Delaware, which power to indemnify shall include, without limitation, the power to enter into indemnification agreements and amendments thereto upon such terms as the Board of Directors shall deem advisable.
2. Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of any officer, Director, employee or agent of the Corporation existing at the time of, or increase the liability of any Director with respect to any acts or omissions of any officer, Director, employee or agent of the Corporation occurring prior to, such repeal or modification.
ARTICLE XIII
The name and mailing address of the incorporator of the Corporation is:
Thomas J. Tranchina
WD-40 COMPANY
1061 Cudahy Place
San Diego, CA 92110
THE UNDERSIGNED incorporator, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, hereby acknowledges that the foregoing Certificate of Incorporation is his act and deed and that the facts stated therein are true.
|
|
|
|
|
Dated: October 22, 1999 |
|
/s/ Thomas J. Tranchina |
5
WD-40 COMPANY
2007 STOCK INCENTIVE PLAN
1. Establishment, Objectives and Duration.
(a) Establishment of the Plan. WD-40 Company (hereinafter referred to as the "Company"), hereby establishes an incentive compensation plan to be known as the "WD-40 Company 2007 Stock Incentive Plan" (hereinafter referred to as the "Plan"). The Plan permits the granting of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units and Other Stock-Based Awards. The Plan is effective as of December 11, 2007 (the "Effective Date"), subject to the approval of the Plan by the stockholders of the Company at the 2007 Annual Meeting.
(b) Definitions. Definitions of capitalized terms used in the Plan are contained in the attached Glossary, which is incorporated as part of the Plan.
(c) Objectives of the Plan. The objectives of the Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Participants and to optimize the profitability and growth of the Company through incentives that are consistent with the Company's goals and that link the personal interests of Participants to those of the Company's stockholders. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of Participants who make or are expected to make significant contributions to the Company's success and to allow Participants to share in the success of the Company.
(d) Duration of the Plan. No Award may be granted under the Plan after the day immediately preceding the tenth (10th) anniversary of the Effective Date, or such earlier date as the Board shall determine. The Plan will remain in effect with respect to outstanding Awards until no Awards remain outstanding.
2. Administration of the Plan.
(a) The Committee. The Plan shall be administered by the Board or by the Compensation Committee of the Board or such other committee (the Compensation Committee or such other committee is hereinafter referred to as the "Committee") as the Board shall select consisting of two or more members of the Board each of whom is intended to be a "non-employee director" within the meaning of Rule 16b-3 (or any successor rule) of the Exchange Act, an "outside director" under regulations promulgated under Section 162(m) of the Code, and an "independent director" under NASDAQ listing standards. The members of the Committee shall be appointed from time to time by, and shall serve at the discretion of, the Board.
(b) Authority of the Committee. Subject to Applicable Laws and the provisions of the Plan (including any other powers given to the Committee hereunder), and except as otherwise provided by the Board, the Committee shall have full and final authority in its discretion to take all actions determined by the Committee to be necessary in the administration of the Plan, including, without limitation, discretion to:
(i) select the Employees, Directors and Consultants to whom Awards may from time to time be granted hereunder;
(ii) determine whether and to what extent Awards are granted hereunder;
(iii) determine the size and types of Awards granted hereunder;
(iv) approve forms of Award Agreement for use under the Plan;
(v) determine the terms and conditions of any Award granted hereunder;
(vi) establish performance goals for any Performance Period and determine whether such goals were satisfied;
(vii) amend the terms of any outstanding Award granted under the Plan at any time, including following a Participant's termination of employment or in the event of a Change in Control, provided that, except as otherwise provided in Section 18, no such amendment shall reduce the Exercise Price of outstanding Options or the grant price of outstanding SARs without the approval of the stockholders of the Company, and provided further, that any amendment that would adversely affect the Participant's rights under an outstanding Award shall not be made without the Participant's written consent;
(viii) construe and interpret the terms of the Plan and any Award Agreement entered into under the Plan, and to decide all questions of fact arising in its application; and
(ix) take such other action, not inconsistent with the terms of the Plan, as the Committee deems appropriate.
Notwithstanding the foregoing, except as Applicable Laws may require the grant of an Award to be authorized only by the Committee or that determinations with respect to the attainment or satisfaction of Performance Measure(s) be made by the Committee, the Board shall have full authority to administer the Plan.
(c) Effect of Committee's Decisions. Subject to the authority of the Board to administer the Plan, all decisions, determinations and interpretations of the Committee shall be final, binding and conclusive on all persons, including the Company, its Subsidiaries, its stockholders, Employees, Directors, Consultants and their estates and beneficiaries.
3. Shares Subject to the Plan; Effect of Grants; Individual Limits.
(a) Number of Shares Available for Grants. Subject to adjustment as provided in Section 18 hereof, the maximum number of Shares that may be issued pursuant to Awards under the Plan shall be 2,250,000 Shares, plus any Shares remaining available for issuance under the Prior Plans as of the Effective Date, plus the number of Shares subject to outstanding awards under the Prior Plans at the Effective Date that are deemed not issued under the Prior Plans pursuant to this Section 3(a). Shares that are potentially deliverable under an Award (counted as provided for in Section 3(b)) or a Prior Plan award that expires or is canceled, forfeited, settled in cash or otherwise settled without the delivery of Shares shall not be treated as having been issued under the Plan or a Prior Plan. The Shares to be issued pursuant to Awards may be authorized but unissued Shares or treasury Shares. No Award shall be granted under the Plan providing for the issuance of Shares to the extent that, as of the date of the Award, the number of Shares deliverable under such Award will exceed the maximum number of Shares authorized pursuant to this Section 3(a) reduced by the total number of Shares issued pursuant to Awards under the Plan (counted as provided for in Section 3(b)) plus the number of Shares that are potentially deliverable under all outstanding Awards pursuant to the Plan (counted as provided for in Section 3(b)).
(b) Award Type Share Counting. The issuance of each Share pursuant to Awards of Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units and Other Stock-Based Awards shall be counted as three (3) Shares for purposes of computing the number of Shares authorized for issuance under the Plan pursuant to Section 3(a). Each Share issued pursuant to an Award of an Option or an SAR shall be counted as one Share for purposes of the number of Shares authorized for issuance under the Plan pursuant to Section 3(a).
(c) Individual Award Limits. Subject to adjustment as provided in Section 18 hereof, the following limitations shall apply with respect to Awards under the Plan:
(i) Options and SARs — Individual Limits: The maximum aggregate number of Shares with respect to which Options and SARs may be granted in any calendar year to any one Participant shall be 250,000 Shares, provided that such limit shall be increased to 500,000 Shares during the first year following the date of hire for an Employee who has not previously been in Continuous Service with the Company or a Subsidiary for a period of at least one year.
(ii) Full-Value Awards of Restricted Stock, Restricted Stock Units, Performance Shares and Other Stock-Based Awards — Individual Limits: The maximum aggregate number of Shares of Restricted Stock and Shares with respect to which Restricted Stock Units, Performance Shares and Other Stock-Based Awards may be granted in any calendar year to any one Participant shall be 125,000 Shares, provided that such limit shall be increased to 250,000 Shares during the first year following the date of hire for an Employee who has not previously been in Continuous Service with the Company or a Subsidiary for a period of at least one year.
(iii) Performance Units — Individual Limits: The maximum aggregate compensation that can be paid pursuant to Performance Units awarded in any one fiscal year to any one Participant shall be $2,500,000 or a number of Shares having an aggregate Fair Market Value not in excess of such amount.
4. Eligibility and Participation.
(a) Eligibility. Persons eligible to participate in the Plan include all Employees, Directors and Consultants.
(b) Actual Participation. Subject to the provisions of the Plan, the Committee may, from time to time, select from all eligible Employees, Directors and Consultants, those to whom Awards shall be granted and shall determine the nature and amount of each Award. The Committee may establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign jurisdictions and to afford Participants favorable treatment under such laws; provided, however, that no Award shall be granted under any such additional terms, conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the Plan.
(c) Termination of Service. An eligible Employee, Director or Consultant to whom an Award is granted under the Plan shall be remain eligible for such Award so long as he or she remains in Continuous Service with the Company or a Subsidiary and thereafter only on such terms and conditions as may be specified in the applicable Award Agreement.
5. Types of Awards.
(a) Type of Awards. Awards under the Plan may be in the form of Options (both Nonqualified Stock Options and/or Incentive Stock Options), SARs, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units and Other Stock-Based Awards.
(b) Designation of Award. Each Award shall be designated in the Award Agreement.
6. Options.
(a) Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted to Participants in such number and upon such terms, and at any time and from time to time, as shall be determined by the Committee.
(b) Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall specify the Exercise Price, the duration of the Option, the number of Shares to which the Option pertains, and such other provisions as the Committee shall determine including, but not limited to, the Option vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, Shares, or other consideration) upon settlement of the Award, and payment contingencies. The Award Agreement also shall specify whether the Option is intended to be an Incentive Stock Option or a Nonqualified Stock Option. Options that are intended to be Incentive Stock Options shall be subject to the limitations set forth in Section 422 of the Code.
(c) Exercise Price. Except for Options adjusted pursuant to Section 18 herein, and replacement Options granted in connection with a merger, acquisition, reorganization or similar transaction, the Exercise Price for each grant of an Option shall not be less than one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted. However, in the case of an Incentive Stock Option granted to a Participant who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Subsidiary, the Exercise Price for each grant of an Option shall not be less than one hundred ten percent (110%) of the Fair Market Value of a Share on the date the Option is granted.
(d) Term of Options. The term of an Option granted under the Plan shall be determined by the Committee, in its sole discretion; provided, however, that such term shall not exceed ten (10) years. However, in the case of an Incentive Stock Option granted to a Participant who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Award Agreement.
(e) Exercise of Options. Options granted under this Section 6 shall be exercisable at such times and be subject to such restrictions and conditions as set forth in the Award Agreement and as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant; provided, however, that except for Options granted
to a Director or a Consultant, or as otherwise provided in a Participant's Award Agreement upon a termination of employment or service as a Director or Consultant or pursuant to Section 19 in the event of a Change in Control or Subsidiary Disposition, no Option may be exercisable prior to one (1) year from the date of grant.
(f) Payments. Options granted under this Section 6 shall be exercised by the delivery of a written notice to the Company, setting forth the number of Shares with respect to which the Option is to be exercised and specifying the method of payment of the Exercise Price. The Exercise Price of an Option shall be payable to the Company: (i) in cash or its equivalent, (ii) by tendering (either actually or constructively by attestation) Shares having an aggregate Fair Market Value at the time of exercise equal to the Exercise Price, (iii) in any other manner then permitted by the Committee, or (iv) by a combination of any of the permitted methods of payment. The Committee may limit any method of payment, other than that specified under (i), for administrative convenience, to comply with Applicable Laws or otherwise.
(g) Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option granted under this Section 6 as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares.
(h) Termination of Employment or Service. Each Participant's Option Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the Option following termination of the Participant's employment or, if the Participant is a Director or Consultant, service with the Company and its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all Options, and may reflect distinctions based on the reasons for termination of employment or service.
7. Stock Appreciation Rights.
(a) Grant of SARs. Subject to the terms and provisions of the Plan, SARs may be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee. The Committee may grant Freestanding SARs, Tandem SARs, or any combination of these forms of SAR.
(b) Award Agreement. Each SAR grant shall be evidenced by an Award Agreement that shall specify the grant price, the term of the SAR, and such other provisions as the Committee shall determine.
(c) Grant Price. The grant price of a Freestanding SAR shall not be less than one hundred percent (100%) of the Fair Market Value of a Share on the date of grant of the SAR, and the grant price of a Tandem SAR shall equal the Exercise Price of the related Option; provided, however, that these limitations shall not apply to Awards that are adjusted pursuant to Section 18 herein.
(d) Term of SARs. The term of an SAR granted under the Plan shall be determined by the Committee, in its sole discretion; provided, however, that such term shall not exceed ten (10) years.
(e) Exercise of Tandem SARs. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable. To the extent exercisable, Tandem SARs may be exercised for all or part of the Shares subject to the related Option. The exercise of all or part of a Tandem SAR shall result in the forfeiture of the right to purchase a number of Shares under the related Option equal to the number of Shares with respect to which the SAR is exercised. Conversely, upon exercise of all or part of an Option with respect to which a Tandem SAR has been granted, an equivalent portion of the Tandem SAR shall similarly be forfeited.
Notwithstanding any other provision of the Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR will expire no later than the expiration of the underlying ISO; (ii) the value of the payout with respect to the Tandem SAR may be for no more than one hundred percent (100%) of the difference between the Exercise Price of the underlying ISO and the Fair Market Value of the Shares subject to the underlying ISO at the time the Tandem SAR is exercised; and (iii) the Tandem SAR may be exercised only when the Fair Market Value of the Shares subject to the ISO exceeds the Exercise Price of the ISO.
(f) Exercise of Freestanding SARs. Freestanding SARs may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes upon them and sets forth in the Award Agreement; provided, however, that except as otherwise provided in a Participant's Award Agreement upon a termination of employment or, if the Participant is a Director or Consultant, service with the Company and its Subsidiaries, or pursuant to Section 19 in the event of a Change in Control or Subsidiary Disposition, no Freestanding SARs may be exercisable prior to one (1) year from the date of grant.
(g) Payment of SAR Amount. Upon exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying:
i) the difference between the Fair Market Value of a Share on the date of exercise over the grant price; times
ii) the number of Shares with respect to which the SAR is exercised.
At the discretion of the Committee, the payment upon SAR exercise may be in cash, in Shares of equivalent value or in some combination thereof as specified in the SAR Award Agreement.
(h) Termination of Employment or Service. Each SAR Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the SAR following termination of the Participant's employment or, if the Participant is a Director or Consultant, service with the Company and its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all SARs, and may reflect distinctions based on the reasons for termination of employment or service.
8. Restricted Stock.
(a) Grant of Restricted Stock. Subject to the terms and provisions of the Plan, Restricted Stock may be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee.
(b) Award Agreement. Each Restricted Stock grant shall be evidenced by an Award Agreement that shall specify the Period(s) of Restriction, the number of Shares of Restricted Stock granted, the nature of applicable vesting conditions and/or restrictions on transferability, and such other provisions as the Committee shall determine.
(c) Period of Restriction and Other Restrictions. Except as otherwise provided in a Participant's Award Agreement upon a termination of employment or, if the Participant is a Director or Consultant, service with the Company and its Subsidiaries, or pursuant to Section 19 in the event of a Change in Control or Subsidiary Disposition, an Award of Restricted Stock shall have a minimum Period of Restriction of one (1) year, which period may, at the discretion of the Committee, lapse in stages over such period on a pro-rated, graded, or cliff basis (as specified in an Award Agreement.) The Committee shall impose such other conditions and/or restrictions on any Shares of Restricted Stock granted pursuant to the Plan as it may deem advisable including, without limitation, a requirement that Participants pay a stipulated purchase price for each Share of Restricted Stock, a requirement that the issuance of Shares of Restricted Stock be delayed, restrictions based upon the achievement of specific performance goals, additional time-based restrictions, and/or restrictions under Applicable Laws or under the requirements of any stock exchange or market upon which such Shares are listed or traded, or holding requirements or sale restrictions placed on the Shares by the Company upon vesting of such Restricted Stock. The Company may retain in its custody any certificate evidencing the Shares of Restricted Stock and place thereon a legend and institute stop-transfer orders on such Shares, and the Participant shall be obligated to sign any stock power requested by the Company relating to the Shares to give effect to the forfeiture provisions of the Restricted Stock.
(d) Removal of Restrictions. Subject to Applicable Laws, Restricted Stock shall become freely transferable by the Participant after the last day of the Period of Restriction applicable thereto. Once Restricted Stock is released from the restrictions, the Participant shall be entitled to receive a certificate evidencing the Shares free of all restrictions.
(e) Voting Rights. Unless otherwise determined by the Committee and set forth in a Participant's Award Agreement, to the extent permitted or required by Applicable Laws, as determined by the Committee, Participants holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares during the Period of Restriction.
(f) Dividends and Other Distributions. Except as otherwise provided in a Participant's Award Agreement, during the Period of Restriction, Participants holding Shares of Restricted Stock shall receive all regular cash Dividends paid with respect to all Shares while they are so held, and, except as otherwise determined by the Committee, all other distributions paid with respect to such Restricted Stock shall be credited to Participants subject to the same restrictions on transferability and forfeitability as the Restricted Stock with respect to which they were paid and paid at such time following full vesting as are paid the Shares of Restricted Stock with respect to which such distributions were made.
(g) Termination of Employment or Service. Each Restricted Stock Award Agreement shall set forth the extent to which the Participant shall have the right to retain unvested Restricted Stock following termination of the Participant's employment or, if the Participant is a Director or Consultant, service with the Company and its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all Awards of Restricted Stock, and may reflect distinctions based on the reasons for termination of employment or service.
9. Restricted Stock Units.
(a) Grant of Restricted Stock Units. Subject to the terms and provisions of the Plan, Restricted Stock Units may be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee.
(b) Award Agreement. Each grant of Restricted Stock Units shall be evidenced by an Award Agreement that shall specify the applicable Period of Restriction, the number of Restricted Stock Units granted, the nature of applicable vesting conditions and/or restrictions on transferability, and such other provisions as the Committee shall determine.
(c) Value of Restricted Stock Units. The initial value of a Restricted Stock Unit shall equal the Fair Market Value of a Share on the date of grant; provided, however, that this restriction shall not apply to Awards that are adjusted pursuant to Section 18 herein.
(d) Period of Restriction. Except as otherwise provided in a Participant's Award Agreement upon a termination of employment or, if the Participant is a Director or Consultant, service with the Company and its Subsidiaries, or pursuant to Section 19 in the event of a Change in Control or Subsidiary Disposition, an Award of Restricted Stock Units shall have a minimum Period of Restriction of one (1) year, which period may, at the discretion of the Committee, lapse in stages over such period on a pro-rated, graded, or cliff basis (as specified in an Award Agreement.)
(e) Form and Timing of Payment. Except as otherwise provided in Section 19 herein or a Participant's Award Agreement, payment of Restricted Stock Units shall be made at a specified settlement date that shall not be earlier than the last day of the Period of Restriction. The Committee, in its sole discretion, may pay earned Restricted Stock Units by delivery of Shares, by payment in cash of an amount equal to the Fair Market Value of such Shares or in some combination thereof as specified in the Restricted Stock Unit Award Agreement. The Committee may provide that settlement of Restricted Stock Units shall be deferred, on a mandatory basis or at the election of the Participant.
(f) Voting Rights. A Participant shall have no voting rights with respect to any Restricted Stock Units granted hereunder.
(g) Termination of Employment or Service. Each Restricted Stock Unit Award Agreement shall set forth the extent to which the Participant shall have the right to receive a payout with respect to an Award of Restricted Stock Units following termination of the Participant's employment or, if the Participant is a Director or Consultant, service with the Company and its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all Restricted Stock Units, and may reflect distinctions based on the reasons for termination of employment or service.
10. Performance Shares.
(a) Grant of Performance Shares. Subject to the terms and provisions of the Plan, Performance Shares may be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined
by the Committee.
(b) Award Agreement. Each grant of Performance Shares shall be evidenced by an Award Agreement that shall specify the applicable Performance Period(s) and Performance Measure(s), the number of Performance Shares granted, and such other provisions as the Committee shall determine; provided, however, that except as otherwise provided in a Participant's Award Agreement upon a termination of employment or, if the Participant is a Director or Consultant, service with the Company and its Subsidiaries, or pursuant to Section 19 in the event of a Change in Control or Subsidiary Disposition, in no case shall a Performance Period be for a period of less than one (1) year.
(c) Value of Performance Shares. The initial value of a Performance Share shall equal the Fair Market Value of a Share on the date of grant; provided, however, that this restriction shall not apply to Awards that are adjusted pursuant to Section 18 herein.
(d) Form and Timing of Payment. Subject to Applicable Laws and except as otherwise provided in Section 19 herein or a Participant's Award Agreement, payment of Performance Shares shall be made after final determination by the Committee as to the number of such Performance Shares that have vested upon attainment of the applicable Performance Measure(s) at a specified settlement date that shall not be earlier than the last day of the Performance Period. The Committee, in its sole discretion, may pay earned Performance Shares by delivery of Shares, by payment in cash of an amount equal to the Fair Market Value of such Shares or in some combination thereof. The Committee may provide that settlement of Performance Shares shall be deferred, on a mandatory basis or at the election of the Participant.
(e) Voting Rights. A Participant shall have no voting rights with respect to any Performance Shares granted hereunder.
(f) Termination of Employment or Service. Each Performance Share Award Agreement shall set forth the extent to which the Participant shall have the right to receive a payout respecting an Award of Performance Shares following termination of the Participant's employment or, if the Participant is a Director or Consultant, service with the Company and its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all Participants, and may reflect distinctions based on the reasons for termination of employment or service
11. Performance Units.
(a) Grant of Performance Units. Subject to the terms and conditions of the Plan, Performance Units may be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee.
(b) Award Agreement. Each grant of Performance Units shall be evidenced by an Award Agreement that shall specify the number of Performance Units granted, the Performance Period(s) and Performance Measure(s) and such other provisions as the Committee shall determine; provided, however, that except as otherwise provided in a Participant's Award Agreement upon a termination of employment or, if the Participant is a Director or Consultant, service with the Company and its Subsidiaries, or pursuant to Section 19 in the event of a Change in Control or Subsidiary Disposition, in no case shall a Performance Period be for a period of less than one (1) year.
(c) Value of Performance Units. The Committee shall set Performance Measure(s) in its discretion that, depending on the extent to which they are met, will determine the number and/or value of Performance Units that will be paid out to the Participant.
(d) Form and Timing of Payment. Except as otherwise provided in Section 19 herein or a Participant's Award Agreement, payment of earned Performance Units shall be made after final determination by the Committee as to the number of such Performance Units that have vested upon attainment of the applicable Performance Measure(s) at a specified settlement date that shall not be earlier than the last day of the Performance Period. The Committee, in its sole discretion, may pay earned Performance Units in cash, in Shares that have an aggregate Fair Market Value equal to the value of the earned Performance Units or in some combination thereof as specified in the Performance Unit Award Agreement. The Committee may provide that settlement of Performance Units shall be deferred, on a mandatory basis or at the election of the Participant.
(e) Termination of Employment or Service. Each Performance Unit Award Agreement shall set forth the extent to which the Participant shall have the right to receive a payout respecting an Award of Performance Units following
termination of the Participant's employment or, if the Participant is a Director or Consultant, service with the Company and its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all Performance Units and may reflect distinctions based on reasons for termination of employment or service.
12. Other Stock-Based Awards.
(a) Grant. The Committee shall have the right to grant other Awards that may include, without limitation, the grant of Shares based on attainment of Performance Measure(s) established by the Committee, the payment of Shares as a bonus or in lieu of cash based on attainment of Performance Measure(s) established by the Committee, and the payment of Shares in lieu of cash under any Company incentive, bonus or other compensation program.
(b) Award Agreement. Other Stock-Based Awards may be evidenced by an Award Agreement that specifies Period(s) of Restriction, if any, the number of Shares to be awarded, applicable Performance Period(s) and Performance Measure(s), if any, the nature of other applicable vesting conditions and/or restrictions on transferability, and such other provisions as the Committee shall determine.
(c) Period of Restriction. Except as otherwise provided hereinafter, or in a Participant's Award Agreement upon a termination of employment or, if the Participant is a Director or Consultant, service with the Company and its Subsidiaries, or pursuant to Section 19 in the event of a Change in Control or Subsidiary Disposition, Awards granted pursuant to this Section 12 shall have a minimum Period of Restriction of one (1) year, which period may, at the discretion of the Committee, lapse in stages over such period on a pro-rated, graded, or cliff basis (as specified in an Award Agreement.) Notwithstanding the above, an Award of payment of Shares in lieu of cash under a Company incentive, bonus or other compensation program shall not be subject to the minimum Period of Restriction limitations described above.
(d) Payment of Other Stock-Based Awards. Subject to Section 12(c) hereof, payment under or settlement of any such Other Stock-Based Award shall be made in such manner and at such times as the Committee may specify in the Award Agreement for such Other Stock-Based Award. The Committee may provide that settlement of Other Stock-Based Awards shall be deferred, on a mandatory basis or at the election of the Participant.
(e) Termination of Employment or Service. The Committee shall determine the extent to which the Participant shall have the right to receive Other Stock-Based Awards following termination of the Participant's employment or, if the Participant is a Director or Consultant, service with the Company and its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, such provisions may be included in an agreement entered into with each Participant, but need not be uniform among all Other Stock-Based Awards, and may reflect distinctions based on the reasons for termination of employment or service.
13. Dividend Equivalents. Only Award Agreements for Full Value Awards granted pursuant to the Plan may, at the discretion of the Committee, provide Participants with the right to receive Dividend Equivalents, which may be paid currently or credited to an account for the Participants, and may be settled in cash and/or Shares, as determined by the Committee in its sole discretion, subject in each case to such terms and conditions as the Committee shall establish.
14. Performance-Based Exception.
(a) Performance Measures. The Committee may specify that the attainment of one or more of the Performance Measures set forth in this Section 14 shall determine the degree of granting, vesting and/or payout with respect to Awards that the Committee intends will qualify for the Performance-Based Exception. The performance goals to be used for such Awards shall be chosen from among the following performance measures (the "Performance Measures"): total shareholder return, stock price, net customer sales, volume, gross profit, gross margin, operating profit, operating margin, management profit, earnings from continuing operations (including derivatives thereof before interest, taxes, depreciation and/or amortization), earnings per share from continuing operations, net operating profit after tax, net earnings, net earnings per share, brand contribution to earnings, return on assets, return on investment, return on equity, return on invested capital, cost of capital, average capital employed, cash value added, economic value added, cash flow, cash flow from operations, working capital, working capital as a percentage of net customer sales, asset growth, asset turnover, market share, customer satisfaction, and employee satisfaction. The targeted level or levels of performance with respect to such Performance Measures may be established at such levels and on such terms as the Committee may determine, in its discretion, on a corporate-wide basis or with respect to one
or more business units, divisions, subsidiaries, business segments or functions, and in either absolute terms or relative to the performance of one or more comparable companies or an index covering multiple companies. Awards that are not intended to qualify for the Performance-Based Exception may be based on these or such other performance measures as the Committee may determine.
(b) Excluded Financial Items. Unless otherwise determined by the Committee, measurement of performance goals with respect to the Performance Measures above shall exclude the impact of charges for restructurings, discontinued operations, extraordinary items, and other unusual or non-recurring items, as well as the cumulative effects of tax or accounting changes, each as determined in accordance with generally accepted accounting principles or identified in the Company's financial statements, notes to the financial statements, management's discussion and analysis or other filings with the SEC.
(c) Alternative Performance Measures. Performance Measures may differ for Awards granted to any one Participant or to different Participants.
(d) Performance Period and Timing of Establishment of Performance Measures. Achievement of Performance Measures in respect of Awards intended to qualify under the Performance-Based Exception shall be measured over a Performance Period specified in the Award Agreement, and the goals shall be established not later than 90 days after the beginning of the Performance Period.
(e) Adjustment of Awards. The Committee shall have the discretion to adjust the determinations of the degree of attainment of the pre-established Performance Measure(s); provided, however, that such determinations for Awards that are designed to qualify for the Performance-Based Exception may not be adjusted to increase the prospective Award for attainment of the Performance Measure(s) (but the Committee may, in its discretion, adjust such determinations in a manner resulting in a lesser Award.)
15. Transferability of Awards. Incentive Stock Options may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution, and shall be exercisable during a Participant's lifetime only by such Participant. Other Awards shall be transferable to the extent provided in the Award Agreement, except that no Award may be transferred for consideration.
16. Taxes. The Company shall have the power and right, prior to the delivery of Shares pursuant to an Award, to deduct or withhold, or require a participant to remit to the Company (or a Subsidiary), an amount (in cash or Shares) sufficient to satisfy any applicable tax withholding requirements applicable to an Award. Whenever payments are to be made in cash under the Plan, such payments shall be net of an amount sufficient to satisfy any applicable tax withholding requirements. Subject to such restrictions as the Committee may prescribe, a Participant may satisfy all or a portion of any tax withholding requirements by electing to have the Company withhold Shares having a Fair Market Value equal to the amount to be withheld up to the minimum statutory tax withholding rate (or such other rate that will not result in a negative accounting impact).
17. Conditions Upon Issuance of Shares.
(a) Compliance with Applicable Laws. Shares shall not be issued pursuant to the exercise or payment of an Award unless the exercise of such Award and/or the issuance and delivery of such Shares pursuant thereto shall comply with all Applicable Laws, and shall be further subject to the approval of counsel for the Company with respect to such compliance.
(b) Required Investment Intent. As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any Applicable Laws.
18. Adjustments Upon Changes in Capitalization. In the event of any merger, reorganization, consolidation, recapitalization, liquidation, stock dividend, split-up, spin-off, stock split, reverse stock split, share combination, share
exchange, extraordinary dividend, or any change in the corporate structure affecting the Shares, such adjustment shall be made in the number and kind of Shares that may be delivered under the Plan, in the limits set forth in Section 3(b), and, with respect to outstanding Awards, in the number and kind of Shares subject to outstanding Awards, the Exercise Price, grant price or other price of Shares subject to outstanding Awards, any performance conditions relating to Shares, the market price of Shares, or per Share results, and other terms and conditions of outstanding Awards, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights; provided, however, that, unless otherwise determined by the Committee, the number of Shares subject to any Award shall always be rounded down to a whole number. Adjustments made by the Committee pursuant to this Section 18 shall be final, binding, and conclusive.
19. Change in Control, Cash-Out and Termination of Underwater Options/SARs, and Subsidiary Disposition.
(a) Change in Control. Except as otherwise provided in a Participant's Award Agreement or pursuant to Section 19(b) hereof, upon the occurrence of a Change in Control, unless otherwise specifically prohibited under Applicable Laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges:
(i) any and all outstanding Options and SARs granted hereunder shall become immediately exercisable unless such Awards are assumed, converted or replaced by the continuing entity; provided, however, that in the event of a Participant's termination of employment without Cause within twenty-four (24) months following consummation of a Change in Control, any assumed, converted or replaced Awards will become immediately exercisable;
(ii) any Period of Restriction or other restriction imposed on Restricted Stock, Restricted Stock Units, and Other Stock-Based Awards shall lapse unless such Awards are assumed, converted or replaced by the continuing entity; provided, however, that in the event of a Participant's termination of employment without Cause within twenty-four (24) months following consummation of a Change in Control, the Period of Restriction on any assumed, converted or replaced Awards shall lapse; and
(iii) any and all Performance Shares, Performance Units and other Awards (if performance-based) shall vest on a pro rata monthly basis, including full credit for partial months elapsed, and will be paid based on (A) the level of performance achieved as of the date of the Change in Control, if determinable, or (B) at the target level, if not determinable. The amount of the vested Award may be computed under the following formula: total Award number of Shares times (number of full months elapsed in shortest possible vesting period divided by number of full months in shortest possible vesting period) times percent performance level achieved immediately prior to the specified effective date of the Change in Control.
With respect to paragraphs (i) and (ii) of Section 19(a) above, the Award Agreement may provide that any assumed, converted or replaced awards will become immediately exercisable or any Period of Restriction shall lapse in the event of a termination of employment by the Participant for "good reason" as such term is defined in any employment agreement or severance agreement or policy applicable to such Participant.
(b) Cash-Out and Termination of Underwater Options/SARs. The Committee may, in its sole discretion, provide that (i) all outstanding Options and SARs shall be terminated upon the occurrence of a Change in Control and that each Participant shall receive, with respect to each Share subject to such Options or SARs, an amount in cash equal to the excess of the Fair Market Value of a Share immediately prior to the occurrence of the Change in Control over the Option Exercise Price or the SAR grant price; and (ii) Options and SARs outstanding as of the date of the Change in Control may be cancelled and terminated without payment therefore if the Fair Market Value of a Share as of the date of the Change in Control is less than the Option Exercise Price or the SAR grant price.
(c) Subsidiary Disposition. The Committee shall have the authority, exercisable either in advance of any actual or anticipated Subsidiary Disposition or at the time of an actual Subsidiary Disposition and either at the time of the grant of an Award or at any time while an Award remains outstanding, to provide for the automatic full vesting and exercisability of one or more outstanding unvested Awards under the Plan and the termination of restrictions on transfer and repurchase or forfeiture rights on such Awards, in connection with a Subsidiary Disposition, but only with respect to those Participants who are at the time engaged primarily in Continuous Service with the Subsidiary involved in such Subsidiary Disposition. The Committee also shall have the authority to condition any such Award vesting and exercisability or release from such limitations upon the subsequent termination of the affected Participant's
Continuous Service with that Subsidiary within a specified period following the effective date of the Subsidiary Disposition. The Committee may provide that any Awards so vested or released from such limitations in connection with a Subsidiary Disposition, shall remain fully exercisable until the expiration or sooner termination of the Award.
20. Amendment, Suspension or Termination of the Plan.
(a) Amendment, Modification and Termination. The Board may at any time and from time to time, alter, amend, suspend or terminate the Plan in whole or in part; provided, however, that no amendment that requires stockholder approval in order for the Plan to continue to comply with the NASDAQ listing standards or any rule promulgated by the SEC or any securities exchange on which Shares are listed or any other Applicable Laws shall be effective unless such amendment shall be approved by the requisite vote of stockholders of the Company entitled to vote thereon within the time period required under such applicable listing standard, rule or Applicable Law.
(b) Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee may make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 18 hereof) affecting the Company or the financial statements of the Company or of changes in Applicable Laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. With respect to any Awards intended to comply with the Performance-Based Exception, unless otherwise determined by the Committee, any such adjustments shall be specified at such times and in such manner as will not cause such Awards to fail to qualify under the Performance-Based Exception.
(c) Awards Previously Granted. No termination, amendment or modification of the Plan or of any Award shall adversely affect in any material way any Award previously granted under the Plan without the written consent of the participant holding such Award, unless such termination, modification or amendment is required by Applicable Laws and except as otherwise provided herein.
(d) No Repricing. Except for adjustments made pursuant to Section 18, no amendment shall reduce the Exercise Price of outstanding Options or the grant price of outstanding SARs, nor may any outstanding Options or outstanding SARs be surrendered to the Company for cash or as consideration for the grant of new Options or SARs with a lower Exercise Price or for the grant of a Full-Value Award without the approval of the stockholders of the Company.
(e) Compliance with the Performance-Based Exception. If it is intended that an Award comply with the requirements of the Performance-Based Exception, the Committee may apply any restrictions it deems appropriate such that the Awards maintain eligibility for the Performance-Based Exception. If changes are made to Code Section 162(m) or regulations promulgated thereunder to permit greater flexibility with respect to any Award or Awards available under the Plan, the Committee may, subject to this Section 20, make any adjustments to the Plan and/or Award Agreements it deems appropriate.
21. Reservation of Shares.
(a) Maintenance of Authorized Shares. The Company, during the term of the Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.
(b) Inability to Obtain Regulatory Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
22. Rights of Participants.
(a) Continued Service. The Plan shall not confer upon any Participant any right with respect to continuation of employment, service as a director or consulting relationship with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment, service as a director or consulting
relationship at any time, with or without cause.
(b) Participant. No Employee, Director or Consultant shall have the right to be selected to receive an Award under the Plan, or, having been so selected, to be selected to receive future Awards.
23. Successors. All obligations of the Company under the Plan and with respect to Awards shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or other event, or a sale or disposition of all or substantially all of the business and/or assets of the Company and references to the "Company" herein and in any Award agreements shall be deemed to refer to such successors.
24. Legal Construction.
(a) Gender, Number and References. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular and the singular shall include the plural. Any reference in the Plan to a Section of the Plan either in the Plan or any Award agreement or to an act or code or to any section thereof or rule or regulation thereunder shall be deemed to refer to such Section of the Plan, act, code, section, rule or regulation, as may be amended from time to time, or to any successor Section of the Plan, act, code, section, rule or regulation.
(b) Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
(c) Requirements of Law. The granting of Awards and the issuance of Shares or cash under the Plan shall be subject to all Applicable Laws and to such approvals by any governmental agencies or national securities exchanges as may be required.
(d) Governing Law. To the extent not preempted by federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Delaware, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Plan to the substantive law of another jurisdiction.
(e) Non-Exclusive Plan. Neither the adoption of the Plan by the Board nor its submission to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board or a committee thereof to adopt such other incentive arrangements as it may deem desirable.
(f) Code Section 409A Compliance. To the extent applicable, it is intended that this Plan and any Awards granted hereunder comply with the requirements of Section 409A of the Code and any related regulations or other guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service ("Section 409A"). Any provision that would cause the Plan or any Award granted hereunder to fail to satisfy Section 409A shall have no force or effect until amended to comply with Section 409A, which amendment may be retroactive to the extent permitted by Section 409A.
WD-40 COMPANY
2007 STOCK INCENTIVE PLAN
GLOSSARY
As used in the Plan, the following definitions shall apply:
1) "Applicable Laws" means the legal requirements relating to the administration of stock incentive plans, if any, under applicable provisions of federal securities laws, state corporate and securities laws, the Code, and the rules of any applicable stock exchange or national market system.
2) "Award" means, individually or collectively, Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units and Other Stock-Based Awards granted under the Plan.
3) "Award Agreement" means an agreement entered into by the Company and a Participant setting forth the terms and provisions applicable to an Award.
4) "Board" means the Board of Directors of the Company.
5) "Cause" means (i) the Participant's commission of acts subject to prosecution as a felony involving moral turpitude; (ii) the Participant's material breach of fiduciary duty as an executive officer or director of the Company which has resulted, or is likely to result, in material economic damage to the Company; or (iii) the Participant's willful gross misconduct or willful gross neglect of duties (other than any such neglect resulting from the Participant's incapacity due to physical or mental illness); provided that no act or failure to act by the Participant 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 act or failure to act based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer of the Company or a member of the Committee or another authorized officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done or omitted to be done by the Participant in good faith and in the best interests of the Company. The cessation of employment of the Participant shall not be deemed to be for Cause unless and until the Chief Executive Officer, the Vice President, Human Resources and the Company's general legal counsel unanimously agree that, in their good faith opinion, the Participant is guilty of the conduct described in subsections (i), (ii) or (iii) above, and so notify the Participant specifying the particulars thereof in detail.
6) "Change in Control" means
a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act ) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% 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 for purposes of this subsection, the following acquisitions shall not constitute a Change in Control: 1) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), 2) any acquisition by the Company, including any acquisition which, by reducing the number of shares outstanding, is the sole cause for increasing the percentage of shares beneficially owned by any such Person to more than the applicable percentage set forth above, 3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or 4) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this definition; or
b) 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 comprising 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 an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
c) Consummation by the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another corporation (a "Business Combination"), in each case, unless, following such Business Combination, (i) more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) is represented by Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively, that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Outstanding Company Common Stock and Outstanding Company Voting Securities were converted pursuant to such Business Combination) and such ownership of common stock and voting power among the holders thereof is in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 30% or more of, respectively, the then outstanding shares of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
d) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
7) "Code" means the Internal Revenue Code of 1986, as amended.
8) "Committee" means the Committee, as specified in Section 2(a) of the Plan, appointed by the Board to administer the Plan.
9) "Company" means WD-40 Company and any successor thereto as provided in Section 23 of the Plan.
10) "Consultant" means any consultant or advisor to the Company or a Subsidiary.
11) "Continuous Service" means that the provision of services to the Company or any Subsidiary in any capacity of Employee, Director or Consultant is not interrupted or terminated. Continuous Service shall not be considered interrupted in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, any Subsidiary, or any successor. A leave of absence approved by the Company shall include sick leave, military leave, or any other personal leave approved by an authorized representative of the Company. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract.
12) "Director" means any individual who is a member of the Board of Directors of the Company or a Subsidiary who is not an Employee.
13) "Dividend" means the dividends declared and paid on Shares subject to an Award.
14) "Dividend Equivalent" means, with respect to Shares subject to an Award, a right to be paid an amount equal to the Dividends declared and paid on an equal number of outstanding Shares.
15) "Employee" means any employee of the Company or a Subsidiary.
16) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
17) "Exercise Price" means the price at which a Share may be purchased by a Participant pursuant to an Option.
18) "Fair Market Value" means, as of any date, the value of a Share determined as follows:
a) Where there exists a public market for the Share, the Fair Market Value shall be (A) the closing sales price for a Share on the date of the determination (or, if no sales were reported on that date, on the last trading date on which such sales were reported) on the New York Stock Exchange, the NASDAQ National Market or the principal securities exchange on which the Share is listed for trading, whichever is applicable, or (B) if the Share is not traded on any such exchange or national market system, the average of the closing bid and asked prices of a Share on the NASDAQ Small Cap Market, in each case, as reported in The Wall Street Journal or such other source as the Committee deems reliable; or
b) In the absence of an established market of the type described above, for the Share, the Fair Market Value thereof shall be determined by the Committee in good faith, and such determination shall be conclusive and binding on all persons.
19) "Freestanding SAR" means an SAR that is granted independently of any Options, as described in Section 7 of the Plan.
20) "Full-Value Award" means Awards other than Options, SARs, or other Awards for which the Participant pays, upon exercise, the grant date intrinsic value directly or by forgoing a right to receive a cash payment from the Company.
21) "Incentive Stock Option" or "ISO" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.
22) "Nonqualified Stock Option" means an Option that is not intended to meet the requirement of Section 422 of the Code.
23) "Option" means an Incentive Stock Option or a Nonqualified Stock Option granted under the Plan, as described in Section 6 of the Plan.
24) "Other Stock-Based Award" means a Share-based or Share-related Award granted pursuant to Section 12 of the Plan.
25) "Participant" means a current or former Employee, Director or Consultant who has rights relating to an outstanding Award.
26) "Performance-Based Exception" means the performance-based exception from the tax deductibility limitations of Code Section 162(m).
27) "Performance Measures" shall have the meaning set forth in Section 14(a) of the Plan.
28) "Performance Period" means the period during which a Performance Measure must be attained and during which an Award is subject to a substantial risk of forfeiture and not transferable, as provided in Sections 10 and 11 of the Plan.
29) "Performance Share" means an Award granted to a Participant, as described in Section 10 of the Plan.
30) "Performance Unit" means an Award granted to a Participant, as described in Section 11 of the Plan.
31) "Period of Restriction" means the period Restricted Stock, Restricted Stock Units or Other Stock-Based Awards are subject to a substantial risk of forfeiture and/or are not transferable, as provided in Sections 8, 9 and 12 of the Plan.
32) "Plan" means the WD-40 Company 2007 Stock Incentive Plan.
33) "Prior Plans" means the Company's Fourth Amended and Restated WD-40 Company 1990 Incentive Stock Option Plan and the Company's Third Amended and Restated Non-Employee Director Restricted Stock Plan.
34) "Restricted Stock" means an Award granted to a Participant, as described in Section 8 of the Plan.
35) "Restricted Stock Units" means an Award granted to a Participant, as described in Section 9 of the Plan.
36) "SEC" means the United States Securities and Exchange Commission.
37) "Share" means a share of common stock of the Company, par value $.001 per share, subject to adjustment pursuant to Section 18 herein.
38) "Stock Appreciation Right" or "SAR" means an Award granted to a Participant, either alone or in connection with a related Option, as described in Section 7 of the Plan.
39) "Subsidiary" means any corporation in which the Company owns, directly or indirectly, at least fifty percent (50%) of the total combined voting power of all classes of stock, or any other entity (including, but not limited to, partnerships and joint ventures) in which the Company owns, directly or indirectly, at least fifty percent (50%) of the combined equity thereof. Notwithstanding the foregoing, for purposes of determining whether any individual may be a Participant for purposes of any grant of Incentive Stock Options, the term "Subsidiary" shall have the meaning ascribed to such term in Code Section 424(f).
40) "Subsidiary Disposition" means the disposition by the Company of its equity holdings in any Subsidiary effected by a merger or consolidation involving that Subsidiary, the sale of all or substantially all of the assets of that Subsidiary or the Company's sale or distribution of substantially all of the outstanding capital stock of such Subsidiary.
41) "Tandem SAR" means a SAR that is granted in connection with a related Option, as described in Section 7 of the Plan.
WD-40 Directors’ Compensation Policy
and Election Plan
October 8, 2018
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 8, 2018.
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 $54,000. 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:
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Appointment at or prior to the second quarter meeting: |
$ 54,000 |
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Appointment at or prior to the third quarter meeting: |
$ 40,500 |
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Appointment at or prior to the fourth quarter meeting: |
$ 27,000 |
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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 8, 2018
/s/ RICHARD T. CLAMPITT
Richard T. Clampitt
WD-40 Company Corporate Secretary
WD-40 COMPANY
MARKET SHARE UNIT AWARD AGREEMENT
MARKET SHARE UNIT AWARD GRANT NOTICE AND ACCEPTANCE
Participant Name:
Grant Date:
Target Number of MSU Shares:
Performance Measurement Year End: August 31,
Vesting Date: Compensation Committee Certification of Performance Achievement
Settlement Date: Not Later Than November 15, (See Award Agreement)
MARKET SHARE UNIT AWARD AGREEMENT
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.
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.
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 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.
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.
(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.
(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.
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.
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)
EXHIBIT A
PERFORMANCE VESTING
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.
|
|
|
|
|
Relative TSR (absolute percentage point difference) |
|
Applicable Percentage |
|
> 20% |
|
200% |
|
20% |
|
200% |
|
15% |
|
175% |
|
10% |
|
150% |
|
5% |
|
125% |
|
Equal |
|
100% |
|
-5% |
|
75% |
|
-10% |
|
50% |
|
>-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”).
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 w
WD-40 COMPANY
2016 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, 20__
Vesting Date: August 31, 20__, 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 20__ 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 2016 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:
|
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. |
|
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, 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. |
|
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. |
|
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. |
|
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. |
|
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. |
|
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. |
|
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. Satisfaction of Tax Withholding Obligations. |
|
(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. |
|
(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. |
|
(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. |
|
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. |
|
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)
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”) .
|
Adjusted Global EBITDA |
Applicable Percentage |
|
> $_________ |
100% |
|
$_________ |
100% |
|
$_________ |
5% |
|
< $_________ |
0% |
|
$_________* |
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).
SUBSIDIARIES OF THE REGISTRANT
The Registrant has the following wholly-owned subsidiaries which, except as indicated, do business under their respective legal names:
|
Name |
Place of Incorporation |
|
|
|
||
|
WD-40 Manufacturing Company |
California, USA |
|
|
WD-40 Company (Canada) Ltd. |
Ontario, Canada |
|
|
WD-40 Holdings Limited |
London, England |
|
|
WD-40 Company Limited |
London, England |
|
|
WD-40 Company (Australia) Pty. Limited |
New South Wales, Australia |
|
|
HPD Laboratories Inc. |
Delaware, USA |
|
|
Heartland Corporation |
Kansas, USA |
|
|
|
||
|
Wu Di (Shanghai) Industrial Co., Ltd. |
Shanghai, China |
|
|
WD-40 Company (Malaysia) Sdn. Bhd. |
Kuala Lumpur, Malaysia |
|
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, 033-90972, and 033-43174) and Form S-3 (No. 333-98041 and 333-63890) of WD-40 Company of our report dated October 22, 2018 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 22, 2018
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Garry O. Ridge, certify that:
|
1. |
I have reviewed this Annual Report on Form 10-K of WD-40 Company; |
|
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; |
|
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; |
|
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: |
|
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; |
|
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; |
|
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 |
|
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 |
|
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): |
|
a) |
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 |
|
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 22, 2018
|
/s/ GARRY O. RIDGE |
|
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:
|
1. |
I have reviewed this Annual Report on Form 10-K of WD-40 Company; |
|
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; |
|
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; |
|
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: |
|
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; |
|
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; |
|
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 |
|
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 |
|
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): |
|
a) |
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 |
|
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 22, 2018
|
/s/ JAY W. REMBOLT |
|
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, 2018 (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 22, 2018
|
/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, 2018 (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 22, 2018
|
/s/ JAY W. REMBOLT |
|
Jay W. Rembolt Vice President, Finance, Treasurer and Chief Financial Officer |
Document and Entity Information - USD ($) |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2018 |
Oct. 17, 2018 |
Feb. 28, 2018 |
|
| Document Document And Entity Information [Abstract] | |||
| Document Type | 10-K | ||
| Amendment Flag | false | ||
| Document Period End Date | Aug. 31, 2018 | ||
| Document Fiscal Year Focus | 2018 | ||
| 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 | $ 1,695,560,161 | ||
| Entity Common Stock, Shares Outstanding | 13,836,690 | ||
| Entity Emerging Growth Company | false | ||
| Entity Small Business | false | ||
| Entity Shell Company | false |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands |
Aug. 31, 2018 |
Aug. 31, 2017 |
|---|---|---|
| Consolidated Balance Sheets [Abstract] | ||
| Trade and other accounts receivable, allowance for doubtful accounts | $ 340 | $ 240 |
| Common stock, shares authorized | 36,000,000 | 36,000,000 |
| Common stock, par value | $ 0.001 | $ 0.001 |
| Common stock, shares issued | 19,729,774 | 19,688,238 |
| Common stock, shares outstanding | 13,850,413 | 13,984,183 |
| Treasury stock, shares | 5,879,361 | 5,704,055 |
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Consolidated Statements Of Operations [Abstract] | |||
| Net sales | $ 408,518 | $ 380,506 | $ 380,670 |
| Cost of products sold | 183,255 | 166,621 | 166,301 |
| Gross profit | 225,263 | 213,885 | 214,369 |
| Operating expenses: | |||
| Selling, general and administrative | 121,394 | 114,560 | 117,767 |
| Advertising and sales promotion | 22,314 | 20,537 | 22,278 |
| Amortization of definite-lived intangible assets | 2,951 | 2,879 | 2,976 |
| Total operating expenses | 146,659 | 137,976 | 143,021 |
| Income from operations | 78,604 | 75,909 | 71,348 |
| Other income (expense): | |||
| Interest income | 454 | 508 | 683 |
| Interest expense | (4,219) | (2,582) | (1,703) |
| Other income | 339 | 787 | 2,461 |
| Income before income taxes | 75,178 | 74,622 | 72,789 |
| Provision for income taxes | 9,963 | 21,692 | 20,161 |
| Net income | $ 65,215 | $ 52,930 | $ 52,628 |
| Earnings per common share: | |||
| Basic | $ 4.65 | $ 3.73 | $ 3.65 |
| Diluted | $ 4.64 | $ 3.72 | $ 3.64 |
| Shares used in per share calculations: | |||
| Basic | 13,929 | 14,089 | 14,332 |
| Diluted | 13,962 | 14,123 | 14,379 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Consolidated Statements Of Comprehensive Income [Abstract] | |||
| Net income | $ 65,215 | $ 52,930 | $ 52,628 |
| Other comprehensive income (loss): | |||
| Foreign currency translation adjustment | 439 | (777) | (18,576) |
| Total comprehensive income | $ 65,654 | $ 52,153 | $ 34,052 |
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, 2015 | $ 20 | $ 141,651 | $ 260,683 | $ (8,722) | $ (235,774) | $ 157,858 |
| Beginning 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 | ||||
| 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 | |||
| Issuance of common stock under share-based compensation plan, net of shares withheld for taxes | (1,607) | $ (1,607) | ||||
| Issuance of common stock under share-based compensation plan, net of shares withheld for taxes, shares | 41,536 | |||||
| Stock-based compensation | 4,195 | 4,195 | ||||
| Cash dividends | (29,585) | (29,585) | ||||
| Acquisition of treasury stock | $ (22,616) | (22,616) | ||||
| Acquisition of treasury stock, shares | 175,306 | |||||
| Foreign currency translation adjustment | 439 | 439 | ||||
| Net income | 65,215 | 65,215 | ||||
| Ending balance at Aug. 31, 2018 | $ 20 | 153,469 | 351,266 | $ (27,636) | $ (321,630) | $ 155,489 |
| Ending balance, shares at Aug. 31, 2018 | 19,729,774 | 5,879,361 | 13,850,413 | |||
| Cumulative effect of change in accounting principle | $ 189 | $ (128) | $ 61 |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Parenthetical) - $ / shares |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Consolidated Statements Of Shareholders' Equity [Abstract] | |||
| Cash dividends, per share | $ 2.11 | $ 1.89 | $ 1.64 |
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Operating activities: | |||
| Net income | $ 65,215 | $ 52,930 | $ 52,628 |
| Adjustments to reconcile net income to net cash provided by operating activities: | |||
| Depreciation and amortization | 7,800 | 6,769 | 6,465 |
| Net gains on sales and disposals of property and equipment | (164) | (115) | (75) |
| Deferred income taxes | (7,186) | 1,608 | (2,227) |
| Stock-based compensation | 4,195 | 4,138 | 3,655 |
| Unrealized foreign currency exchange losses (gains), net | (302) | 364 | (986) |
| Provision for bad debts | 121 | (138) | 52 |
| Changes in assets and liabilities: | |||
| Trade accounts receivable | (5,635) | 482 | (9,936) |
| Inventories | (1,299) | (3,487) | (1,001) |
| Other assets | (5,353) | (3,514) | 1,557 |
| Accounts payable and accrued liabilities | 6,107 | 2,827 | 2,871 |
| Accrued payroll and related expenses | 590 | (6,632) | 8,120 |
| Other long-term liabilities and income taxes payable | 733 | 340 | 4,179 |
| Net cash provided by operating activities | 64,822 | 55,572 | 65,302 |
| Investing activities: | |||
| Purchases of property and equipment | (12,356) | (20,150) | (4,354) |
| Proceeds from sales of property and equipment | 458 | 430 | 301 |
| Purchase of intangible assets | (175) | ||
| Purchases of short-term investments | (83,704) | (27,136) | (24,899) |
| Maturities of short-term investments | 166,984 | 4,565 | 8,032 |
| Net cash provided by (used in) investing activities | 71,207 | (42,291) | (20,920) |
| Financing activities: | |||
| Treasury stock purchases | (22,616) | (31,109) | (32,131) |
| Dividends paid | (29,585) | (26,808) | (23,669) |
| Proceeds from issuance of common stock | 215 | 775 | 1,200 |
| Proceeds from issuance of long-term senior notes | 20,000 | ||
| Repayments of long-term senior notes | (400) | ||
| Net (repayments) proceeds from revolving credit facility | (87,200) | 32,000 | 14,000 |
| Shares withheld to cover taxes upon conversion of equity awards | (1,823) | (1,696) | (2,634) |
| Net cash used in financing activities | (121,409) | (26,838) | (43,234) |
| Effect of exchange rate changes on cash and cash equivalents | (2,836) | (252) | (4,153) |
| Net increase (decrease) in cash and cash equivalents | 11,784 | (13,809) | (3,005) |
| Cash and cash equivalents at beginning of period | 37,082 | 50,891 | 53,896 |
| Cash and cash equivalents at end of period | 48,866 | 37,082 | 50,891 |
| Cash paid for: | |||
| Interest | 4,286 | 2,625 | 1,573 |
| Income taxes, net of tax refunds received | $ 10,478 | $ 21,933 | $ 16,494 |
The Company |
12 Months Ended |
|---|---|
Aug. 31, 2018 | |
| 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, sports 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, 2018 | |||||||||||||||||||||
| 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 $0.2 million and $80.2 million at August 31, 2018 and 2017, respectively. The decrease in short-term investments during fiscal year 2018 was due to the maturity of the Company’s callable time deposits held by its U.K. subsidiary. These deposits matured in April 2018 and were not reinvested. As of August 31, 2018, the Company’s short-term investment balance consisted of term deposits that are subject to penalty for early redemption before their maturity.
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, 2018 and 2017. Inventories Inventories are stated at the lower of cost or net realizable value. 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 net realizable value, 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 net realizable value. 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 $4.8 million, $3.9 million and $3.5 million for fiscal years 2018, 2017 and 2016, respectively. These amounts include factory depreciation expense which is recognized as cost of products sold and totaled $1.1 million for each of the fiscal years 2018 and 2017, respectively, and $0.8 million for fiscal year 2016.
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 a 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 a quantitative test is unnecessary. Otherwise, a 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 2018, 2017 and 2016. 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 2018, 2017 and 2016. 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, 2018, 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 borrowings held under the Company’s revolving credit facility approximates fair value due to the variable nature of underlying interest rates, which generally reflect market conditions and such borrowings are classified as Level 2 within the fair value hierarchy. The Company’s fixed rate long-term borrowings consist of senior notes which are also classified as Level 2 within the fair value hierarchy and are recorded at carrying value. The Company estimates that the fair value of its senior notes was approximately $18.8 million as of August 31, 2018, which was determined based on a discounted cash flow analysis using current market interest rates for instruments with similar terms, compared to its carrying value of $19.6 million. During the fiscal years ended August 31, 2018, 2017 and 2016, 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, 2018 and 2017. 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 $17.7 million, $16.4 million and $16.1 million for fiscal years 2018, 2017 and 2016, 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 $22.3 million, $20.5 million and $22.3 million for fiscal years 2018, 2017 and 2016, 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 $7.0 million, $8.4 million and $7.7 million in fiscal years 2018, 2017 and 2016, 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. As a result of the “Tax Cuts and Jobs Act” (the “Tax Act”) which became effective beginning January 1, 2018, the U.S. has transitioned from a worldwide tax system to a modified territorial tax system, under which corporations are primarily taxed on income earned within the country’s borders, rather than on a worldwide basis. The Company is still required to make assertions on whether its foreign subsidiaries will invest their undistributed earnings indefinitely and these assertions are based on the capital needs of the foreign subsidiaries. Due to the passage of the Tax Act, the Company began reevaluating the indefinite reinvestment assertion for its foreign subsidiaries. In May 2018, the Company completed this reevaluation and changed its indefinite reinvestment assertion for certain of its foreign subsidiaries. As a result, the Company no longer considers unremitted earnings of any of its foreign subsidiaries to be indefinitely reinvested. For additional information on the Tax Act, see Note 12 — Income Taxes, included in this report. 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 in the Company’s consolidated statements of operations. The Company had $0.1 million, $0.4 million and $2.4 million of net gains in foreign currency transactions in fiscal years 2018, 2017 and 2016, respectively. 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, 2018, the Company had a notional amount of $23.1 million outstanding in foreign currency forward contracts, which matured in September 2018. Unrealized net gains related to foreign currency forward contracts were not significant at August 31, 2018, while unrealized net losses were $0.6 million at August 31, 2017. Realized net losses related to foreign currency forward contracts were not significant for the fiscal year ended August 31, 2018, while realized net losses were $0.5 million for the fiscal year ended August 31, 2017. Both unrealized and realized net gains and losses are recorded in other income on the Company’s consolidated statements of operations. 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 various types of stock-based equity awards 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. Stock-based equity awards are measured at the grant date, based on the estimated fair value of the award, and are recognized as stock-based compensation expense on a straight-line basis over the requisite service period of the entire award, net of the impacts of award forfeitures as they occur. The requisite service period is generally the maximum vesting period of the award. 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 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. The Company records any excess tax benefits or deficiencies from settlements of its stock-based equity awards within the provision for income taxes on the Company’s consolidated statements of operations in the reporting periods in which the settlement of the equity awards occur. 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 March 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-05, “Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”, to add various SEC paragraphs pursuant to the issuance of SEC Staff Accounting Bulletin No. 118 (“SAB 118”), to ASC 740 “Income Taxes”. SAB 118 was issued by the SEC in December 2018 to provide immediate guidance for accounting implications of U.S. tax reform under the “Tax Cuts and Jobs Act” (the “Tax Act”), which became effective for the Company on January 1, 2018. The Company has evaluated the potential impacts of SAB 118 and has applied this guidance to its consolidated financial statements and related disclosures beginning in the second quarter of its fiscal year 2018. For additional information on SAB 118 and the impacts of the Tax Act on the Company’s consolidated financial statements and related disclosures, see Note 12 — Income Taxes, included in this report. In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment”. The amendments in this updated guidance simplify how an entity is required to test goodwill for impairment due to concerns that were raised about the cost and complexity of annual impairment tests under the existing standard. This updated guidance eliminates Step 2 of the previous two-step quantitative model for goodwill impairment tests. Step 2 required an entity to calculate an implied fair value, which includes 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. Step 1 will be referred to simply as a “quantitative goodwill impairment test” subsequent to the Company’s adoption of this updated guidance, since Step 2 has been eliminated and “steps” are no longer referred to within the updated guidance. However, the updated guidance still permits the Company to first conduct a qualitative assessment to determine whether it is necessary to perform a quantitative goodwill impairment test. 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 early adopted this guidance in its fiscal year 2018 during the second quarter, the period in which the Company performs its annual goodwill impairment test. The guidance was adopted on a prospective basis and is applicable to all of the Company’s future annual goodwill impairment tests. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements and related disclosures. See Note 5 – Goodwill and Other Intangible Assets for additional information on the Company’s goodwill. 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 became effective for the Company during the first quarter of its fiscal year 2018. The impacts of the adoption by the Company of ASU No. 2016-09 in fiscal year 2018 were as follows:
Recently Issued Accounting Standards In August 2018, the FASB issued ASU No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The updated guidance also requires an entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. This guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of evaluating the impacts of this guidance on its consolidated financial statements and related disclosures. In June 2018, the FASB issued ASU No. 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”. The amendments in this updated guidance simplifies the accounting for nonemployee share-based payment transactions by expanding the scope of ASC 718 “Stock Compensation” to include share-based payment transactions for acquiring goods and services from nonemployees. Additionally, the amendments clarify that any share-based payment awards issued to customers should be evaluated under ASC 606 “Revenue from Contracts with Customers” (“ASC 606”). This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption of ASC 606. 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 February 2018, the FASB issued ASU No. 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, to optionally allow entities to reclassify stranded tax effects, resulting from the Tax Act, from accumulated other comprehensive income to retained earnings. Since the amendments within this guidance only relate to the reclassification of the income tax effects associated with the Tax Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. The amendments in this updated guidance should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. corporate federal income tax rate in the Tax Act is recognized. 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, as such stranded tax effects are immaterial. 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 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 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. 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, 2019. The Company will adopt this new guidance following the optional transition method described in ASU No. 2018-11, “Leases – Targeted Improvements” which was issued in July 2018, rather than the original modified retrospective approach that requires entities to apply the guidance at the beginning of the earliest period presented in the financial statements. Under the optional transition method, the Company will recognize the cumulative effect of initially applying the guidance as an adjustment to the opening balance of retained earnings on September 1, 2019. Therefore, the requirements of this guidance will apply only for periods presented that are after the date of adoption and will not affect comparative periods The Company is in the process of evaluating the impacts of this 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. The Company will adopt this new guidance following the modified retrospective approach on September 1, 2018. Management performed a detailed review of the Company’s customer contracts which was focused principally on, but not limited to, identifying the point in time at which the control of goods transfers to customers. Management has also completed both its qualitative and quantitative analysis of this new guidance. Although the Company does not expect a significant impact on consolidated net sales for the Company as a result of this new guidance, management expects a slight change in the timing for recognizing revenue for certain of its customers. In addition, the Company has finalized all of the necessary updates to its accounting policies, internal controls, processes and information systems regarding revenue recognition, and it is also in the process of drafting new disclosures as required under the new guidance.
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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 [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property And Equipment |
Note 4. Property and Equipment Property and equipment, net, consisted of the following (in thousands):
At August 31, 2018, capital in progress on the balance sheet included £5.6 million Pound Sterling ($7.3 million in U.S. Dollars as converted at exchange rates as of August 31, 2018) associated with capital costs related to the purchase of the Company’s new office building and related land in Milton Keynes, England, which will house employees of the Company’s EMEA segment that are based in the United Kingdom. The Company expects to incur additional capital costs related to the buildout of the acquired building and for the purchase of new furniture, fixtures and equipment. Upon completion of the buildout, the Company will place these assets into service and reclassify the amounts recorded in capital in progress to the respective fixed asset categories, which includes amounts attributable to the land. Since all assets associated with this new office building are denominated in Pound Sterling, amounts will fluctuate in U.S. Dollars from period to period due to changes in foreign currency exchange rates. For further information, see the Liquidity and Capital Resources section in Part II—Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
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Goodwill And Other Intangible Assets |
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| Goodwill And Other Intangible Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill And Other Intangible Assets | Note 5. Goodwill and Other Intangible Assets Acquisitions During the first quarter of fiscal year 2018, the Company entered into a confidential settlement agreement with FirstPower Group, LLC (“FirstPower”) for dismissal of FirstPower’s trademark infringement complaint against the Company relating to use of the words, “EZ-REACH” for the Company’s WD-40 EZ-REACH Flexible Straw product. The settlement agreement provided for the Company’s acquisition of FirstPower’s trademark rights associated with the words “EZ REACH” for lubricating oil products for a purchase consideration of $0.2 million. The Company has used the words “EZ-REACH” since the introduction of the WD-40 EZ-REACH Flexible Straw product in fiscal year 2015. The entire purchase consideration of $0.2 million was paid in cash upon execution of the settlement agreement and was allocated to the trade name-related intangible assets category. The Company began to amortize this definite-lived intangible asset on a straight-line basis over an estimated useful life of five years in the first quarter of fiscal year 2018. This acquisition did not have a material impact on the Company’s condensed consolidated financial statements. Goodwill The following table summarizes the changes in the carrying amounts of goodwill by segment (in thousands):
During the second quarter of fiscal year 2018, the Company performed its annual goodwill impairment test. The annual goodwill impairment test was performed at the reporting unit level as required by the authoritative guidance as of the Company’s most recent goodwill impairment testing date, November 30, 2017. During the fiscal year 2018 annual goodwill impairment test, the Company performed a qualitative assessment of each reporting unit to determine whether it was more likely than not that the fair value of a reporting unit was less than its carrying amount. In performing this qualitative assessment, the Company assessed relevant events and circumstances that may impact the fair value and the carrying amount of each of its reporting units. Factors that were considered included, but were not limited to, the following: (1) macroeconomic conditions; (2) industry and market conditions; (3) historical financial performance and expected financial performance, including the anticipated impacts of the “Tax Cuts and Jobs Act”, which was signed into law on December 22, 2017 and became effective beginning January 1, 2018; (4) other entity specific events, such as changes in management or key personnel; and (5) events affecting the Company’s reporting units, such as a change in the composition of net assets or any expected dispositions. Based on the results of this qualitative assessment, the Company determined that it is more likely than not that the carrying value of each of its reporting units is less than its fair value as of the goodwill impairment testing date and, thus, a quantitative analysis was not required. As a result, the Company concluded that no impairment of its goodwill existed as of February 28, 2018. 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, 2018, 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, EZ REACH 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, 2018 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 As of August 31, 2018, the Company held borrowings under two separate agreements as detailed below. Note Purchase and Private Shelf Agreement On November 15, 2017, the Company entered into the Note Purchase and Private Shelf Agreement (the “Note Agreement”) by and among the Company, PGIM, Inc. (“Prudential”), and certain affiliates and managed accounts of Prudential (the “Note Purchasers”), pursuant to which the Company agreed to sell $20.0 million aggregate principal amount of senior notes (the “Series A Notes”) to certain of the Note Purchasers. The Series A Notes will bear interest at 3.39% per annum and will mature on November 15, 2032, unless earlier paid by the Company. Principal payments are required semi-annually beginning on May 15, 2018 in equal installments of $0.4 million through May 15, 2032, and the remaining outstanding principal in the amount of $8.4 million will become due on November 15, 2032. Interest is also payable semi-annually beginning on May 15, 2018. The Company used the proceeds to pay down $20.0 million of short-term borrowings under the Company’s existing $175.0 million unsecured Credit Agreement during fiscal year 2018. On February 23, 2018, this Note Agreement was amended (the “Note Amendment”) in connection with the purchase of the Company’s new office building and related land located in Milton Keynes, England, (the “Property”). The Note Amendment amends the Note Agreement to permit the Company to spend an aggregate amount not to exceed $15.0 million for the acquisition and improvement costs for the Property through the end of the Company’s fiscal year 2019. During the twelve months ended August 31, 2018, the Company repaid $0.4 million in principal on the Series A Notes pursuant to its semi-annual principal payment requirements.
Pursuant to the Note Agreement, the Company may from time to time offer for sale, in one or a series of transactions, additional senior notes of the Company (the “Shelf Notes”) in an aggregate principal amount of up to $105.0 million. The Shelf Notes will have a maturity date of no more than 15½ years after the date of original issuance and may be issued no later than November 15, 2020. The Shelf Notes, if issued, would bear interest at a rate per annum as agreed upon amongst the Company and the purchasing parties and would have such other particular terms, as would be set forth in a confirmation of acceptance executed by the purchasing parties prior to the closing of each purchase and sale transaction. To date, the Company has issued no Shelf Notes. Pursuant to the Note Agreement, the Series A Notes and any Shelf Notes (collectively, the "Notes") can be prepaid at the Company’s sole discretion, in whole at any time or in part from time to time, at 100% of the principal amount of the Notes being prepaid, together with accrued and unpaid interest thereon as well as an additional make-whole payment with respect to such Notes. Credit Agreement On June 17, 2011, the Company entered into an unsecured Credit Agreement (the “Credit Agreement”) with Bank of America, N.A. (“Bank of America”). Since June 17, 2011, this unsecured credit agreement has been amended six times, most recently on November 15, 2017, (the “Fifth Amendment”) and on February 23, 2018, (the “Sixth Amendment”). The Fifth Amendment amended certain provisions and covenants in the Credit Agreement to generally conform them to the corresponding provisions and covenants contained in the Note Agreement and permits the Company to incur indebtedness arising under the Note Agreement in an aggregate principal amount not to exceed the $20.0 million, the amount of the Series A Notes sold pursuant to the Note Agreement in November 2017. The Sixth Amendment amended the Credit Agreement to permit the Company to spend an aggregate amount not to exceed $15.0 million for the acquisition and improvement costs for the Company’s new office building and related land in Milton Keynes, England, through the end of the Company’s fiscal year 2019. The Sixth Amendment also permits the Company to incur an additional $15.0 million of indebtedness under the Note Agreement by issuance and sale of Shelf Notes pursuant to the Note Agreement. 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. In addition, as allowed per the terms of the Credit Agreement, the Company and Bank of America entered into an autoborrow agreement providing for the automatic advance of revolving loans in U.S. Dollars to the Company’s designated account at Bank of America. This agreement was entered into during the second quarter of fiscal year 2016 and this agreement has been in effect since that time. 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 $2.8 million in net borrowings outstanding under the autoborrow agreement as of August 31, 2018. During the first half of fiscal year 2018, the Company repaid $20.0 million in borrowings outstanding under the line of credit by utilizing the proceeds from the $20.0 million in Series A Notes issued in November 2017 and subsequently borrowed $10.0 million under the revolving credit facility during the remainder of fiscal year 2018. In addition, as a result of the “Tax Cuts and Jobs Act” (the “Tax Act”) which became effective beginning January 1, 2018, the Company began reevaluating its indefinite reinvestment assertion for its foreign subsidiaries. In May 2018, the Company completed this reevaluation and changed its indefinite reinvestment assertion for certain of its foreign subsidiaries. As a result, the Company no longer considers unremitted earnings of any of its foreign subsidiaries to be indefinitely reinvested. For additional information on the Tax Act, see Note 12 — Income Taxes, included in this report. The Company repatriated a portion of its unremitted foreign earnings during the fourth quarter of fiscal year 2018 in the amount of $79.6 million from its U.K. subsidiary and used these funds towards repaying $80.0 million of outstanding draws on the line of credit. 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. Outstanding draws on the line of credit which the Company intends to repay in less than twelve months are classified as short-term. Outstanding draws for which management has the ability and intent to refinance with successive short-term borrowings for a period of at least twelve months are classified as long-term. As of August 31, 2018, the Company had a balance of $64.0 million of outstanding draws on the line of credit, of which $44.0 million was classified as long-term based on management’s ability and intent to refinance with successive short-term borrowings for a period of at least twelve months. The remaining $20.0 million of outstanding draws was classified as short-term as of August 31, 2018.
Short-term and long-term borrowings consisted of the following (in thousands):
Both the Note Agreement and the Credit Agreement contain representations, warranties, events of default and remedies, as well as affirmative, negative and other financial covenants customary for these types of agreements. These covenants include, among other things, certain limitations on the ability of the Company and its subsidiaries to incur indebtedness, create liens, dispose of assets, make investments, repurchase shares of the Company’s capital stock and enter into certain merger or consolidation transactions. Each agreement also includes a most favored lender provision which requires that any time any other lender has the benefit of one or more financial or operational covenants that is different than, or similar to, but more restrictive than those contained in its own agreement, those covenants shall be immediately and automatically incorporated by reference in the other lender’s agreement. Both the Note Agreement and the Credit Agreement require the Company to adhere to the same financial covenants. 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:
As of August 31, 2018 the Company was in compliance with all debt covenants under both the Note Agreement and the Credit Agreement.
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Share Repurchase Plan |
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| Share Repurchase Plan [Abstract] | |
| Share Repurchase Plan | 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 was authorized to acquire up to $75.0 million of its outstanding shares through August 31, 2018. The timing and amount of repurchases were based on terms and conditions that were 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, 2018, the Company repurchased 465,879 shares at a total cost of $53.7 million under this $75.0 million plan. During fiscal year 2018, the Company repurchased 175,306 shares at an average price of $128.99 per share, for a total cost of $22.6 million On June 19, 2018, the Company’s Board of Directors approved a new share buy-back plan. Under the plan, which became effective on September 1, 2018 and will remain in effect through August 31, 2020, the Company is authorized to acquire up to $75.0 million of its outstanding shares 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 thereto.
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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 years ended August 31, 2018 and 2017. For the fiscal year ended August 31, 2016, weighted-average stock-based equity awards outstanding that are non-participating securities in the amount of 4,501 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 $1.4 million for fiscal year 2018 and $1.2 million for each of the fiscal years 2017 and 2016, respectively. Accounts receivable from Tractor Supply were $0.5 million as of August 31, 2018 and were not significant as of August 31, 2017.
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Commitments And Contingencies |
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| Commitments And Contingencies | Note 11. Commitments and Contingencies Leases The Company was committed under certain non-cancellable capital and operating leases at August 31, 2018. The Company's capital leases were not significant as of August 31, 2018. The Company’s leases provide for the following future fiscal year minimum payments (in thousands):
Rent expense was $2.0 million, $2.1 million, and $1.9 million for the fiscal years ended August 31, 2018, 2017 and 2016, 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 has definitive minimum purchase obligations included in the contract terms with certain of its contract manufacturers, when such obligations have been included, they have either been immaterial or the minimum amounts have been such that they are well below the volume of goods that the Company has historically purchased. 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, 2018, 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. Except as disclosed herein, there are no unasserted claims or pending proceedings for claims against the Company that the Company believes will result in a probable loss for the Company and, as to claims that the Company believes may result in a reasonably possible loss, the Company believes that no reasonably possible outcome of any such claim will have a materially adverse impact on the Company’s financial condition, results of operations or cash flows. On or about July 31, 2018, claims for damages were asserted against the Company in an “Amended Statement of Claim” filed in a civil proceeding in Malaysia before the High Court of Malaya at Shah Alam in the State of Selangor Darul Ehsan, Civil Suit No. BA-22NCvC-531-09/2017 (the “Malay Litigation”). The Malay Litigation was first filed in September 2017 by Sunway Winstar Sdn. Bhd. (“Sunway”) against a former employee of Sunway and the former employee’s new employer, Ekotrends Capital Sdn. Bdh (“Ekotrends”). Sunway was a marketing distributor for the Company for the country of Malaysia from 2004 until 2017. Ekotrends is an affiliate of Bun Seng Hardware Sdn. Bdh. (“Bun Seng”), the Company’s current marketing distributor for Malaysia. The Malay Litigation asserted that the former employee and Ekotrends misappropriated confidential information, including customer lists, associated with Sunway’s terminated relationship as the Company’s exclusive marketing distributor. By order of the court following the Company’s motion to intervene in order to protect and assert its right to ownership of the customer lists and other confidential information associated with the Company’s business in Malaysia, Sunway filed its Amended Statement of Claim to add Bun Seng as a defendant and to assert new and separate claims against the Company alleging conspiracy with Ekotrends and Bun Seng to injure the business and reputation of Sunway. The Company denies the allegations asserted by Sunway and will vigorously defend itself in the Malay Litigation. The Company believes that an unfavorable outcome in the Malay Litigation is not probable, but that an award of damages is reasonably possible. Due to uncertainty as to the theories for recovery of damages asserted by Sunway against the Company and as to results in proceedings under Malaysian law, the Company is unable to estimate the possible loss or range of loss. On June 11, 2018, the United States Supreme Court denied a petition for a writ of certiorari filed by IQ Products Company on January 10, 2018. IQ Products Company was seeking Supreme Court review of the September 13, 2017 decision of the Fifth Circuit Court of Appeals that affirmed a judgment entered in favor of the Company by the federal district court for the Southern District of Texas on August 25, 2016. The judgment obligated IQ Products Company to pay to the Company the sum of approximately $1.5 million, including post-judgment interest from August 25, 2016. The Company received this $1.5 million in July 2018 and recorded the amount as a reduction to its selling, general and administrative expenses in its consolidated financial statements in the fourth quarter of fiscal year 2018. For further information on the risks the Company faces from existing and future claims, suits, investigations and proceedings, see the Company’s risk factors disclosed in Part I―Item 1A, “Risk Factors,” included in this report.
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, 2018. 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, 2018.
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Income Taxes |
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| 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 $3.0 million and $2.6 million as of August 31, 2018 and 2017, respectively, which generated a net deferred tax asset of $0.2 million for each of the fiscal years 2018 and 2017. The state NOL carryforwards, if unused, will expire between fiscal year 2019 and 2038. The Company also had tax credit carryforwards of $2.8 million and $2.3 million as of August 31, 2018 and 2017, respectively, of which $2.5 million and $2.1 million, respectively, is attributable to U.K. tax credit carryforwards, which do not expire. Future utilization of the U.K. tax credit carryforwards and certain state NOL carryforwards 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 the U.K. tax credit carryforwards and certain state NOL carryforwards. A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows (in thousands):
On December 20, 2017 the United States House of Representatives and the Senate passed the “Tax Cuts and Jobs Act” (the “Tax Act”), which was signed into law on December 22, 2017 and became effective beginning January 1, 2018. Due to the complexity of the Tax Act, the SEC issued guidance in SAB 118 which clarifies the accounting for income taxes under ASC 740 if information is not yet available, prepared or analyzed in reasonable detail to complete the accounting for income tax effects of the Tax Act. SAB 118 provides for a measurement period of up to one year after the enactment of the Tax Act, during which time the required analyses and accounting must be completed. During the measurement period, (i) income tax effects of the Tax Act must be reported if the accounting has been completed; (ii) provisional amounts must be reported for income tax effects of the Tax Act for which the accounting is incomplete but a reasonable estimate can be determined; and (iii) provisional amounts are not required to be reported for income tax effects of the Tax Act for which a reasonable estimate cannot be determined. During fiscal year 2018, the Company recorded provisional amounts for the income tax effects of the changes in tax law and tax rates, as reasonable estimates were determined by management during this period. These estimates include the remeasurement of the deferred income tax balance on the Company’s consolidated balance sheets due to the reduction in the corporate federal statutory tax rate from 35% to 21%, as well as the application of a mandatory one-time “toll tax” on unremitted foreign earnings. The combined impact of the remeasurement of deferred income taxes and the measurement of the toll tax, both of which were recorded as provisional amounts and discrete items, resulted in a net favorable impact of $7.1 million to the Company’s provision for income taxes for the fiscal year ended August 31, 2018. The initial remeasurement of the Company’s net deferred income tax liability was recorded during the second quarter of fiscal year 2018 and resulted in a reduction of the net liability of $6.9 million. This provisional benefit was decreased by $0.1 million during the fourth quarter of fiscal year 2018 to reflect year-end deferred balances remeasured at the new applicable statutory tax rates, which resulted in a total provisional benefit of $6.8 million for fiscal year 2018. The Company’s initial provisional estimate of the deemed toll tax, net of foreign tax credits, was recorded as a charge to the provision for income taxes of $6.8 million during the second quarter of fiscal year 2018. As part of its year-end procedures, the Company completed additional analysis that significantly revised management’s estimate of this provisional amount. As a result of this analysis, the Company recorded a $7.1 million tax benefit during the fourth quarter of fiscal year 2018 to reflect a total provisional benefit related to the toll tax of $0.3 million for fiscal year 2018. This provisional benefit reflects the Company’s revised analysis, which estimates that foreign tax credits associated with the toll tax are expected to exceed amounts payable under the toll tax. These provisional tax benefits may be reduced or eliminated by future legislation. If such legislation is enacted, the Company will record the impact of the legislation in the quarter of enactment. The determination of the impact of the income tax effects of the items reflected as provisional amounts may change, possibly materially, following additional review of historical records, refinement of calculations, modifications of assumptions, or future legislation, as well as further interpretation of the Tax Act based on U.S. Treasury regulations and guidance from the Internal Revenue Service and state tax authorities. The Company will report revised provisional amounts in accordance with SAB 118 when additional information and guidance has become available. As a result of the Tax Act, the Company has been reevaluating its indefinite reinvestment assertion for its foreign subsidiaries. In May 2018, the Company completed this reevaluation and decided to change its assertion for its U.K., China and Australia subsidiaries such that unremitted earnings for these subsidiaries are no longer considered to be indefinitely reinvested. The Company did not change its assertion for its Canada or Malaysia subsidiaries as a result of its reevaluation and neither previously had an assertion of indefinite reinvestment of unremitted earnings. As a result, the Company no longer considers unremitted foreign earnings of any of its subsidiaries to be indefinitely reinvested. The Company repatriated a portion of its unremitted foreign earnings during the fourth quarter of fiscal year 2018 in the amount of $79.6 million from its U.K. subsidiary and used these funds towards repaying $80.0 million of outstanding draws on its line of credit. The costs associated with repatriating unremitted foreign earnings, including U.S. state income taxes and foreign withholding taxes, are immaterial to the Company’s consolidated financial statements. Management will continue to review the Tax Act and is still in the process of determining the full impacts of the Tax Act on the Company. Management expects that the Company will lose the benefit from the Qualified Production Deduction in fiscal year 2019 but also expects to acquire certain benefits from the Foreign Derived Intangible Income section of the Tax Act. Other significant sections of the new tax law, including the Global Intangible Low-Taxed Income (“GILTI”) and the Base Erosion Anti-Abuse Tax (“BEAT”), do not apply to the Company’s fiscal year 2018. The Company will continue to evaluate the GILTI and the BEAT to determine whether they will have any significant impact on the Company’s consolidated financial statements in future years.
The provision for income taxes was 13.3% and 29.1% of income before income taxes for the fiscal years ended August 31, 2018 and 2017, respectively. The decrease in the effective income tax rate from period to period was primarily due to the favorable impacts of the reduced tax rate resulting from the Tax Act, which became effective during the second quarter of the Company’s fiscal year. Since the Company has a fiscal year which ends on August 31st, the Company is subject to a “blended” corporate federal statutory rate in its fiscal year 2018 which is calculated based on the applicable tax rates before and after passage of the Tax Act and the number of days in the fiscal year. As a result of this calculation, the Company’s blended federal statutory tax rate for fiscal year 2018 is 25.7% which is more than 9 percentage points lower than the statutory rate of 35% in the prior fiscal year. The Company also recorded two discrete items related to the Tax Act during fiscal year 2018, the $6.8 million provisional remeasurement of the Company’s net deferred tax liability and the $0.3 million provisional benefit related to the toll tax, both of which lowered the Company’s effective income tax rate from period to period. The decrease in the effective income tax rate from period to period was also driven in part by the adoption of ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”, in the first quarter of the Company’s fiscal year 2018 which resulted in excess tax benefits from settlements of stock-based equity awards of $0.7 million being recognized in the provision for income taxes, whereas such benefits were recognized as an increase to additional paid-in capital in prior periods. In addition, the effective income tax rate for the fiscal year ended August 31, 2017 was higher due to the unfavorable impact of a non-recurring 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.
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 for each of the fiscal years ended August 31, 2018 and 2017, of which $0.9 million and $0.6 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, 2018 and 2017. The total balance of accrued interest and penalties related to uncertain tax positions was also immaterial at August 31, 2018 and 2017. The Company is subject to taxation in the U.S. and in various state and foreign jurisdictions. Due to expired statutes and closed audits, the Company’s federal income tax returns for years prior to fiscal year 2016 are not subject to examination by the U.S. Internal Revenue Service. Generally, for the majority of state and foreign jurisdictions where the Company does business, periods prior to fiscal year 2014 are no longer subject to examination. The Company has estimated that up to $0.2 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 | Note 13. Stock-based Compensation As of August 31, 2018, 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, 2018, the Company had granted awards of restricted stock units (“RSUs”), market share units (“MSUs”) and deferred performance units (“DPUs”) under the 2016 Plan. Additionally, as of August 31, 2018, there were still outstanding RSUs, MSUs and DPUs which had been granted under the Company’s prior equity incentive plan. 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, 2018, 786,364 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 shares not previously issued, or treasury shares. The Company has historically issued new authorized shares not previously issued 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 $4.2 million, $4.1 million and $3.7 million for the fiscal years ended August 31, 2018, 2017 and 2016, respectively. The Company recognized income tax benefits related to such stock-based compensation of $1.1 million, $1.4 million and $1.2 million for the fiscal years ended August 31, 2018, 2017 and 2016, respectively. As of August 31, 2018, the total unamortized compensation cost related to non-vested stock-based equity awards was $0.6 million and $1.7 million for RSUs and MSUs, respectively, which the Company expects to recognize over remaining weighted-average vesting periods of 1.6 and 1.8 years for RSUs and MSUs, respectively. No unamortized compensation cost for DPUs remained as of August 31, 2018.
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 $0.5 million, $1.6 million and $2.5 million for the fiscal years ended August 31, 2018, 2017 and 2016, respectively. The income tax benefits from stock options exercised totaled $0.1 million, $0.4 million and $0.7 million for the fiscal years ended August 31, 2018, 2017 and 2016, 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, 2018, 2017 and 2016 was $111.71, $109.23 and $95.89, respectively. The total intrinsic value of all RSUs converted to common shares was $2.8 million, $3.6 million and $2.8 million for the fiscal years ended August 31, 2018, 2017 and 2016, respectively. The income tax benefits from RSUs converted to common shares totaled $0.7 million, $1.3 million and $1.0 million for the fiscal years ended August 31, 2018, 2017 and 2016, 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, 2018, 2017 and 2016, 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, 2018, 2017 and 2016 was $101.93, $90.91 and $120.99, respectively. The total intrinsic value of all MSUs converted to common shares was $3.0 million, 2.8 million and $3.7 million for the fiscal years ended August 31, 2018, 2017 and 2016, respectively. The income tax benefits from MSUs converted to common shares totaled $0.8 million, $0.9 million and $1.2 million for the fiscal years ended August 31, 2018, 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, 2018, 2017 and 2016 was $110.65, $110.19 and $94.54, respectively. The total intrinsic value of all DPUs converted to common shares was not significant for each of the fiscal years ended August 31, 2018 and 2017, and no DPUs were converted to common shares during the fiscal year ended August 31, 2016. The income tax benefits from DPUs converted to common shares were not significant for each of the fiscal years ended August 31, 2018 and 2017.
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Other Benefit Plans |
12 Months Ended |
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Aug. 31, 2018 | |
| 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 for each of the fiscal years 2018 and 2017, respectively, and $3.2 million for fiscal years 2016. 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 $1.6 million, $1.4 million and $1.5 million for the fiscal years ended August 31, 2018, 2017 and 2016, respectively.
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Business Segments And Foreign Operations |
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| 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. Also included in corporate overhead costs for fiscal year 2018 are corporate funded advertising and sales promotion expenses focused on increasing the Company’s digital presence and building brand awareness.
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, 2018 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | Note 16. Subsequent Events On October 9, 2018, the Company’s Board of Directors declared a cash dividend of $0.54 per share payable on October 31, 2018 to shareholders of record on October 19, 2018.
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Basis Of Presentation And Summary Of Significant Accounting Policies (Policy) |
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| 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 $0.2 million and $80.2 million at August 31, 2018 and 2017, respectively. The decrease in short-term investments during fiscal year 2018 was due to the maturity of the Company’s callable time deposits held by its U.K. subsidiary. These deposits matured in April 2018 and were not reinvested. As of August 31, 2018, the Company’s short-term investment balance consisted of term deposits that are subject to penalty for early redemption before their maturity.
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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, 2018 and 2017.
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| Inventories | Inventories Inventories are stated at the lower of cost or net realizable value. 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 net realizable value, 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 net realizable value. 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 $4.8 million, $3.9 million and $3.5 million for fiscal years 2018, 2017 and 2016, respectively. These amounts include factory depreciation expense which is recognized as cost of products sold and totaled $1.1 million for each of the fiscal years 2018 and 2017, respectively, and $0.8 million for fiscal year 2016.
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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 a 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 a quantitative test is unnecessary. Otherwise, a 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 2018, 2017 and 2016.
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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 2018, 2017 and 2016.
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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, 2018, 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 borrowings held under the Company’s revolving credit facility approximates fair value due to the variable nature of underlying interest rates, which generally reflect market conditions and such borrowings are classified as Level 2 within the fair value hierarchy. The Company’s fixed rate long-term borrowings consist of senior notes which are also classified as Level 2 within the fair value hierarchy and are recorded at carrying value. The Company estimates that the fair value of its senior notes was approximately $18.8 million as of August 31, 2018, which was determined based on a discounted cash flow analysis using current market interest rates for instruments with similar terms, compared to its carrying value of $19.6 million. During the fiscal years ended August 31, 2018, 2017 and 2016, 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, 2018 and 2017.
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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 $17.7 million, $16.4 million and $16.1 million for fiscal years 2018, 2017 and 2016, 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 $22.3 million, $20.5 million and $22.3 million for fiscal years 2018, 2017 and 2016, 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 $7.0 million, $8.4 million and $7.7 million in fiscal years 2018, 2017 and 2016, 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. As a result of the “Tax Cuts and Jobs Act” (the “Tax Act”) which became effective beginning January 1, 2018, the U.S. has transitioned from a worldwide tax system to a modified territorial tax system, under which corporations are primarily taxed on income earned within the country’s borders, rather than on a worldwide basis. The Company is still required to make assertions on whether its foreign subsidiaries will invest their undistributed earnings indefinitely and these assertions are based on the capital needs of the foreign subsidiaries. Due to the passage of the Tax Act, the Company began reevaluating the indefinite reinvestment assertion for its foreign subsidiaries. In May 2018, the Company completed this reevaluation and changed its indefinite reinvestment assertion for certain of its foreign subsidiaries. As a result, the Company no longer considers unremitted earnings of any of its foreign subsidiaries to be indefinitely reinvested. For additional information on the Tax Act, see Note 12 — Income Taxes, included in this report.
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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 in the Company’s consolidated statements of operations. The Company had $0.1 million, $0.4 million and $2.4 million of net gains in foreign currency transactions in fiscal years 2018, 2017 and 2016, respectively. 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, 2018, the Company had a notional amount of $23.1 million outstanding in foreign currency forward contracts, which matured in September 2018. Unrealized net gains related to foreign currency forward contracts were not significant at August 31, 2018, while unrealized net losses were $0.6 million at August 31, 2017. Realized net losses related to foreign currency forward contracts were not significant for the fiscal year ended August 31, 2018, while realized net losses were $0.5 million for the fiscal year ended August 31, 2017. Both unrealized and realized net gains and losses are recorded in other income on the Company’s consolidated statements of operations.
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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 various types of stock-based equity awards 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. Stock-based equity awards are measured at the grant date, based on the estimated fair value of the award, and are recognized as stock-based compensation expense on a straight-line basis over the requisite service period of the entire award, net of the impacts of award forfeitures as they occur. The requisite service period is generally the maximum vesting period of the award. 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 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. The Company records any excess tax benefits or deficiencies from settlements of its stock-based equity awards within the provision for income taxes on the Company’s consolidated statements of operations in the reporting periods in which the settlement of the equity awards occur.
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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 March 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-05, “Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”, to add various SEC paragraphs pursuant to the issuance of SEC Staff Accounting Bulletin No. 118 (“SAB 118”), to ASC 740 “Income Taxes”. SAB 118 was issued by the SEC in December 2018 to provide immediate guidance for accounting implications of U.S. tax reform under the “Tax Cuts and Jobs Act” (the “Tax Act”), which became effective for the Company on January 1, 2018. The Company has evaluated the potential impacts of SAB 118 and has applied this guidance to its consolidated financial statements and related disclosures beginning in the second quarter of its fiscal year 2018. For additional information on SAB 118 and the impacts of the Tax Act on the Company’s consolidated financial statements and related disclosures, see Note 12 — Income Taxes, included in this report. In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment”. The amendments in this updated guidance simplify how an entity is required to test goodwill for impairment due to concerns that were raised about the cost and complexity of annual impairment tests under the existing standard. This updated guidance eliminates Step 2 of the previous two-step quantitative model for goodwill impairment tests. Step 2 required an entity to calculate an implied fair value, which includes 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. Step 1 will be referred to simply as a “quantitative goodwill impairment test” subsequent to the Company’s adoption of this updated guidance, since Step 2 has been eliminated and “steps” are no longer referred to within the updated guidance. However, the updated guidance still permits the Company to first conduct a qualitative assessment to determine whether it is necessary to perform a quantitative goodwill impairment test. 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 early adopted this guidance in its fiscal year 2018 during the second quarter, the period in which the Company performs its annual goodwill impairment test. The guidance was adopted on a prospective basis and is applicable to all of the Company’s future annual goodwill impairment tests. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements and related disclosures. See Note 5 – Goodwill and Other Intangible Assets for additional information on the Company’s goodwill. 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 became effective for the Company during the first quarter of its fiscal year 2018. The impacts of the adoption by the Company of ASU No. 2016-09 in fiscal year 2018 were as follows:
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| Recently Issued Accounting Standards | Recently Issued Accounting Standards In August 2018, the FASB issued ASU No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The updated guidance also requires an entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. This guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of evaluating the impacts of this guidance on its consolidated financial statements and related disclosures. In June 2018, the FASB issued ASU No. 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”. The amendments in this updated guidance simplifies the accounting for nonemployee share-based payment transactions by expanding the scope of ASC 718 “Stock Compensation” to include share-based payment transactions for acquiring goods and services from nonemployees. Additionally, the amendments clarify that any share-based payment awards issued to customers should be evaluated under ASC 606 “Revenue from Contracts with Customers” (“ASC 606”). This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption of ASC 606. 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 February 2018, the FASB issued ASU No. 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, to optionally allow entities to reclassify stranded tax effects, resulting from the Tax Act, from accumulated other comprehensive income to retained earnings. Since the amendments within this guidance only relate to the reclassification of the income tax effects associated with the Tax Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. The amendments in this updated guidance should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. corporate federal income tax rate in the Tax Act is recognized. 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, as such stranded tax effects are immaterial. 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 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 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. 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, 2019. The Company will adopt this new guidance following the optional transition method described in ASU No. 2018-11, “Leases – Targeted Improvements” which was issued in July 2018, rather than the original modified retrospective approach that requires entities to apply the guidance at the beginning of the earliest period presented in the financial statements. Under the optional transition method, the Company will recognize the cumulative effect of initially applying the guidance as an adjustment to the opening balance of retained earnings on September 1, 2019. Therefore, the requirements of this guidance will apply only for periods presented that are after the date of adoption and will not affect comparative periods The Company is in the process of evaluating the impacts of this 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. The Company will adopt this new guidance following the modified retrospective approach on September 1, 2018. Management performed a detailed review of the Company’s customer contracts which was focused principally on, but not limited to, identifying the point in time at which the control of goods transfers to customers. Management has also completed both its qualitative and quantitative analysis of this new guidance. Although the Company does not expect a significant impact on consolidated net sales for the Company as a result of this new guidance, management expects a slight change in the timing for recognizing revenue for certain of its customers. In addition, the Company has finalized all of the necessary updates to its accounting policies, internal controls, processes and information systems regarding revenue recognition, and it is also in the process of drafting new disclosures as required under the new guidance.
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Inventories (Tables) |
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Property And Equipment (Tables) |
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| 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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| Schedule Of Accrued Liabilities |
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| Schedule Of Accrued Payroll And Related Expenses |
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Debt (Tables) |
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| Schedule Of Short-term And Long-term Borrowings |
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Earnings Per Common Share (Tables) |
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| 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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Aug. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments And Contingencies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Future Minimum Rental Payments |
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Income Taxes (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Aug. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Aug. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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.
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Basis Of Presentation And Summary Of Significant Accounting Policies (Short-term Investments) (Narrative) (Details) - USD ($) $ in Thousands |
Aug. 31, 2018 |
Aug. 31, 2017 |
|---|---|---|
| Basis Of Presentation And Summary Of Significant Accounting Policies [Abstract] | ||
| Short-term investments | $ 219 | $ 80,166 |
Basis Of Presentation And Summary Of Significant Accounting Policies (Property And Equipment) (Narrative) (Details) - USD ($) $ in Millions |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Property Plant And Equipment [Line Items] | |||
| Depreciation | $ 4.8 | $ 3.9 | $ 3.5 |
| Cost of goods sold, depreciation | $ 1.1 | $ 1.1 | $ 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, 2018 | |
| 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, 2018 |
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| 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 ($) |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Basis Of Presentation And Summary Of Significant Accounting Policies [Abstract] | |||
| Impairment of long-lived assets | $ 0 | $ 0 | $ 0 |
Basis Of Presentation And Summary Of Significant Accounting Policies (Fair Value Of Financial Instruments) (Narrative) (Details) - USD ($) |
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|---|---|---|---|
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | |||
| Carrying value of senior notes | $ 62,800,000 | $ 134,000,000 | |
| Senior Notes [Member] | |||
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | |||
| Fair value of senior notes | 18,800,000 | ||
| Carrying value of senior notes | 19,600,000 | ||
| Level 2 [Member] | Recurring [Member] | |||
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | |||
| Assets | 0 | ||
| Liabilities | 0 | ||
| Level 2 [Member] | Nonrecurring [Member] | |||
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | |||
| Assets | 0 | 0 | $ 0 |
| Liabilities | $ 0 | $ 0 | $ 0 |
Basis Of Presentation And Summary Of Significant Accounting Policies (Insurance Coverage) (Narrative) (Details) - USD ($) |
Aug. 31, 2018 |
Aug. 31, 2017 |
|---|---|---|
| Basis Of Presentation And Summary Of Significant Accounting Policies [Abstract] | ||
| Self-insurance reserves | $ 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, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Basis Of Presentation And Summary Of Significant Accounting Policies [Abstract] | |||
| Shipping and handling costs | $ 17.7 | $ 16.4 | $ 16.1 |
Basis Of Presentation And Summary Of Significant Accounting Policies (Advertising and Sales Promotion Expenses) (Narrative) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Basis Of Presentation And Summary Of Significant Accounting Policies [Abstract] | |||
| Advertising and sales promotion | $ 22,314 | $ 20,537 | $ 22,278 |
Basis Of Presentation And Summary Of Significant Accounting Policies (Research And Development) (Narrative) (Details) - USD ($) $ in Millions |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Basis Of Presentation And Summary Of Significant Accounting Policies [Abstract] | |||
| Research and development expense | $ 7.0 | $ 8.4 | $ 7.7 |
Basis Of Presentation And Summary Of Significant Accounting Policies (Foreign Currency) (Narrative) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Foreign Currency Transactions [Line Items] | |||
| Foreign currency transactions gain (loss), before tax | $ 100 | $ 400 | $ 2,400 |
| Foreign currency forward contracts outstanding | 23,100 | ||
| Unrealized net losses | $ (302) | 364 | $ (986) |
| Foreign Currency Forward Contracts [Member] | |||
| Foreign Currency Transactions [Line Items] | |||
| Unrealized net losses | 600 | ||
| Realized net losses | $ 500 | ||
Basis Of Presentation And Summary Of Significant Accounting Policies (Recently Adopted Accounting Standards) (Narrative) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
| Excess tax benefits | $ 9,963 | $ 21,692 | $ 20,161 |
| Accounting Standards Update 2016-09 [Member] | |||
| New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
| Excess tax benefits | $ 700 | ||
| Excess tax benefits, Operating activities | 1,500 | 2,100 | |
| Excess tax benefits, Financing activities | 1,500 | 2,100 | |
| Payments related to tax withholding for share-based compensation, Operating activities | 1,700 | 2,600 | |
| Payments related to tax withholding for share-based compensation, Financing activities | $ 1,700 | $ 2,600 | |
Inventories (Schedule Of Inventories) (Details) - USD ($) $ in Thousands |
Aug. 31, 2018 |
Aug. 31, 2017 |
|---|---|---|
| Inventories [Abstract] | ||
| Product held at third-party contract manufacturers | $ 2,841 | $ 3,021 |
| Raw materials and components | 3,692 | 3,021 |
| Work-in-process | 448 | 215 |
| Finished goods | 29,555 | 29,083 |
| Total | $ 36,536 | $ 35,340 |
Property And Equipment (Narrative) (Details) - Aug. 31, 2018 £ in Millions, $ in Millions |
GBP (£) |
USD ($) |
|---|---|---|
| Property And Equipment [Abstract] | ||
| Capital costs | £ 5.6 | $ 7.3 |
Property And Equipment (Schedule Of Property And Equipment, Net) (Details) - USD ($) $ in Thousands |
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
||
|---|---|---|---|---|---|
| Property Plant And Equipment [Line Items] | |||||
| Subtotal | $ 62,790 | $ 52,865 | |||
| Less: accumulated depreciation and amortization | (26,433) | (23,426) | |||
| Total | [1] | 36,357 | 29,439 | $ 11,545 | |
| Machinery, Equipment and Vehicles [Member] | |||||
| Property Plant And Equipment [Line Items] | |||||
| Subtotal | 17,848 | 17,491 | |||
| Buildings And Improvements [Member] | |||||
| Property Plant And Equipment [Line Items] | |||||
| Subtotal | 17,100 | 16,953 | |||
| Computer And Office Equipment [Member] | |||||
| Property Plant And Equipment [Line Items] | |||||
| Subtotal | 5,046 | 4,552 | |||
| Software [Member] | |||||
| Property Plant And Equipment [Line Items] | |||||
| Subtotal | 9,481 | 7,947 | |||
| Furniture And Fixtures [Member] | |||||
| Property Plant And Equipment [Line Items] | |||||
| Subtotal | 1,820 | 1,608 | |||
| Capital In Progress [Member] | |||||
| Property Plant And Equipment [Line Items] | |||||
| Subtotal | 8,042 | 861 | |||
| Land [Member] | |||||
| Property Plant And Equipment [Line Items] | |||||
| Subtotal | $ 3,453 | $ 3,453 | |||
| |||||
Goodwill And Other Intangible Assets (Acquisitions) (Narrative) (Details) - Trade Names [Member] - EZ REACH [Member] $ in Millions |
3 Months Ended |
|---|---|
|
Nov. 30, 2017
USD ($)
| |
| Finite Lived Intangible Assets [Line Items] | |
| Purchase consideration | $ 0.2 |
| Estimated useful life | 5 years |
Goodwill And Other Intangible Assets (Goodwill And Definite-Lived Intangible Assets) (Narrative) (Details) - USD ($) |
3 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
Feb. 28, 2018 |
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Goodwill And Other Intangible Assets [Abstract] | ||||
| Impairment of goodwill | $ 0 | $ 0 | $ 0 | $ 0 |
| Impairment charges | $ 0 | $ 0 | $ 0 | |
Goodwill And Other Intangible Assets (Summary Of Changes In Carrying Amounts Of Goodwill) (Details) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
|
| Goodwill [Line Items] | ||
| Balance, beginning | $ 95,597 | $ 95,649 |
| Translation adjustments | 24 | (52) |
| Balance, ending | 95,621 | 95,597 |
| Americas [Member] | ||
| Goodwill [Line Items] | ||
| Balance, beginning | 85,448 | 85,452 |
| Translation adjustments | 1 | (4) |
| Balance, ending | 85,449 | 85,448 |
| EMEA [Member] | ||
| Goodwill [Line Items] | ||
| Balance, beginning | 8,939 | 8,987 |
| Translation adjustments | 23 | (48) |
| Balance, ending | 8,962 | 8,939 |
| 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, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|---|---|---|---|
| Goodwill And Other Intangible Assets [Abstract] | |||
| Gross carrying amount | $ 36,122 | $ 35,891 | |
| Accumulated amortization | (22,609) | (19,647) | |
| Net carrying amount | $ 13,513 | $ 16,244 | $ 19,191 |
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, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Finite-Lived Intangible Assets [Line Items] | |||
| Beginning balance | $ 16,244 | $ 19,191 | |
| Amortization expense | (2,951) | (2,879) | $ (2,976) |
| EZ REACH trade name | 175 | ||
| Translation adjustments | 45 | (68) | |
| Ending balance | 13,513 | 16,244 | 19,191 |
| Americas [Member] | |||
| Finite-Lived Intangible Assets [Line Items] | |||
| Beginning balance | 12,706 | 14,913 | |
| Amortization expense | (2,237) | (2,207) | |
| EZ REACH trade name | 175 | ||
| Translation adjustments | |||
| Ending balance | 10,644 | 12,706 | 14,913 |
| EMEA [Member] | |||
| Finite-Lived Intangible Assets [Line Items] | |||
| Beginning balance | 3,538 | 4,278 | |
| Amortization expense | (714) | (672) | |
| Translation adjustments | 45 | (68) | |
| Ending balance | 2,869 | 3,538 | 4,278 |
| Asia-Pacific [Member] | |||
| Finite-Lived Intangible Assets [Line Items] | |||
| Beginning balance | |||
| Amortization expense | |||
| EZ REACH trade name | |||
| Translation adjustments | |||
| Ending balance | |||
Goodwill And Other Intangible Assets (Schedule Of Future Estimated Amortization Expense) (Details) - USD ($) $ in Thousands |
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|---|---|---|---|
| Finite-Lived Intangible Assets [Line Items] | |||
| Net carrying amount | $ 13,513 | $ 16,244 | $ 19,191 |
| Trade Names [Member] | |||
| Finite-Lived Intangible Assets [Line Items] | |||
| Fiscal year 2019 | 2,455 | ||
| Fiscal year 2020 | 2,055 | ||
| Fiscal year 2021 | 1,266 | ||
| Fiscal year 2022 | 1,266 | ||
| Fiscal year 2023 | 1,020 | ||
| Thereafter | 4,693 | ||
| Net carrying amount | 12,755 | ||
| Customer-Based [Member] | |||
| Finite-Lived Intangible Assets [Line Items] | |||
| Fiscal year 2019 | 260 | ||
| Fiscal year 2020 | 166 | ||
| Fiscal year 2021 | 166 | ||
| Fiscal year 2022 | 166 | ||
| Net carrying amount | $ 758 |
Accrued And Other Liabilities (Schedule Of Accrued Liabilities) (Details) - USD ($) $ in Thousands |
Aug. 31, 2018 |
Aug. 31, 2017 |
||
|---|---|---|---|---|
| Line of Credit Facility [Line Items] | ||||
| Accrued advertising and sales promotion expenses | $ 11,972 | $ 10,889 | ||
| Accrued professional services fees | 1,712 | 1,456 | ||
| Accrued sales taxes and other taxes | 1,642 | 1,701 | ||
| Accrued liability forward contract | [1] | 6,893 | ||
| Other | 4,021 | 4,951 | ||
| Total | 26,240 | 18,997 | ||
| Other current assets | 13,337 | $ 8,007 | ||
| Bank Of America [Member] | ||||
| Line of Credit Facility [Line Items] | ||||
| Other | 6,900 | |||
| Other current assets | $ 6,900 | |||
| ||||
Accrued And Other Liabilities (Schedule Of Accrued Payroll And Related Expenses) (Details) - USD ($) $ in Thousands |
Aug. 31, 2018 |
Aug. 31, 2017 |
|---|---|---|
| Accrued And Other Liabilities [Abstract] | ||
| Accrued incentive compensation | $ 6,719 | $ 6,554 |
| Accrued payroll | 3,792 | 3,338 |
| Accrued profit sharing | 2,561 | 2,257 |
| Accrued payroll taxes | 1,236 | 1,503 |
| Other | 515 | 570 |
| Total | $ 14,823 | $ 14,222 |
Debt (Narrative) (Details) - USD ($) |
3 Months Ended | 6 Months Ended | 12 Months Ended | |||
|---|---|---|---|---|---|---|
Aug. 31, 2018 |
Feb. 28, 2018 |
Aug. 31, 2018 |
Feb. 23, 2018 |
Nov. 15, 2017 |
Aug. 31, 2017 |
|
| Debt Instrument [Line Items] | ||||||
| Current debt | $ 23,600,000 | $ 23,600,000 | $ 20,000,000 | |||
| Long-term borrowings | 62,800,000 | 62,800,000 | 134,000,000 | |||
| Repatriation of foreign earnings | 79,600,000 | |||||
| Refinanced short-term debt | 64,000,000 | |||||
| Series A Notes [Member] | ||||||
| Debt Instrument [Line Items] | ||||||
| Long-term borrowings | 18,800,000 | 18,800,000 | ||||
| Repayments of line of credit | $ 20,000,000 | |||||
| Repayment of principal | 400,000 | |||||
| Fifth Amended Credit Facility [Member] | ||||||
| Debt Instrument [Line Items] | ||||||
| Revolving credit facility, amount | 175,000,000 | 175,000,000 | ||||
| Share buy-back plan, amount authorized | $ 150,000,000 | $ 150,000,000 | ||||
| Revolving credit facility, expiration date | May 13, 2020 | |||||
| Sixth Amended Credit Facility [Member] | ||||||
| Debt Instrument [Line Items] | ||||||
| Consolidated leverage ratio | 3 | 3 | ||||
| Consolidated interest coverage ratio | 3 | 3 | ||||
| Revolving Credit Facility [Member] | ||||||
| Debt Instrument [Line Items] | ||||||
| Short-term | $ 20,000,000 | $ 20,000,000 | 20,000,000 | |||
| Long-term borrowings | 44,000,000 | 44,000,000 | $ 134,000,000 | |||
| Revolving Credit Facility [Member] | Series A Notes [Member] | ||||||
| Debt Instrument [Line Items] | ||||||
| Repayment of short-term debt | 20,000,000 | |||||
| Revolving Credit Facility [Member] | Line Of Credit, Headquarters Office [Member] | ||||||
| Debt Instrument [Line Items] | ||||||
| Line of credit, short-term liability | 10,000,000 | 10,000,000 | ||||
| Revolving Credit Facility [Member] | Autoborrow Agreement [Member] | ||||||
| Debt Instrument [Line Items] | ||||||
| Short-term | 2,800,000 | 2,800,000 | ||||
| Line Of Credit [Member] | ||||||
| Debt Instrument [Line Items] | ||||||
| Refinanced short-term debt | 20,000,000 | |||||
| Line Of Credit [Member] | ||||||
| Debt Instrument [Line Items] | ||||||
| Short-term | 80,000,000 | 80,000,000 | ||||
| Repatriation of foreign earnings | 79,600,000 | |||||
| Refinanced short-term debt | 44,000,000 | |||||
| Note Agreement [Member] | Series A Notes [Member] | ||||||
| Debt Instrument [Line Items] | ||||||
| Revolving credit facility, amount | $ 20,000,000 | |||||
| Principal amount | $ 20,000,000 | $ 20,000,000 | ||||
| Interest rate | 3.39% | 3.39% | ||||
| Maturity date | Nov. 15, 2032 | |||||
| Principal payment frequency of periodic payment | semi-annually | |||||
| Date of first payment required | May 15, 2018 | |||||
| Periodic payment amount | $ 400,000 | |||||
| Date of final semi-annual payment required | May 15, 2032 | |||||
| Balloon payment | $ 8,400,000 | $ 8,400,000 | ||||
| Note Agreement [Member] | Sixth Amended Credit Facility [Member] | ||||||
| Debt Instrument [Line Items] | ||||||
| Additional maximum borrowing capacity | $ 15,000,000 | |||||
| Shelf Notes [Member] | ||||||
| Debt Instrument [Line Items] | ||||||
| Principal amount | 0 | $ 0 | ||||
| Latest date to issue senior notes | Nov. 15, 2020 | |||||
| Period of debt issuance and maturity | 15 years 6 months | |||||
| Maximum [Member] | Shelf Notes [Member] | ||||||
| Debt Instrument [Line Items] | ||||||
| Additional maximum borrowing capacity | $ 105,000,000 | $ 105,000,000 | ||||
| Milton Keynes, England [Member] | Sixth Amended Credit Facility [Member] | ||||||
| Debt Instrument [Line Items] | ||||||
| Revolving credit facility, amount | 15,000,000 | |||||
| Milton Keynes, England [Member] | Note Agreement [Member] | Note Amendment [Member] | ||||||
| Debt Instrument [Line Items] | ||||||
| Revolving credit facility, amount | $ 15,000,000 |
Debt (Schedule Of Short-term And Long-term Borrowings) (Details) - USD ($) $ in Thousands |
Aug. 31, 2018 |
Aug. 31, 2017 |
|---|---|---|
| Debt Instrument [Line Items] | ||
| Total short-term borrowings | $ 23,600 | $ 20,000 |
| Long-term borrowings | 62,800 | 134,000 |
| Total | 86,400 | 154,000 |
| Series A Notes [Member] | ||
| Debt Instrument [Line Items] | ||
| Current portion of long-term debt | 800 | |
| Long-term borrowings | 18,800 | |
| Revolving Credit Facility [Member] | ||
| Debt Instrument [Line Items] | ||
| Short-term borrowings | 20,000 | 20,000 |
| Long-term borrowings | 44,000 | $ 134,000 |
| Revolving Credit Facility [Member] | Autoborrow Agreement [Member] | ||
| Debt Instrument [Line Items] | ||
| Short-term borrowings | $ 2,800 |
Share Repurchase Plan (Narrative) (Details) - USD ($) $ / shares in Units, $ in Thousands |
12 Months Ended | 24 Months Ended | ||||
|---|---|---|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
Aug. 31, 2018 |
Sep. 01, 2018 |
Sep. 01, 2016 |
|
| Equity, Class of Treasury Stock [Line Items] | ||||||
| Total cost of repurchased shares | $ 22,616 | $ 31,109 | $ 32,131 | |||
| 2016 To 2018 Share Repurchase Program [Member] | ||||||
| Equity, Class of Treasury Stock [Line Items] | ||||||
| Share buy-back plan, amount authorized | $ 75,000 | $ 75,000 | ||||
| Share buy-back plan, number of shares repurchased | 175,306 | 465,879 | ||||
| Average price of shares repurchased | $ 128.99 | |||||
| Total cost of repurchased shares | $ 22,600 | $ 53,700 | ||||
| Maximum [Member] | 2016 To 2018 Share Repurchase Program [Member] | ||||||
| Equity, Class of Treasury Stock [Line Items] | ||||||
| Share buy-back plan, amount authorized | $ 75,000 | |||||
| Subsequent Events [Member] | Maximum [Member] | 2018 To 2020 Share Repurchase Program [Member] | ||||||
| Equity, Class of Treasury Stock [Line Items] | ||||||
| Share buy-back plan, amount authorized | $ 75,000 | |||||
Earnings Per Common Share (Narrative) (Details) - shares |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Earnings Per Common Share [Abstract] | |||
| Anti-dilutive stock options outstanding | 0 | 0 | 4,501 |
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, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Earnings Per Common Share [Abstract] | |||
| Net income | $ 65,215 | $ 52,930 | $ 52,628 |
| Less: Net income allocated to participating securities | (423) | (323) | (334) |
| Net income available to common shareholders | $ 64,792 | $ 52,607 | $ 52,294 |
Earnings Per Common Share (Schedule Of Weighted Average Number Of Shares) (Details) - shares shares in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Earnings Per Common Share [Abstract] | |||
| Weighted-average common shares outstanding, basic | 13,929 | 14,089 | 14,332 |
| Weighted-average dilutive securities | 33 | 34 | 47 |
| Weighted-average common shares outstanding, diluted | 13,962 | 14,123 | 14,379 |
Related Parties (Narrative) (Details) - USD ($) |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Related Parties [Abstract] | |||
| Sales to Tractor Supply | $ 1,400,000 | $ 1,200,000 | $ 1,200,000 |
| Accounts receivable from Tractor Supply | $ 500,000 | $ 0 | |
Commitments And Contingencies (Narrative) (Details) - USD ($) |
1 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
Jul. 31, 2018 |
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Loss Contingencies [Line Items] | ||||
| Rent expense | $ 2,000,000 | $ 2,100,000 | $ 1,900,000 | |
| Litigation settlement | $ 1,500,000 | |||
| Purchase Commitment [Member] | ||||
| Loss Contingencies [Line Items] | ||||
| Commitment outstanding | 0 | |||
| Indemnification Agreement 1 [Member] | ||||
| Loss Contingencies [Line Items] | ||||
| Liabilities related to indemnification agreement | 0 | |||
| Senior Officers And Directors [Member] | Indemnification Agreement 1 [Member] | ||||
| Loss Contingencies [Line Items] | ||||
| Liabilities related to indemnification agreement | $ 0 | |||
Commitments And Contingencies (Future Minimum Rental Payments) (Details) $ in Thousands |
Aug. 31, 2018
USD ($)
|
|---|---|
| Commitments And Contingencies [Abstract] | |
| 2019 | $ 2,003 |
| 2020 | 1,517 |
| 2021 | 1,168 |
| 2022 | 694 |
| 2023 | 379 |
| Thereafter | $ 1,198 |
Income Taxes (Narrative) (Details) - USD ($) |
3 Months Ended | 4 Months Ended | 8 Months Ended | 12 Months Ended | |||
|---|---|---|---|---|---|---|---|
Aug. 31, 2018 |
Feb. 28, 2018 |
Dec. 31, 2017 |
Aug. 31, 2018 |
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Income Tax [Line Items] | |||||||
| Operating loss carryforwards | $ 3,000,000 | $ 3,000,000 | $ 3,000,000 | $ 2,600,000 | |||
| Net deferred tax asset | 200,000 | 200,000 | 200,000 | 200,000 | |||
| Tax credit carryforwards | 2,790,000 | 2,790,000 | 2,790,000 | 2,309,000 | |||
| Provision for income taxes | 9,963,000 | 21,692,000 | $ 20,161,000 | ||||
| Deferred income taxes | $ (7,538,000) | $ 2,670,000 | (1,595,000) | ||||
| Percentage for provision for income taxes | 13.30% | 29.10% | |||||
| Repatriation of foreign earnings | 79,600,000 | ||||||
| Material interest or penalties included in income tax expense | $ 0 | $ 0 | |||||
| Unrecognized tax benefits | 1,038,000 | 1,038,000 | 1,038,000 | 981,000 | $ 1,239,000 | ||
| Unrecognized tax benefits that would impact the effective tax rate | 900,000 | 900,000 | 900,000 | 600,000 | |||
| Unrecognized tax benefits affected by the resolution of tax examinations or expiring statutes of limitation | 200,000 | $ 200,000 | $ 200,000 | ||||
| Federal income tax rate | 35.00% | 21.00% | 25.70% | ||||
| Percentage between blended rate and prior fiscal year | 9.00% | ||||||
| Provision for income taxes | 100,000 | $ 6,900,000 | $ 7,100,000 | ||||
| Remeasurement of deferred income taxes | (6,762,000) | ||||||
| Toll tax | (282,000) | ||||||
| Tax benefit | (7,100,000) | ||||||
| Foreign Tax Authority [Member] | |||||||
| Income Tax [Line Items] | |||||||
| Tax credit carryforwards | 2,500,000 | $ 2,500,000 | 2,500,000 | $ 2,100,000 | |||
| Line Of Credit [Member] | |||||||
| Income Tax [Line Items] | |||||||
| Repatriation of foreign earnings | 79,600,000 | ||||||
| Short-term | $ 80,000,000 | $ 80,000,000 | $ 80,000,000 | ||||
Income Taxes (Schedule Of Income before Income Tax, Domestic And Foreign) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||||
|---|---|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|||
| Income Tax [Line Items] | |||||
| United States | $ 42,634 | $ 42,060 | $ 41,128 | ||
| Foreign | [1] | 32,544 | 32,562 | 31,661 | |
| Income before income taxes | 75,178 | 74,622 | 72,789 | ||
| EMEA [Member] | |||||
| Income Tax [Line Items] | |||||
| Foreign | $ 27,400 | $ 28,100 | $ 28,300 | ||
| |||||
Income Taxes (Schedule Of Components Of Income Tax Expense (Benefit)) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Income Taxes [Abstract] | |||
| Current, Federal | $ 10,100 | $ 10,813 | $ 13,269 |
| Current, State | 651 | 744 | 894 |
| Current, Foreign | 6,750 | 7,465 | 7,593 |
| Total current | 17,501 | 19,022 | 21,756 |
| Deferred, United States | (7,496) | 2,627 | (1,100) |
| Deferred, Foreign | (42) | 43 | (495) |
| Total deferred | (7,538) | 2,670 | (1,595) |
| Provision for income taxes | $ 9,963 | $ 21,692 | $ 20,161 |
Income Taxes (Schedule Of Deferred Tax Assets And Liabilities) (Details) - USD ($) $ in Thousands |
Aug. 31, 2018 |
Aug. 31, 2017 |
|---|---|---|
| Income Taxes [Abstract] | ||
| Accrued payroll and related expenses | $ 916 | $ 1,252 |
| Account receivable | 303 | 644 |
| Reserves and accruals | 1,496 | 2,393 |
| Stock-based compensation expense | 2,321 | 3,213 |
| Uniform capitalization | 959 | 1,598 |
| Tax credit carryforwards | 2,790 | 2,309 |
| Other | 938 | 1,289 |
| Total gross deferred tax assets | 9,723 | 12,698 |
| Valuation allowance | (2,505) | (2,328) |
| Total net deferred tax assets | 7,218 | 10,370 |
| Property and equipment, net | (1,305) | (2,109) |
| Amortization of tax goodwill and intangible assets | (16,108) | (26,036) |
| Investments in partnerships | (222) | (679) |
| Other | (122) | |
| Total deferred tax liabilities | (17,757) | (28,824) |
| Net deferred tax liabilities | $ (10,539) | $ (18,454) |
Income Taxes (Schedule Of Effective Income Tax Rate Reconciliation) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Income Taxes [Abstract] | |||
| Amount computed at U.S. statutory federal tax rate | $ 19,298 | $ 26,118 | $ 25,476 |
| State income taxes, net of federal tax benefits | 453 | 327 | 397 |
| Effect of foreign operations | (1,412) | (4,277) | (4,382) |
| Benefit from qualified domestic production deduction | (1,121) | (1,295) | (1,190) |
| Remeasurement of deferred income taxes | (6,762) | ||
| Toll tax | (282) | ||
| Benefit from Stock Compensation | (725) | ||
| Other | 514 | 819 | (140) |
| Provision for income taxes | $ 9,963 | $ 21,692 | $ 20,161 |
Income Taxes (Schedule Of Unrecognized Tax Benefits Roll Forward) (Details) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
|
| Income Taxes [Abstract] | ||
| Unrecognized tax benefits - Beginning of fiscal year | $ 981 | $ 1,239 |
| Net increases (decreases) - prior period tax positions | 62 | |
| Net increases (decreases) - prior period tax positions | (68) | |
| Net increases - current period tax positions | 263 | 228 |
| Expirations of statute of limitations for assessment | (197) | (382) |
| Settlements | (71) | (36) |
| Unrecognized tax benefits - End of fiscal year | $ 1,038 | $ 981 |
Stock-based Compensation (Narrative) (Details) - USD ($) |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| 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 | 786,364 | ||
| Allocated share-based compensation expense | $ 4,200,000 | $ 4,100,000 | $ 3,700,000 |
| Employee service share-based, Tax benefit from compensation expense | 1,100,000 | 1,400,000 | 1,200,000 |
| Stock Options [Member] | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Employee service share-based, Tax benefit from compensation expense | $ 100,000 | 400,000 | 700,000 |
| Restricted Stock Units [Member] | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Vesting period | 3 years | ||
| Employee service share-based, Tax benefit from compensation expense | $ 700,000 | $ 1,300,000 | $ 1,000,000 |
| Compensation cost not yet recognized | $ 600,000 | ||
| Remaining weighted-average vesting periods | 1 year 7 months 6 days | ||
| Weighted-average grant date fair value | $ 111.71 | $ 109.23 | $ 95.89 |
| Total intrinsic value of stock-based awards converted into common shares | $ 2,800,000 | $ 3,600,000 | $ 2,800,000 |
| Market Share Units [Member] | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Vesting period | 3 years | ||
| Employee service share-based, Tax benefit from compensation expense | $ 800,000 | $ 900,000 | $ 1,200,000 |
| Compensation cost not yet recognized | $ 1,700,000 | ||
| Remaining weighted-average vesting periods | 1 year 9 months 18 days | ||
| Weighted-average grant date fair value | $ 101.93 | $ 90.91 | $ 120.99 |
| Total intrinsic value of stock-based awards converted into common shares | $ 3,000,000 | $ 2,800,000 | $ 3,700,000 |
| 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 | ||
| Weighted-average grant date fair value | $ 110.65 | $ 110.19 | $ 94.54 |
Stock-based Compensation (Schedule of Stock Options Activity) (Details) - USD ($) $ / shares in Units, $ in Millions |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Income tax benefit (expense) from stock-based award | $ 1.1 | $ 1.4 | $ 1.2 |
| Stock Options [Member] | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Outstanding, Number of Shares | 5,960 | ||
| Granted, Number of Shares | |||
| Exercised, Number of Shares | (5,960) | ||
| Forfeited or expired, Number of Shares | |||
| Outstanding, Number of Shares | 5,960 | ||
| Exercisable, Number of Shares | |||
| Outstanding, Weighted-Average Exercise Price Per Share | $ 36.03 | ||
| Granted, Weighted-Average Exercise Price Per Share | |||
| Exercised, Weighted-Average Exercise Price Per Share | 36.03 | ||
| Forfeited or expired, Weighted-Average Exercise Price Per Share | |||
| Outstanding, Weighted-Average Exercise Price Per Share | $ 36.03 | ||
| Exercisable, Weighted-Average Exercise Price Per Share | |||
| Total intrinsic value of stock options exercised | $ 0.5 | $ 1.6 | 2.5 |
| Income tax benefit (expense) from stock-based award | $ 0.1 | $ 0.4 | $ 0.7 |
Stock-based Compensation (Schedule Of Restricted Stock Units Activity) (Details) - USD ($) $ / shares in Units, $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Income tax benefit (expense) from stock-based award | $ 1,100 | $ 1,400 | $ 1,200 |
| Restricted Stock Units [Member] | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Outstanding, Number of Shares | 116,770 | ||
| Granted, Number of Shares | 24,114 | ||
| Converted to common shares, Number of Shares | (24,471) | ||
| Forfeited, Number of Shares | (1,105) | ||
| Outstanding, Number of Shares | 115,308 | 116,770 | |
| Vested, Number of Shares | 87,309 | ||
| Outstanding, Weighted-Average Grant Date Fair Value Per Share | $ 63.61 | ||
| Granted, Weighted-Average Grant Date Fair Value Per Share | 111.71 | $ 109.23 | $ 95.89 |
| Converted to common shares, Weighted-Average Grant Date Fair Value Per Share | 76.58 | ||
| Forfeited, Weighted-Average Grant Date Fair Value Per Share | 104.24 | ||
| Outstanding, Weighted-Average Grant Date Fair Value Per Share | 70.52 | $ 63.61 | |
| Vested, Weighted-Average Grant Date Fair Value Per Share | $ 59.22 | ||
| Outstanding, Aggregate Intrinsic Value | $ 20,461 | ||
| Vested, Aggregate Intrinsic Value | 15,493 | ||
| Total intrinsic value of stock-based awards converted into common shares | 2,800 | $ 3,600 | $ 2,800 |
| Income tax benefit (expense) from stock-based award | $ 700 | $ 1,300 | $ 1,000 |
Stock-based Compensation (Schedule Of Market Share Units Activity) (Details) - USD ($) $ / shares in Units, $ in Thousands |
12 Months Ended | |||||
|---|---|---|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
||||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
| Income tax benefit (expense) from stock-based award | $ 1,100 | $ 1,400 | $ 1,200 | |||
| Market Share Units [Member] | ||||||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
| Outstanding, Number of Shares | 44,919 | |||||
| Granted, Number of Shares | 15,729 | |||||
| Performance factor adjustment, Number of Shares | 12,194 | |||||
| Converted to common shares, Number of Shares | (27,589) | |||||
| Forfeited, Number of Shares | (3,045) | |||||
| Outstanding, Number of Shares | 42,208 | [1] | 44,919 | |||
| Outstanding, Weighted-Average Grant Date Fair Value Per Share | $ 94.95 | |||||
| Granted, Weighted-Average Grant Date Fair Value Per Share | 101.93 | $ 90.91 | $ 120.99 | |||
| Performance factor adjustment, Weighted-Average Grant Date Fair Value Per Share | 76.04 | |||||
| Converted to common shares, Weighted-Average Grant Date Fair Value Per Share | 74.30 | |||||
| Forfeited, Weighted-Average Grant Date Fair Value Per Share | 91.87 | |||||
| Outstanding, Weighted-Average Grant Date Fair Value Per Share | $ 105.81 | [1] | $ 94.95 | |||
| Outstanding, Aggregate Intrinsic Value | [1] | $ 7,490 | ||||
| Expected volatility | 20.40% | 21.10% | 22.20% | |||
| Risk-free interest rate | 1.60% | 1.00% | 0.90% | |||
| 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 21 days | |||
| Total intrinsic value of stock-based awards converted into common shares | $ 3,000 | $ 2,800 | $ 3,700 | |||
| Income tax benefit (expense) from stock-based award | $ 800 | $ 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, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Outstanding, Number of Shares | 30,876 | ||
| Granted, Number of Shares | 26,906 | ||
| Performance factor adjustment, Number of Shares | (25,882) | ||
| Converted to common shares, Number of Shares | (192) | 0 | |
| Forfeited, Number of Shares | (940) | ||
| Outstanding, Number of Shares | 30,768 | 30,876 | |
| Vested, Number of Shares | 4,802 | ||
| Outstanding, Weighted-Average Grant Date Fair Value Per Share | $ 107.66 | ||
| Granted, Weighted-Average Grant Date Fair Value Per Share | 110.65 | $ 110.19 | $ 94.54 |
| Performance factor adjustment, Weighted-Average Grant Date Fair Value Per Share | 110.19 | ||
| Converted to common shares, Weighted-Average Grant Date Fair Value Per Share | 94.54 | ||
| Forfeited, Weighted-Average Grant Date Fair Value Per Share | 110.65 | ||
| Outstanding, Weighted-Average Grant Date Fair Value Per Share | 108.14 | $ 107.66 | |
| Vested, Weighted-Average Grant Date Fair Value Per Share | $ 94.54 | ||
| Outstanding, Aggregate Intrinsic Value | $ 5,460 | ||
| Vested, Aggregate Intrinsic Value | $ 852 | ||
| 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, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| 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 | $ 3.3 | $ 3.2 |
| International Pension Plans Defined Benefit [Member] | |||
| Deferred Compensation Arrangement with Individual, Postretirement Benefits [Line Items] | |||
| Defined contribution plan, cost recognized | $ 1.6 | $ 1.4 | $ 1.5 |
Business Segments and Foreign Operations (Summarized Information By Reportable Segments) (Details) $ in Thousands |
12 Months Ended | |||||
|---|---|---|---|---|---|---|
|
Aug. 31, 2018
USD ($)
item
|
Aug. 31, 2017
USD ($)
|
Aug. 31, 2016
USD ($)
|
||||
| Segment Reporting Information [Line Items] | ||||||
| Number of reportable segments | item | 3 | |||||
| Net sales | $ 408,518 | $ 380,506 | $ 380,670 | |||
| Income from operations | 78,604 | 75,909 | 71,348 | |||
| Depreciation and amortization expense | 7,800 | 6,769 | 6,465 | |||
| Interest income | 454 | 508 | 683 | |||
| Interest expense | 4,219 | 2,582 | 1,703 | |||
| Unallocated Corporate [Member] | ||||||
| Segment Reporting Information [Line Items] | ||||||
| Income from operations | [1] | (25,689) | (24,548) | (23,920) | ||
| Depreciation and amortization expense | [1] | 784 | 155 | 30 | ||
| Americas Segment [Member] | ||||||
| Segment Reporting Information [Line Items] | ||||||
| Net sales | 192,878 | 184,929 | 191,397 | |||
| Income from operations | 48,954 | 48,303 | 48,404 | |||
| Depreciation and amortization expense | 4,142 | 4,270 | 4,071 | |||
| Interest income | 13 | 8 | 5 | |||
| Interest expense | 4,209 | 2,570 | 1,689 | |||
| EMEA Segments [Member] | ||||||
| Segment Reporting Information [Line Items] | ||||||
| Net sales | 150,878 | 136,771 | 135,235 | |||
| Income from operations | 36,241 | 35,389 | 31,702 | |||
| Depreciation and amortization expense | 2,561 | 2,090 | 2,084 | |||
| Interest income | 320 | 389 | 485 | |||
| Asia-Pacific Segment [Member] | ||||||
| Segment Reporting Information [Line Items] | ||||||
| Net sales | 64,762 | 58,806 | 54,038 | |||
| Income from operations | 19,098 | 16,765 | 15,162 | |||
| Depreciation and amortization expense | 313 | 254 | 280 | |||
| Interest income | 121 | 111 | 193 | |||
| Interest expense | $ 10 | $ 12 | $ 14 | |||
| ||||||
Business Segments And Foreign Operations (Schedule Of Net Sales By Product Group) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
|
| Revenue from External Customer [Line Items] | |||
| Net sales | $ 408,518 | $ 380,506 | $ 380,670 |
| Maintenance Products [Member] | |||
| Revenue from External Customer [Line Items] | |||
| Net sales | 372,391 | 342,295 | 339,974 |
| Homecare And Cleaning Products [Member] | |||
| Revenue from External Customer [Line Items] | |||
| Net sales | $ 36,127 | $ 38,211 | $ 40,696 |
Business Segments And Foreign Operations (Net Sales And Long-Lived Assets By Geographical Area) (Details) - USD ($) $ in Thousands |
12 Months Ended | |||||
|---|---|---|---|---|---|---|
Aug. 31, 2018 |
Aug. 31, 2017 |
Aug. 31, 2016 |
||||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||||
| Net sales | $ 408,518 | $ 380,506 | $ 380,670 | |||
| Long-lived assets | [1] | 36,357 | 29,439 | 11,545 | ||
| United States [Member] | ||||||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||||
| Net sales | 154,986 | 150,086 | 158,139 | |||
| Long-lived assets | [1] | 21,986 | 23,346 | 6,419 | ||
| International [Member] | ||||||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||||
| Net sales | 253,532 | 230,420 | 222,531 | |||
| Long-lived assets | [1] | $ 14,371 | $ 6,093 | $ 5,126 | ||
| ||||||
Subsequent Events (Narrative) (Details) - $ / shares |
12 Months Ended | |
|---|---|---|
Oct. 09, 2018 |
Aug. 31, 2018 |
|
| Subsequent Events [Line Items] | ||
| Dividend payable, declared date | Oct. 09, 2018 | |
| Dividends payable, date to be paid | Oct. 31, 2018 | |
| Dividend payable, record date | Oct. 19, 2018 | |
| Subsequent Events [Member] | ||
| Subsequent Events [Line Items] | ||
| Cash dividend declared | $ 0.54 |