UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended February 29,November 30, 2020
¨ | 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
Commission Company Name: WD 40 CO
WD-40 COMPANY
(Exact name of registrant as specified in its charter)
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Delaware |
| 95-1797918 |
(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 |
(Address of principal executive offices) |
| (Zip code) |
Registrant’s telephone number, including area code: (619) 275-1400
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes þ 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 þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ 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.¨
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of exchange on which registered | ||
Common stock, par value $0.001 per share | WDFC | NASDAQ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of April 3, 2020January 4, 2021 was 13,668,43913,688,203.
WD-40 COMPANY
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended February 29,November 30, 2020
TABLE OF CONTENTS
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Item 1. | ||
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Condensed Consolidated | 6 | |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 6. |
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PART 1 - FINANCIAL INFORMATION | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
WD-40 COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. The Company WD-40 Company (“the Company”), based in San Diego, California, is a global marketing organization dedicated to creating positive lasting memories by developing and selling products that solve problems in workshops, factories and homes around the world. The Company markets The Company’s Note 2. Basis of Presentation and Summary of Significant Accounting PoliciesBasis of Consolidation The condensed consolidated financial statements included herein have been prepared by the Company, without audit, according to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The August 31,
In the opinion of management, the unaudited financial information for the interim periods shown reflects all adjustments necessary for a fair statement thereof and such adjustments are of a normal recurring nature. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year. COVID-19 Considerations The COVID-19 pandemic has adversely impacted global economic conditions and has contributed to significant volatility in financial markets beginning in early calendar year 2020, as described in the “Significant Developments” section included in Part I – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Although the Company’s current estimates contemplate current conditions, the inputs into certain of the Company’s significant and critical accounting estimates include judgments and assumptions about the economic implications of the COVID-19 pandemic and how management expects them to change in the future, as appropriate. It is reasonably possible that actual results experienced may differ materially from the Company’s estimates in future periods, which could materially affect our results of operations and financial condition. Foreign Currency Forward Contracts In the normal course of business, the Company employs established policies and procedures to manage its exposure to fluctuations in foreign currency exchange rates. The 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 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
Recently Issued Accounting Standards In December 2019, the FASB issued ASU No. 2019-12, December 15, 2021, including interim periods within that fiscal year. 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. Note 3. Inventories Inventories consist primarily of raw materials and components, finished goods, and product held at third-party contract manufacturers. Inventories are stated at the lower of cost or market and cost is determined based on a first-in, first-out method or, for a portion of raw materials inventory, the average cost method. Inventories consisted of the following (in thousands):
Note 4. Property and Equipment Property and equipment, net, consisted of the following (in thousands):
Note 5. Goodwill and Other Intangible Assets Goodwill The following table summarizes the changes in the carrying amounts of goodwill by segment (in thousands):
coronavirus (“COVID-19”) pandemic significantly lower Definite-lived Intangible Assets The Company’s definite-lived intangible assets, which include the
There has been 0 impairment charge for the Changes in the carrying amounts of definite-lived intangible assets by segment for the
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.
Note 6. Leases The Company leases real estate for its regional sales offices, a research and development facility, and offices located at its international subsidiaries and branch locations. In addition, the Company leases an automobile fleet in the United States. The Company has also identified warehouse leases within certain third-party distribution center service contracts. All other leases are insignificant to the Company’s consolidated financial statements. To determine if a contract contains a lease, the Company assesses its contracts and determines if there is an identified asset for which the Company has obtained the right to control, as defined in ASC 842. The Company records right-of-use assets and lease liabilities on its consolidated balance sheets for leases with an expected term greater than one year. The lease term includes the committed lease term, also taking into account early termination and renewal options that management is reasonably certain to exercise. For leases that do not have a readily determinable implicit rate, the Company uses its estimated secured incremental borrowing rate based on the information available at the lease commencement date to determine the present value of lease payments. The Company’s estimated secured incremental borrowing rate is determined using a portfolio approach based on the rate of interest the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The Company uses the unsecured borrowing rate and risk-adjusts that rate to approximate a collateralized rate in the currency of the lease. As of
The Company recorded $0.5 million three Right-of-use assets and lease liabilities consisted of the following (in thousands):
(1)Current operating lease liabilities are classified in accrued liabilities on the Company’s condensed consolidated balance sheet.
The Company’s maturities of its operating lease liabilities, including early termination and renewal options that management is reasonably certain to exercise, are as
Note 7. Accrued and Other Liabilities Accrued liabilities consisted of the following (in thousands):
Accrued payroll and related expenses consisted of the following (in thousands):
Note 8. Debt As of Note Purchase and Private Shelf Agreement
Credit Agreement
(1)The Company (2)Principal payments are required semi-annually in May and November of (3)On September 30, 2020, the Company
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, declare, make or incur obligations to make certain restricted payments, including the payment of dividends and payments for the repurchase 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 to 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 The consolidated interest coverage ratio cannot be less than 3 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
Note 9. Share Repurchase Plan On Note 10. Earnings per Common ShareThe 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):
For the three months ended
Note 11. Revenue Recognition The following paragraphs detail the Company’s revenue recognition policies and provide additional information used in its determination of net sales and contract balances under ASC 606. Revenue Recognition The Company generates revenue from sales of its products to customers in its Americas, EMEA and Asia-Pacific segments. Product sales for the Company include maintenance products and homecare and cleaning products. The Company recognizes revenue related to the sale of these products when it satisfies a performance obligation in an amount reflecting the consideration to which it expects to be entitled. Sales are recorded net of allowances for damaged goods and other sales returns, sales incentives, trade promotions and cash discounts. The Company applies a five-step approach in determining the amount and timing of revenue to be recognized which includes the following: (1) identifying the contract with a customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing revenue when the performance obligation is satisfied. Contracts with customers are renewable periodically and contain terms and conditions with respect to payment, delivery, sales incentives, warranty and supply, but do not require mandatory purchase commitments. In the absence of a specific sales agreement with a customer, the Company’s standard terms and conditions at the time of acceptance of purchase orders apply to the sales transaction. The Company’s standard terms and conditions are either included in a standalone document or on the Company’s price lists or both, and these standard terms and conditions are provided to the customer prior to the sales transaction. The Company considers the customer purchase orders, governed by specific sales agreements or the Company’s standard terms and conditions, to be the contract with the customer. The Company considers each transaction to sell products as separate and distinct, with no additional promises made, and as a result, all of the Company's sales are single performance obligation arrangements for which the transaction price is equivalent to the stated price of the product, net of any variable consideration for items such as sales returns, discounts, rebates and other sales incentives. The Company recognizes sales at a point in time upon transferring control of its product to the customer. This typically occurs when products are shipped or delivered, depending on when risks of loss and title have passed to the customer per the terms of the contract. Taxes imposed by governmental authorities on the Company's revenue, such as sales taxes and value added taxes, are excluded from net sales. Sales commissions are paid to certain third parties based upon specific sales levels achieved during a defined time period. Since the Company’s contracts related to these sales commissions do not exceed one year, the Company has elected as a practical expedient to expense these payments as incurred. The Company also elected the practical expedient related to shipping and handling fees which allows the Company to account for freight costs as fulfillment activities instead of assessing such activities as performance obligations. The Company’s freight costs are sometimes paid by the customer, while other times, the freight costs are included in the sales price. The Company does not account for freight costs as a separate performance obligation, but rather as an activity performed to transfer the products to its customers. Variable Consideration - Sales Incentives In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment related to variable consideration to determine the net consideration to which the Company expects to be entitled. The Company records estimates of variable consideration, which primarily includes
Other discounts include items such as charges from customers for services they provide related to the sale of WD-40 Company products and penalties/fees associated with WD-40 Company failing to adhere to contractual obligations (e.g., errors on purchase orders, errors on shipment, late deliveries, etc.). Costs related to rebates, cooperative advertising and other promotional activities and other discounts are recorded as a reduction to sales upon delivery of the Company’s products to its customers. Coupons — 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. Coupon redemption liabilities, which are included in accrued liabilities on the Company’s condensed consolidated balance sheets, were not significant at Cash discounts — The Company offers certain of its customers a cash discount program to incentivize them to pay the invoice earlier than the normal payment date on the invoice. Although payment terms vary, most customers typically pay within 30 to 90 days of invoicing.
Sales returns — The Company recognizes revenue net of allowances for estimated returns, which is based on historical return rates, with a corresponding reduction to cost of products sold. Although the Company typically does not have definitive sales return provisions included in the contract terms with its customers, when such provisions have been included, they have not been significant. Disaggregation of Revenue The Company's revenue is presented on a disaggregated basis in Note internally for making operating decisions and assessing performance. The Chief Operating Decision Maker assesses and measures revenue based on geographic area and product groups. Contract Balances Contract liabilities
Note Purchase Commitments The Company has ongoing relationships with various suppliers (contract manufacturers) 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 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. As of 0 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. 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,” in its Annual Report on Form 10-K for the fiscal year ended August 31, 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, 0 liabilities have been recorded for these agreements as of 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, 0 liabilities have been recorded with respect to such indemnification agreements as of Note The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter. The provision for income taxes was
The Company is subject to taxation in the U.S. and in various state and foreign jurisdictions. The Company is currently under examination by various state taxing authorities. Due to expired statutes, the Company’s federal income tax returns for years prior to fiscal year 2017 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
Note 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 3 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 business segments and are reported separate from the Company’s identified segments. The corporate overhead costs include expenses for the Company’s accounting and finance, information technology, human resources, research and development, quality control and executive management functions, as well as all direct costs associated with public company compliance matters including legal, audit and other professional services costs. Summary information about reportable segments is as follows (in thousands):
(1)Unallocated corporate expenses are general corporate overhead expenses not directly attributable to any one of the business segments. These expenses are reported separate from the Company’s identified segments and are included in Selling, General and Administrative expenses on the Company’s condensed consolidated statements of operations. The Company’s Chief Operating Decision Maker does not review assets by segment as part of the financial information provided, and therefore, no asset information is provided in the above table. Net sales by product group are as follows (in thousands):
Note On
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations As used in this report, the terms “we,” “our,” “us” and “the Company” refer to WD-40 Company and its wholly-owned subsidiaries, unless the context suggests otherwise. Amounts and percentages in tables and discussions may not total due to rounding. The following information is provided as a supplement to, and should be read in conjunction with, the unaudited condensed consolidated financial statements and notes thereto included in Part I―Item 1 of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended August 31, In order to show the impact of changes in foreign currency exchange rates on our results of operations, we have included constant currency disclosures, where necessary, in the Overview and Results of Operations sections which follow. Constant currency disclosures represent the translation of our current fiscal year revenues and expenses from the functional currencies of our subsidiaries to U.S. dollars using the exchange rates in effect for the corresponding period of the prior fiscal year. We use results on a constant currency basis as one of the measures to understand our operating results and evaluate our performance in comparison to prior periods. Results on a constant currency basis are not in accordance with accounting principles generally accepted in the United States of America (“non-GAAP”) and should be considered in addition to, not as a substitute for, results prepared in accordance with GAAP. Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. This report contains forward-looking statements, which reflect the Company’s current views with respect to future events and financial performance. These forward-looking statements include, but are not limited to, discussions about future financial and operating results, including: growth expectations for maintenance products; expected levels of promotional and advertising spending; anticipated input costs for manufacturing and the costs associated with distribution of our products; 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; expected tax rates and the impact of tax legislation and regulatory action; the length and severity of the Actual events or results may differ materially from those projected in forward-looking statements due to various factors, including, but not limited to, those identified in Part I―Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 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 warehouse club stores, hardware stores, automotive parts outlets, industrial distributors and suppliers, mass retail and home center stores, HighlightsThe following summarizes the financial and operational highlights for our business during the Consolidated net sales
Gross profit as a percentage of net sales Consolidated net income Although consolidated results for the three months ended November 30, 2020 were significantly improved from the same period last fiscal year due to a variety of factors, the Company’s operations and business continue to be impacted by the COVID-19 pandemic. See Significant Developments section which follows for details. Diluted earnings per common share for the
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.
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Three Months Ended February 29/28, | Three Months Ended November 30, | |||||||||||||||||||||
Change from | Change from | |||||||||||||||||||||
2020 | 2019 | Dollars | Percent | 2020 | 2019 | Dollars | Percent | |||||||||||||||
Net sales: | ||||||||||||||||||||||
Maintenance products | $ | 91,147 | $ | 92,370 | $ | (1,223) | (1)% | $ | 114,343 | $ | 89,670 | $ | 24,673 | 28% | ||||||||
Homecare and cleaning products | 8,902 | 8,965 | (63) | (1)% | 10,216 | 8,886 | 1,330 | 15% | ||||||||||||||
Total net sales | 100,049 | 101,335 | (1,286) | (1)% | 124,559 | 98,556 | 26,003 | 26% | ||||||||||||||
Cost of products sold | 46,447 | 45,177 | 1,270 | 3% | 54,313 | 45,013 | 9,300 | 21% | ||||||||||||||
Gross profit | 53,602 | 56,158 | (2,556) | (5)% | 70,246 | 53,543 | 16,703 | 31% | ||||||||||||||
Operating expenses | 35,417 | 36,443 | (1,026) | (3)% | 41,854 | 38,839 | 3,015 | 8% | ||||||||||||||
Income from operations | $ | 18,185 | $ | 19,715 | $ | (1,530) | (8)% | $ | 28,392 | $ | 14,704 | $ | 13,688 | 93% | ||||||||
Net income | $ | 14,327 | $ | 15,906 | $ | (1,579) | (10)% | $ | 23,623 | $ | 12,194 | $ | 11,429 | 94% | ||||||||
Earnings per common share - diluted | $ | 1.04 | $ | 1.14 | $ | (0.10) | (9)% | $ | 1.72 | $ | 0.88 | $ | 0.84 | 95% | ||||||||
Shares used in per share calculations - diluted | 13,737 | 13,857 | (120) | (1)% | 13,706 | 13,746 | (40) | - | ||||||||||||||
Net Sales by Segment
The following table summarizes net sales by segment (in thousands, except percentages):
Three Months Ended February 29/28, | Three Months Ended November 30, | |||||||||||||||||||||
Change from | Change from | |||||||||||||||||||||
2020 | 2019 | Dollars | Percent | 2020 | 2019 | Dollars | Percent | |||||||||||||||
Americas | $ | 46,842 | $ | 43,897 | $ | 2,945 | 7% | $ | 54,188 | $ | 46,736 | $ | 7,452 | 16% | ||||||||
EMEA | 41,753 | 40,966 | 787 | 2% | 54,749 | 39,245 | 15,504 | 40% | ||||||||||||||
Asia-Pacific | 11,454 | 16,472 | (5,018) | (30)% | 15,622 | 12,575 | 3,047 | 24% | ||||||||||||||
Total | $ | 100,049 | $ | 101,335 | $ | (1,286) | (1)% | $ | 124,559 | $ | 98,556 | $ | 26,003 | 26% | ||||||||
Americas
The following table summarizes net sales by product line for the Americas segment (in thousands, except percentages):
Three Months Ended February 29/28, | Three Months Ended November 30, | |||||||||||||||||||||
Change from | Change from | |||||||||||||||||||||
2020 | 2019 | Dollars | Percent | 2020 | 2019 | Dollars | Percent | |||||||||||||||
Maintenance products | $ | 42,421 | $ | 39,202 | $ | 3,219 | 8% | $ | 48,503 | $ | 41,690 | $ | 6,813 | 16% | ||||||||
Homecare and cleaning products | 4,421 | 4,695 | (274) | (6)% | 5,685 | 5,046 | 639 | 13% | ||||||||||||||
Total | $ | 46,842 | $ | 43,897 | $ | 2,945 | 7% | $ | 54,188 | $ | 46,736 | $ | 7,452 | 16% | ||||||||
% of consolidated net sales | 47% | 43% | 44% | 47% | ||||||||||||||||||
Sales in the Americas segment, which includes the U.S., Canada and Latin America, increased to $46.8,$54.2 million, up $2.9$7.5 million, or 7%16%, for the three months ended February 29,November 30, 2020 compared to the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates did not have a significant impact on sales for the three months ended February 29,November 30, 2020 compared to the corresponding period of the prior fiscal year.
Sales of maintenance products in the Americas segment increased $3.2$6.8 million, or 8%16%, for the three months ended February 29,November 30, 2020 compared to the corresponding period of the prior fiscal year. This sales increase was mainly driven by higherincreased sales of WD-40 Multi Use Productmaintenance products in the U.S., and Latin America, which were up $1.8$3.4 million and $2.8 million, or 7%10% and 42%, respectively, from period to period. In addition, sales of maintenance products in Canada increased $0.6 million from period primarilyto period. Increased demand for our product as a result of a higher level of renovation and maintenance activities exhibited by our end-users during the COVID-19 pandemic resulted in increased sales of maintenance products across the Americas, including within the e-commerce channel. This increased demand resulted in sales increases period over period in the Americas of WD-40 Multi-Use Product, WD-40 Specialist and WD-40 Bike of 14%, 20% and 295%, respectively. In addition, sales in Latin America increased due to the success of certain promotional activities transition to the direct marketing model in Mexico. In the secondthird quarter of fiscal year 2020,. Sales of maintenance we shifted away from a distribution model for Mexico where we sold products through a large wholesale customer who then supplied various retail customers, to one where we sell direct to these retail customers. This resulted in Canada also increased $0.6 million, or 25%, from period to period primarily due to successful promotional programssales in Latin America during the three months ended February 29, 2020 and the timingfirst quarter of customer orders from period to period. Also contributingfiscal year 2021 compared to the overall sales increasecorresponding period 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 $0.6 million, or 15%, from period to period due to successful promotional programs and expanded distribution in the online channel from period to period.prior fiscal year.
Sales of homecare and cleaning products in the Americas decreased $0.3increased $0.6 million, or 6%13%, for the three months ended February 29,November 30, 2020compared to the corresponding period of the prior fiscal year. This sales decreaseincrease was driven primarily by a decreasean increase in sales of the Spot Shot and Lava2000 Flushes brand products in the U.S., which were down 15% and 20%, respectively,up $0.7 million or 47% from period to period. We experienced a significant increase in sales of our homecare and cleaning products beginning in the third quarter of fiscal year 2020 due to increased demand for such products as a result of the COVID-19 pandemic. We are not able at this time to estimate the duration of this unexpected increase in the demand for these products and its impact on our financial results and operations in future periods. While each of our homecare and cleaning products continuehave continued to generate positive cash flows, we have continued to experiencehad experienced decreased or flat sales for many of these products primarily duein recent fiscal years prior to lost distribution, reduced product offerings, competition, category declines and the volatilitystart of orders from promotional programs with certain of our customers, particularly those in the warehouse club and mass retail channels.COVID-19 pandemic.
For the Americas segment, 78%76% of sales came from the U.S., and 22%24% of sales came from Canada and Latin America combined for both the three months ended February 29,November 30, 2020 compared to the distribution for the three months ended November 30, 2019 when 80% of sales came from the U.S., and February 28, 2019.20% of sales came from Canada and Latin America.
EMEA
The following table summarizes net sales by product line for the EMEA segment (in thousands, except percentages):
Three Months Ended February 29/28, | Three Months Ended November 30, | |||||||||||||||||||||
Change from | Change from | |||||||||||||||||||||
2020 | 2019 | Dollars | Percent | 2020 | 2019 | Dollars | Percent | |||||||||||||||
Maintenance products | $ | 38,974 | $ | 38,457 | $ | 517 | 1% | $ | 52,376 | $ | 36,900 | $ | 15,476 | 42% | ||||||||
Homecare and cleaning products | 2,779 | 2,509 | 270 | 11% | 2,373 | 2,345 | 28 | 1% | ||||||||||||||
Total | $ | 41,753 | $ | 40,966 | $ | 787 | 2% | $ | 54,749 | $ | 39,245 | $ | 15,504 | 40% | ||||||||
% of consolidated net sales | 42% | 41% | 44% | 40% | ||||||||||||||||||
(1)While the Company’s reporting currency is the 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 $41.8$54.7 million, up $0.8$15.5 million, or 2%40%, for the three months ended February 29,November 30, 2020 compared to the corresponding period of 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 three months ended February 29,November 30, 2020 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $41.3$52.1 million in the EMEA segment. Thus, on a constant currency basis, sales would have increased by $0.3$12.8 million, or 1%, from period to period.
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 $1.9 million, or 7% for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $1.5 million, or 8%, increase in sales of the WD-40 Multi-Use Product throughout most markets.This increase in sales was primarily due to a higher level of promotional activities and the timing of customer orders from period to period. In addition, sales of 1001 Carpet Fresh in the U.K. increased $0.3 million, or 10%, as a result of the favorable impacts of digital marketing associated with this brand. Sales from direct markets accounted for 71% of the EMEA segment’s sales for the three months ended February 29, 2020 compared to 68% for the corresponding period of 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 decreased $1.1 million, or 8%, for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year, primarily due to lower sales of the WD-40 Multi-Use Product in Eastern Europe and India, which were down 13% and 38%, respectively. This decrease in sales from period to period was primarily the result of shipments of product being delayed to customers in these regions due to extraordinary weather conditions near the end of the second quarter of fiscal year 2020. The distributor markets accounted for 29% of the EMEA segment’s total sales for the three months ended February 29, 2020, compared to 32% for the corresponding period of the prior fiscal year.
Asia-Pacific
The following table summarizes net sales by product line for the Asia-Pacific segment (in thousands, except percentages):
Three Months Ended February 29/28, | |||||||||||
Change from | |||||||||||
2020 | 2019 | Dollars | Percent | ||||||||
Maintenance products | $ | 9,751 | $ | 14,711 | $ | (4,960) | (34)% | ||||
Homecare and cleaning products | 1,703 | 1,761 | (58) | (3)% | |||||||
Total | $ | 11,454 | $ | 16,472 | $ | (5,018) | (30)% | ||||
% of consolidated net sales | 11% | 16% | |||||||||
Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region, decreased to $11.5 million, down $5.0 million, or 30%, for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates did not have a significant impact on sales for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.
Sales in Asia, which represented 67% of the total sales in the Asia-Pacific segment, decreased $4.7 million, or 38%, for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year. Sales in the Asia distributor markets decreased $1.3 million, or 17%, primarily attributable to the timing of customer orders from period to period, particularly in Indonesia, South Korea and Thailand. Sales in China decreased $3.4 million, or 70%, for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year due to various disruptions in the market. These disruptions include those related to supply chain, transportation and demand for our product, as a result of the government’s response to the public health crisis caused by COVID-19 during the second quarter of fiscal year 2020. The impact to sales due to these disruptions were material since China had a significant number of orders that were expected to be shipped to customers after the Chinese New Year’s holiday in early February 2020 and those shipments could not take place due to COVID-19. The ongoing financial and operational impact to the Asia region from COVID-19 will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the outbreak of this virus and the actions being taken to contain it.
Sales in Australia decreased $0.3 million, or 8%, for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates had an unfavorable impact on Australian sales. On a constant currency basis, sales would have decreased by $0.1 million, or 3%.
Gross Profit
Gross profit decreased to $53.6 million for the three months ended February 29, 2020 compared to $56.2 million for the corresponding period of the prior fiscal year. As a percentage of net sales, gross profit decreased to 53.6% for the three months ended February 29, 2020 compared to 55.4% for the corresponding period of the prior fiscal year.
Gross margin was negatively impacted by 1.2 percentage points from period to period due to the combined effects of unfavorable impacts of changes to the sales mix and increases in other miscellaneous costs from period to period in all three segments. The unfavorable impacts in the Americas and EMEA segments were primarily due to unfavorable shifts in product and customer mix, as well as higher miscellaneous costs from period to period. The unfavorable sales mix impact in the Asia-Pacific segment was primarily attributable to market mix changes resulting from lower sales in China from period to period due to various disruptions in the market. These disruptions include those related to supply chain, transportation and demand for our product, as a result of the government’s response to the public health crisis caused by COVID-19 during the second quarter of fiscal year 2020. Gross margin was also negatively impacted by 1.1 percentage points from period to period due to higher warehousing and in-bound freight costs, primarily in the EMEA segment. In addition, gross margin was negatively impacted by 0.3 percentage points from period to period due to unfavorable changes in the costs of aerosol cans in the Americas and EMEA segments. Gross margin was also negatively impacted by 0.4 percentage points due to changes in foreign currency exchange rates from period to period in the EMEA segment.
These unfavorable impacts to gross margin were partially offset by sales price increases in the EMEA segment over the last twelve months positively impacting gross margin by 0.7 percentage points from period to period. In addition, decreases to advertising, promotional and other discounts that we give to our customers from period to period in all three segments, positively impacted gross margin by 0.3 percentage points. In general, the timing of advertising, promotional and other discounts may cause fluctuations in gross margin from period to period. The costs associated with certain promotional activities are recorded as a reduction to sales while others are recorded as advertising and sales promotion expenses. Advertising, promotional and other discounts that are given to our customers are recorded as a reduction to sales, whereas advertising and sales promotional costs associated with promotional activities that we pay to third parties are recorded as advertising and sales promotion expenses. Gross margin was also positively affected by 0.2 percentage points from period to period due to favorable changes in the costs of petroleum-based specialty chemicals, primarily in the Americas segment. Beginning in late February 2020, the price of crude oil dropped significantly from recent levels. However, 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. Although we expect favorability in fiscal year 2020 as a result of this decline in oil prices, the level to which gross margin will be impacted by such costs in future periods is uncertain due to the volatility of the price of crude oil.
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 $3.1 million and $4.2 million for the three months ended February 29, 2020 and February 28, 2019, respectively.
Selling, general and administrative (“SG&A”) expenses for the three months ended February 29, 2020 decreased $0.7 million to $29.9 million from $30.6 million for the corresponding period of the prior fiscal year. As a percentage of net sales, SG&A expenses decreased to 29.9% for the three months ended February 29, 2020 compared to 30.2% for the corresponding period of the prior fiscal year. Employee-related costs, which include salaries, incentive compensation, profit sharing, stock-based compensation and other fringe benefits, decreased by $0.8 million. This decrease was primarily due to lower earned incentive compensation from period to period, partially offset by increased headcount and annual compensation increases. These decreases were slightly offset by increased other miscellaneous expenses from period to period. Changes in foreign currency exchange rates did not have a significant impact on SG&A expenses for the three months ended February 29, 2020.
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 were $1.5 million for both the three months ended February 29, 2020 and February 28, 2019. 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 third-party contract manufacturers. 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 three months ended February 29, 2020 decreased $0.3 million, or 6%, to $4.9 million from $5.2 million for the corresponding period of the prior fiscal year. As a percentage of net sales, these expenses decreased to 4.9% for the three months ended February 29, 2020 from 5.1% for the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates did not have a significant impact on advertising and sales promotion expenses for the three months ended February 29, 2020. The decrease in advertising and sales promotion expenses was primarily due to a lower level of promotional programs and marketing support in the Asia-Pacific and Americas. At this time, the Company is not able to estimate its investment in global advertising and sales promotion expense for the remainder of fiscal year 2020 due to the uncertainty caused by COVID-19 and its impact on our financial results and operations.
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 for the three months ended February 29, 2020 were $4.5 million compared to $4.8 million for the corresponding
period of the prior fiscal year. Therefore, our total investment in advertising and sales promotion activities totaled $9.4 million and $10.0 million for the three months ended February 29, 2020 and February 28, 2019, respectively.
Amortization of our definite-lived intangible assets remained constant at $0.7 million for both the three months ended February 29, 2020 and February 28, 2019.
Income from Operations by Segment
The following table summarizes income from operations by segment (in thousands, except percentages):
Three Months Ended February 29/28, | |||||||||||
Change from | |||||||||||
2020 | 2019 | Dollars | Percent | ||||||||
Americas | $ | 11,400 | $ | 9,992 | $ | 1,408 | 14% | ||||
EMEA | 10,582 | 10,630 | (48) | - | |||||||
Asia-Pacific | 3,106 | 5,143 | (2,037) | (40)% | |||||||
Unallocated corporate (1) | (6,903) | (6,050) | (853) | (14)% | |||||||
Total | $ | 18,185 | $ | 19,715 | $ | (1,530) | (8)% | ||||
(1)Unallocated corporate expenses are general corporate overhead expenses not directly attributable to any one of the operating segments. These expenses are reported separate from the Company’s identified segments and are included in Selling, General and Administrative expenses on the Company’s condensed consolidated statements of operations.
Americas
Income from operations for the Americas increased to $11.4 million, up $1.4 million, or 14%, for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $2.9 million increase in sales and slightly lower operating expenses, which were partially offset by a lower gross margin. As a percentage of net sales, gross profit for the Americas segment decreased from 53.2% to 52.4% period over period primarily due to unfavorable shifts in product and customer mix, as well as higher miscellaneous costs and unfavorable changes in the costs of aerosol cans.These unfavorable impacts were slightly offset by the decreased costs of petroleum-based specialty chemicals and a lower level of discount that we gave our customers from period to period. Operating income as a percentage of net sales increased from 22.8% to 24.3% period over period.
EMEA
Income from operations for the EMEA segment remained relatively constant at $10.6 million from period to period. Although sales increased $0.8 million and operating expenses decreased from period to period, these favorable impacts were offset by a lower gross margin. Operating expenses decreased $0.8 million period over period, primarily due to lower accruals for earned incentive compensation. As a percentage of net sales, gross profit for the EMEA segment decreased from 58.2% to 55.0% period over period primarily due to increased warehousing, distribution and freight costs as well as unfavorable changes in sales mix and higher miscellaneous costs. These unfavorable impacts were partially offset by sales price increases, favorable changes in foreign currency exchange rates and a lower level of discounts that we gave our customers from period to period. Operating income as a percentage of net sales decreased from 25.9% to 25.3% period over period.
Asia-Pacific
Income from operations for the Asia-Pacific segment decreased to $3.1 million, down $2.0 million, or 40%, for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $5.0 million
decrease in sales and a lower gross margin, which were partially offset by lower operating expenses from period to period. As a percentage of net sales, gross profit for the Asia-Pacific segment decreased from 54.5% to 53.1% period over period primarily due to market mix changes resulting from lower sales in China from period to period due to various disruptions in the market. These disruptions include those related to supply chain, transportation and demand for our product, as a result of the government’s response to the public health crisis caused by COVID-19 during the second quarter of fiscal year 2020. In addition, gross margin was negatively impacted by increases in warehousing, distribution and freight costs from period to period. These unfavorable impacts were partially offset by the decreased costs of petroleum-based specialty chemicals period to period. The lower sales were accompanied by a $0.9 million decrease in total operating expenses period over period, primarily due to a lower level of advertising and sales promotion expenses from period to period.Operating income as a percentage of net sales decreased from 31.2% to 27.1% period over period.
Non-Operating Items
The following table summarizes non-operating income and expenses for our consolidated operations (in thousands):
Three Months Ended February 29/28, | ||||||||
2020 | 2019 | Change | ||||||
Interest income | $ | 28 | $ | 45 | $ | (17) | ||
Interest expense | $ | 593 | $ | 685 | $ | (92) | ||
Other (expense) income, net | $ | (229) | $ | 497 | $ | (726) | ||
Provision for income taxes | $ | 3,064 | $ | 3,666 | $ | (602) | ||
Interest income was insignificant for both the three months ended February 29, 2020 and February 28, 2019.
Interest expense remained relatively constant for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.
Other (Expense) Income, Net
Other (expense) income, net changed by $0.7 million for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year primarily due to foreign currency exchange losses of $0.2 million for the three months ended February 29, 2020 compared to foreign currency exchange gains of $0.5 million in the corresponding period of the prior fiscal year as a result of fluctuations in the foreign currency exchange rates for both the U.S. Dollar and the Euro against the Pound Sterling.
The provision for income taxes was 17.6% and 18.7% of income before income taxes for the three months ended February 29, 2020 and February 28, 2019, respectively. The decrease in the effective income tax rate from period to period was primarily due to an increase in excess tax benefits from settlements of stock-based equity awards during the quarter that are recognized in the provision for income tax, as well as an increase of taxable earnings from foreign operations which are taxed at lower tax rates.
Net Income
Net income was $14.3 million, or $1.04 per common share on a fully diluted basis, for the three months ended February 29, 2020 compared to $15.9 million, or $1.14 per common share on a fully diluted basis, for the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates did not have a significant impact on net income for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.
Six Months Ended February 29, 2020 Compared to Six Months Ended February 28, 2019
Operating Items
The following table summarizes operating data for our consolidated operations (in thousands, except percentages and per share amounts):
Six Months Ended February 29/28, | |||||||||||
Change from | |||||||||||
2020 | 2019 | Dollars | Percent | ||||||||
Net sales: | |||||||||||
Maintenance products | $ | 180,817 | $ | 184,838 | $ | (4,021) | (2)% | ||||
Homecare and cleaning products | 17,788 | 17,779 | 9 | - | |||||||
Total net sales | 198,605 | 202,617 | (4,012) | (2)% | |||||||
Cost of products sold | 91,460 | 90,628 | 832 | 1% | |||||||
Gross profit | 107,145 | 111,989 | (4,844) | (4)% | |||||||
Operating expenses | 74,256 | 75,873 | (1,617) | (2)% | |||||||
Income from operations | $ | 32,889 | $ | 36,116 | $ | (3,227) | (9)% | ||||
Net income | $ | 26,521 | $ | 29,185 | $ | (2,664) | (9)% | ||||
Earnings per common share - diluted | $ | 1.92 | $ | 2.09 | $ | (0.17) | (8)% | ||||
Shares used in per share calculations - diluted | 13,741 | 13,869 | (128) | (1)% | |||||||
Net Sales by Segment
The following table summarizes net sales by segment (in thousands, except percentages):
Six Months Ended February 29/28, | |||||||||||
Change from | |||||||||||
2020 | 2019 | Dollars | Percent | ||||||||
Americas | $ | 93,578 | $ | 91,688 | $ | 1,890 | 2% | ||||
EMEA | 80,998 | 79,711 | 1,287 | 2% | |||||||
Asia-Pacific | 24,029 | 31,218 | (7,189) | (23)% | |||||||
Total | $ | 198,605 | $ | 202,617 | $ | (4,012) | (2)% | ||||
Americas
The following table summarizes net sales by product line for the Americas segment (in thousands, except percentages):
Six Months Ended February 29/28, | |||||||||||
Change from | |||||||||||
2020 | 2019 | Dollars | Percent | ||||||||
Maintenance products | $ | 84,111 | $ | 81,620 | $ | 2,491 | 3% | ||||
Homecare and cleaning products | 9,467 | 10,068 | (601) | (6)% | |||||||
Total | $ | 93,578 | $ | 91,688 | $ | 1,890 | 2% | ||||
% of consolidated net sales | 47% | 45% | |||||||||
Sales in the Americas segment, which includes the U.S., Canada and Latin America, increased to $93.6 million, up $1.9 million, or 2%, for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates did not have a significant impact on sales for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.
Sales of maintenance products in the Americas segment increased $2.5 million, or 3%, for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year. This sales increase was mainly driven by higher sales of WD-40 Multi Use Product in the U.S., which were up $1.8 million, or 4% from period to period primarily due to the success of certain promotional activities in the second quarter of fiscal year 2020. Sales of maintenance products in Canada also increased $0.6 million, or 11%, from period to period primarily due to successful promotional programs during the three months ended February 29, 2020.
Sales of homecare and cleaning products in the Americas decreased $0.6 million, or 6%, for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year. This sales decrease was driven primarily by a decrease in sales of the Spot Shot and Lava brand products in the U.S., which were down 16% and 14%, 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, 79% of sales came from the U.S., and 21% of sales came from Canada and Latin America combined for the six months ended February 29, 2020 compared to the distribution for the six months ended February 28, 2019 when 80% of sales came from the U.S., and 20% of sales came from Canada and Latin America.
EMEA
The following table summarizes net sales by product line for the EMEA segment (in thousands, except percentages):
Six Months Ended February 29/28, | |||||||||||
Change from | |||||||||||
2020 | 2019 | Dollars | Percent | ||||||||
Maintenance products | $ | 75,874 | $ | 75,402 | $ | 472 | 1% | ||||
Homecare and cleaning products | 5,124 | 4,309 | 815 | 19% | |||||||
Total | $ | 80,998 | $ | 79,711 | $ | 1,287 | 2% | ||||
% of consolidated net sales | 41% | 39% | |||||||||
Sales in the EMEA segment, which includes Europe, the Middle East, Africa and India, increased to $81.0 million, up $1.3 million, or 2%, for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates had an unfavorable impact on sales for the EMEA segment from period to period. Sales for the six months ended February 29, 2020 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $82.4 million in the EMEA segment. Thus, on a constant currency basis, sales would have increased by $2.7 million, or 3%33%, from period to period.
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 to $54.4$35.4 million, up $2.0$10.6 million, or 4%43%, for the sixthree months ended February 29,November 30, 2020, compared to the corresponding period of the prior fiscal yearprimarily due to a $1.1 million, or 3%, increase inincreased sales of the WD-40 Multi-Use Product and WD-40 Specialist of $7.1 million or 41% and $1.7 million or 61%, respectively, throughout mostthe direct markets. This increase in sales was primarily due to increased demand for our products as a result of a higher level of promotionalrenovation and maintenance activities exhibited by our end-users during the COVID-19 pandemic. This increased demand and consumption of our products resulted in increased sales, particularly within the timing of customer orders from period to period. In addition, sales of 1001 Carpet Fresh in the U.K. increased $0.8 million, or 19%, as a result of the favorable impacts of digital marketing associated with this brand.e-commerce channel. Sales from direct markets accounted for 67%65% of the EMEA segment’s sales for the sixthree months ended February 29,November 30, 2020 compared to 66%63% for the corresponding period of the prior fiscal year.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 decreased $0.7increased $4.9 million, or 2%34%, for the sixthree months ended February 29,November 30, 2020 compared to the corresponding period of the prior fiscal year, primarily due to lowerincreased sales of the WD-40 Multi-Use Product in theNorthern Europe, Eastern Europe and India, which were down 6%up 62%, 24% and 27%120%, respectively. This decreaseincrease in sales from period to period was primarily the result of shipments of product being delayed to customers in these regions due to extraordinary weather conditions nearrecoveries experienced during the end of the secondfirst quarter of fiscal year 2020. 2021 in distributor markets that previously experienced more severe lockdowns during the second half of fiscal year 2020 due to the COVID-19 pandemic. During the first quarter of fiscal year 2021, many of these regions experienced improved economic conditions as a result of reductions in COVID-19 related restrictions. This allowed our marketing distributors to participate in more of our promotional activities and to adjust to more normal levels of inventory for our product, which resulted in increased sales. In addition, continued increases in renovation and maintenance activities by end-users during the pandemic also positively impacted sales in some of our distributor markets. The distributor markets accounted for 33%35% of the EMEA segment’s total sales for the sixthree months ended February 29,November 30, 2020, compared to 34%37% for the corresponding period of the prior fiscal year.year.
Asia-Pacific
The following table summarizes net sales by product line for the Asia-Pacific segment (in thousands, except percentages):
Six Months Ended February 29/28, | Three Months Ended November 30, | |||||||||||||||||||||
Change from | Change from | |||||||||||||||||||||
2020 | 2019 | Dollars | Percent | 2020 | 2019 | Dollars | Percent | |||||||||||||||
Maintenance products | $ | 20,832 | $ | 27,816 | $ | (6,984) | (25)% | $ | 13,464 | $ | 11,081 | $ | 2,383 | 22% | ||||||||
Homecare and cleaning products | 3,197 | 3,402 | (205) | (6)% | 2,158 | 1,494 | 664 | 44% | ||||||||||||||
Total | $ | 24,029 | $ | 31,218 | $ | (7,189) | (23)% | $ | 15,622 | $ | 12,575 | $ | 3,047 | 24% | ||||||||
% of consolidated net sales | 12% | 16% | 12% | 13% | ||||||||||||||||||
Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region, decreasedincreased to $24.0$15.6 million, down $7.2up $3.0 million, or 23%24%, for the sixthree months ended February 29,November 30, 2020 compared to the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates had an unfavorablea favorable impact on sales for the Asia-Pacific segment from period to period. Sales for the sixthree months ended February 29,November 30, 2020 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $24.5$15.2 million in the Asia-Pacific segment. Thus, on a constant currency basis, sales would have decreasedincreased by $6.7$2.6 million, or 21%, from period to period.
Sales in Asia, which represented 67% of the total sales in the Asia-Pacific segment, decreased $7.0increased $1.9 million, or 30%23%, for the sixthree months ended February 29,November 30, 2020 compared to the corresponding period of the prior fiscal year. Sales in the Asia distributor markets decreased $3.0China increased $1.2 million, or 19%53%, primarily attributabledue to the timing of customer orders from periodas well as increased sales within the e-commerce channel during the first quarter of fiscal year 2021. In addition, sales in China during the first quarter of fiscal year 2020 were negatively impacted due to period, particularlyactivities associated with the country’s preparation for the 70th Anniversary National Day in Indonesia, South Korea, MalaysiaChina which resulted in temporary factory closures and Thailand.slowed market conditions, with no comparable event occurring in the first quarter of the current fiscal year. Sales in China decreased $4.1the Asia distributor markets increased $0.7 million, or 52%11%, for the sixthree months ended February 29,November 30, 2020 compared to the corresponding period of the prior fiscal yearyear. These increased sales were primarily due to various disruptionsthe easing of COVID-19 lockdown measures in the market. These disruptions include those related to supply chain, transportation and demand for our product, as a resultmany of the government’s response to the public health crisis caused by COVID-19Asia markets during the secondfirst quarter of fiscal year 2021 compared to late in fiscal year 2020. The impactThese reduced lockdown measures have positively impacted economic conditions in industrial channels and resulted in marketing distributors adjusting to more normal levels of our product, which resulted in increased sales due to these disruptions were material since China had a significant number of orders that were expected to be shipped to customers after the Chinese New Year’s holiday in early February 2020 and those shipments could not take place due to COVID-19. The ongoing financial and operational impact to the Asia region from COVID-19 will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the outbreak of the virus and the actions being taken to contain it.period over period.
Sales in Australia decreased $0.2increased $1.1 million, or 2%28%, for the sixthree months ended February 29,November 30, 2020 compared to the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates had an unfavorablea favorable impact on Australian sales.sales in Australia. On a constant currency basis, sales in Australia would have increased by $0.3$0.8 million, or 3%21%, primarily due to continued increased demand for homecare and cleaning products, which were up $0.7 million, or 44%, as a result of the COVID-19 pandemic. In addition, sales of WD-40 Multi Use Product and WD-40 Specialist were up 20% and 25%, respectively, from period to period primarily due to a higher level of promotionalrenovation and maintenance activities as well asexhibited by our end-users during the COVID-19 pandemic which resulted in increased sales. Negative sales impacts to Australia due to the COVID-19 pandemic have continued growthto be limited in fiscal year 2021 since COVID-19 case numbers have remained relatively low in Australia since the initial outbreak and governmental authorities have adopted less severe lockdown requirements. This has resulted in many of our key customers remaining open for business from period to period.during the COVID-19 pandemic.
Gross Profit
Gross profit decreasedincreased to $107.1$70.2 million for the sixthree months ended February 29,November 30, 2020 compared to $112.0$53.5 million for the corresponding period of the prior fiscal year. As a percentage of net sales, gross profit decreasedincreased to 53.9%56.4% for the sixthree months ended February 29,November 30, 2020 compared to 55.3%54.3% for the corresponding period of the prior fiscal year.
Gross margin was negativelyfavorably impacted by 1.2 percentage points from period to period due to the combined effects of unfavorable impacts of changes to the sales mix and increases in other miscellaneous costs from period to period in all three segments. The unfavorable impacts in the Americas and EMEA segments were primarily due to unfavorable shifts in product and customer mix, as well as higher miscellaneous costs from period to period. The unfavorable sales mix impact in the Asia-Pacific segment was primarily due to market mix changes resulting from lower sales in China from period to period due to various disruptions in the market. These disruptions include those related to supply chain, transportation and demand for our product, as a result of the government’s response to the public health crisis caused by COVID-19 during the second quarter of fiscal year 2020. Gross margin was also negatively impacted by 1.0 percentage points from period to period due to higher warehousing and in-bound freight costs, primarily in the EMEA segment. In addition, gross margin was negatively impacted
by 0.2 percentage points from period to period due to unfavorable changes in the costs of aerosol cans in all three segments. Gross margin was also negatively impacted by 0.1 percentage points due to changes in foreign currency exchange rates from period to period in the EMEA segment.
These unfavorable impacts to gross margin were partially offset by sales price increases in the EMEA segment over the last twelve months positively impacting gross margin by 0.8 percentage points from period to period. Gross margin was also positively affected by 0.32.6 percentage points from period to period due to favorable changes in the costs of petroleum-based specialty chemicals in all three segments. Beginning in late February 2020, the price of crude oil dropped significantly for a period of several months. Although the price of crude oil has partially recovered in recent months, it has not returned to the much higher levels seen during the first quarter of the prior fiscal year. There is often a delay of one quarter
or more before changes in raw material costs impact the 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 lower during the first quarter of fiscal year 2021 compared to the corresponding period of the prior fiscal year, thus resulting in favorable 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 positively impacted by 0.8 percentage points due to favorable changes in the costs of aerosol cans in the EMEA and Americas segments. In addition, gross margin was positively impacted by 0.4 percentage points from period to period due to sales price increases, primarily in the EMEA and Asia Pacific segments during the last twelve months.
These favorable impacts to gross margin were partially offset by higher warehousing and in-bound freight costs, primarily in the EMEA and Americas segments, negatively impacting gross margin by 1.2 percentage points from period to period. Gross margin was also negatively impacted by 0.5 percentage points from period to period due to the combined effects of unfavorable impacts of changes to sales mix, related to market, product and customer mix, as well as increases in other miscellaneous costs from period to period in the Americas and EMEA segments.
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 $6.1$4.1 million and $8.3$3.0 million for the sixthree months ended February 29,November 30, 2020 and February 28, 2019, respectively.
Selling, general and administrative (“SG&A”) expenses for the sixthree months ended February 29,November 30, 2020 decreased $0.8increased $3.4 million to $62.5$36.0 million from $63.3$32.6 million for the corresponding period of the prior fiscal year. As a percentage of net sales, SG&A expenses increaseddecreased to 31.5%28.9% for the sixthree months ended February 29,November 30, 2020 compared to 31.3%33.1% for the corresponding period of the prior fiscal year. This decreaseThe increase in SG&A expenses from period to period was primarily due to lowera variety of factors, but most significantly due to increased employee-related costs of $3.0 million due to increased earned incentive compensation, of $1.6 millionincreased headcount, and a favorable impact of $0.4 million duehigher stock-based compensation from period to changesperiod. Increases in freight costs associated with higher sales from period to period also increased SG&A expenses by $1.0 million. Changes in foreign currency exchange rates from period to period. This decrease was partially offsetperiod increased SG&A expenses by $0.6 million. In addition, professional services fees, including cloud-based software, increased headcount$0.6 million and annual compensation increasesother miscellaneous expenses increased $0.4 million from period to period,period. These increases to SG&A were offset by a decrease in travel and meeting expenses of $2.2 million. Travel and meeting expenses decreased primarily due to continued initiatives to reduce the transmission of COVID-19, including the imposition of business travel restrictions for all employees and the cancellation of all large meetings, such as well as higher stock-based compensation expenseregional sales meetings and increasesglobal leadership meetings, in other miscellaneous expenses from period to period.support of social distancing requirements.
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 were $3.2$1.6 million and $3.3$1.7 million for the sixthree months ended February 29,November 30, 2020 and February 29, 2019, respectively. Our research and development team engages in consumer research, product development, current product improvements and testing activities. This team leverages its development capabilities by partnering with a network of outside resources including our current and prospective third-party contract manufacturers. 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 sixthree months ended February 29,November 30, 2020 decreased $0.7$0.1 million, or 6%1%, to $10.4$5.5 million from $11.1$5.6 million for the corresponding period of the prior fiscal year. As a percentage of net sales, these expenses increaseddecreased to 5.3%4.4% for the sixthree months ended February 29,November 30, 2020 from 5.5%5.7% for the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates did not have a significant impact on advertising and sales promotion expenses for the sixthree months ended February 29,November 30, 2020. The decrease in advertising and sales promotion expenses was primarily within the Asia-Pacific segment due to differences in the timing of promotional activities from period to period as well as a lower level of promotional programstrade shows and marketing supportactivities due to the COVID-19 pandemic. Advertising and sales promotion expenses as a percentage of net sales was significantly lower in the Americasfirst quarter of fiscal year 2021 compared to the corresponding period of the prior fiscal year, partially due to higher sales and Asia-Pacific segment.a reduction of activities at physical
locations in all three segments due to indirect effects of the COVID-19 pandemic, including the cancellations of trade shows and fewer opportunities for physical marketing and sampling activities.
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 for the sixthree months ended February 29,November 30, 2020 were $9.5$5.8 million compared to $9.1$5.0 million for the corresponding period of the prior fiscal year. Therefore, our total investment in advertising and sales promotion activities totaled $19.9$11.3 million and $20.2$10.6 million for the sixthree months ended February 29,November 30, 2020 and February 28, 2019, respectively.
Amortization of our definite-lived intangible assets decreased to $1.3$0.4 million for the sixthree months ended February 29,November 30, 2020 compared to $1.4$0.7 million for the sixthree months ended February 28, 2019.
November 30, 2019 due to decreased amortization associated with the 2000 Flushes trade name, which became fully amortized during the third quarter of fiscal year 2020.
Income from Operations by Segment
The following table summarizes income from operations by segment (in thousands, except percentages):
Six Months Ended February 29/28, | Three Months Ended November 30, | |||||||||||||||||||||
Change from | Change from | |||||||||||||||||||||
2020 | 2019 | Dollars | Percent | 2020 | 2019 | Dollars | Percent | |||||||||||||||
Americas | $ | 21,980 | $ | 21,294 | $ | 686 | 3% | $ | 14,626 | $ | 10,580 | $ | 4,046 | 38% | ||||||||
EMEA | 19,174 | 19,005 | 169 | 1% | 17,743 | 8,592 | 9,151 | 107% | ||||||||||||||
Asia-Pacific | 6,308 | 8,884 | (2,576) | (29)% | 5,060 | 3,202 | 1,858 | 58% | ||||||||||||||
Unallocated corporate | (14,573) | (13,067) | (1,506) | (12)% | (9,037) | (7,670) | (1,367) | (18)% | ||||||||||||||
Total | $ | 32,889 | $ | 36,116 | $ | (3,227) | (9)% | $ | 28,392 | $ | 14,704 | $ | 13,688 | 93% | ||||||||
Americas
Income from operations for the Americas increased to $22.0$14.6 million, up $0.7$4.0 million, or 3%38%, for the sixthree months ended February 29,November 30, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $1.9$7.5 million increase in sales and lower operating expenses,a higher gross margin, partially offset by a lower gross margin.higher operating expenses. As a percentage of net sales, gross profit for the Americas segment decreasedincreased from 53.7%53.1% to 52.8%54.2% period over period primarily due to unfavorable shifts in product and customer mix, as well as higher miscellaneous costs and unfavorable changes in the costs of aerosol cans. These unfavorablethe combined favorable impacts were slightly offset by theof decreased costs of petroleum-based specialty chemicals and aerosol cans from period to period.period, as well as decreases to advertising, promotional, and other discounts that we give to our customers. These favorable impacts to gross margin were partially offset by increases in warehousing, distribution and freight costs as well as unfavorable changes in sales mix and higher miscellaneous costs. Operating expenses decreasedincreased $0.5 million period over period, primarily due to lowerhigher accruals for earned incentive compensation.compensation and other employee-related costs, as well as higher outbound freight costs due to the increase in sales from period to period. These decreasesincreases in operating expenses were partially offset by increased employee-relatedlower travel and meeting expenses due to initiatives adopted by the Company during the third quarter of fiscal year 2020 to reduce the transmission of COVID-19 and decreased amortization from period to period.. Operating income as a percentage of net sales increased from 23.2%22.6% to 23.5%27.0% period over period.
EMEA
Income from operations for the EMEA segment increased to $19.2$17.7 million, up $0.2$9.2 million, or 1%107%, for the sixthree months ended February 29,November 30, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $1.3$15.5 million increase in sales and lower operating expenses, which were significantlya higher gross margin, partially offset by a lower gross margin. Operating expenses decreased $1.1 million period over period, primarily due to lower accruals for earned incentive compensation. higher operating expenses. As a percentage of net sales, gross profit for the EMEA segment decreasedincreased from 57.5%55.9% to 55.4%58.5% period over period primarily due to the combined favorable impacts of decreased costs of petroleum-based specialty chemicals and aerosol cans from period to period, increasedas well as sales price increases from period to period. These favorable impacts to gross margin were partially offset by increases in warehousing, distribution and freight costs, as well as unfavorable changes in sales mix and higher miscellaneous costs from period to period. Operating expenses
increased $0.9 million period over period, primarily due to increased outbound freight costs due to the higher sales, as well as higher accruals for earned incentive compensation and other employee-related costs. These unfavorable impactsincreases in operating expenses were partially offset by sales price increases from periodlower travel and meeting expenses due to period. the Company’s COVID-19 pandemic reduced travel initiatives. Operating income as a percentage of net sales decreasedincreased from 23.8%21.9% to 23.7%32.4% period over period.
Asia-Pacific
Income from operations for the Asia-Pacific segment decreasedincreased to $6.3$5.1 million, down $2.6up $1.9 million, or 29%58%, for the sixthree months ended February 29,November 30, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $7.2$3.0 million decreaseincrease in sales and a slightly lowerhigher gross margin, which were partially offset by lowerslightly higher operating expenses. As a percentage of net sales, gross profit for the Asia-Pacific segment decreasedincreased from 54.4%54.0% to 53.6%56.7% period over period primarily due to decreases to the cost of petroleum-based specialty chemicals and favorable changes in both sales product mix and market mix, changes resulting from loweras well as sales in Chinaprice increases from period to period due. These favorable impacts to the various disruptions in the market. These disruptions include those related to supply chain, transportation and demand for our product, as a result of the government’s response to the public health crisis caused by COVID-19 during the second quarter of fiscal year 2020. In addition, gross margin was negatively impacted by increases in warehousing, distribution and freight costs from period to period. These unfavorable impacts were partiallyslightly offset by the decreased costs of petroleum-based specialty chemicals from periodincreases to period.advertising, promotional, and other discounts that we give to our customers. The lowerincreased sales were accompanied by a $1.5$0.2 million decreaseincrease in total operating expenses period over period, primarily due to higher accruals for earned incentive compensation and increased outbound freight costs, which were partially offset by a lower level of advertising and sales promotion expense, as well as decreased outbound freight costs and miscellaneous expenses during thefrom period to period.Operating income as a percentage of net sales decreasedincreased from 28.5%25.5% to 26.2%32.4% period over period.
Non-Operating Items
The following table summarizes non-operating income and expenses for our consolidated operations (in thousands):
Six Months Ended February 29/28, | Three Months Ended November 30, | |||||||||||||||
2020 | 2019 | Change | 2020 | 2019 | Change | |||||||||||
Interest income | $ | 53 | $ | 96 | $ | (43) | $ | 19 | $ | 25 | $ | (6) | ||||
Interest expense | $ | 1,035 | $ | 1,395 | $ | (360) | $ | 570 | $ | 442 | $ | 128 | ||||
Other (expense) income, net | $ | (224) | $ | 873 | $ | (1,097) | ||||||||||
Other income (expense), net | $ | 179 | $ | 5 | $ | 174 | ||||||||||
Provision for income taxes | $ | 5,162 | $ | 6,505 | $ | (1,343) | $ | 4,397 | $ | 2,098 | $ | 2,299 | ||||
Interest income was insignificant for both the sixthree months ended February 29,November 30, 2020 and February 28, 2019.
Interest expense decreased $0.4increased $0.1 million for the sixthree months ended February 29,November 30, 2020 compared to the corresponding period of the prior fiscal year primarily due to lower interest rates related to drawshigher aggregate outstanding balances on our credit facilities that are denominated in Euros and Pound Sterling at our U.K. subsidiary.note agreements combined from period over period.
Other Income (Expense) Income,, Net
Other (expense) income (expense), net changed by $1.1 million for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year primarily due to foreign currency exchange losses of $0.4 million in the current year compared to $0.9 million of foreign currency gains during the corresponding period of the prior fiscal year as a result of fluctuations in the foreign currency exchange rateswas insignificant for both the U.S. Dollarthree months ended November 30, 2020 and the Euro against the Pound Sterling.2019.
The provision for income taxes was 16.3%15.7% and 18.2%14.7% of income before income taxes for the sixthree months ended February 29,November 30, 2020 and February 28, 2019, respectively. The decrease in the effective income tax rate from periodDiscrete benefits, primarily those related to period was primarily due to an increase in excess tax benefits from settlements of stock-based equity awards, reduced the effective income tax rate to a level significantly below the anticipated annual effective tax rate for each period. Although these discrete benefits increased from period to period, they decreased as a percentage of pre-tax income due to significantly higher pre-tax income during the secondfirst quarter that are recognizedof fiscal year 2021 and resulted in the provision fora higher effective income tax an increase of taxable earningsrate from foreign operations which are taxed at lower tax rates, and a benefit from the release of liabilities associated with unrecognized tax benefits that resulted from the expiration of statutes.period to period.
Net Income
Net income was $26.5$23.6 million, or $1.92$1.72 per common share on a fully diluted basis, for the sixthree months ended February 29,November 30, 2020 compared to $29.2$12.2 million, or $2.09$0.88 per common share on a fully diluted basis, for the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates had an unfavorablea favorable impact of $0.4$0.8 million on net income for the sixthree months ended February 29,November 30, 2020 compared to the corresponding period of the prior fiscal year. On a constant currency basis, net income would have decreasedincreased by $2.3$10.6 million from period to period.
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 at or 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 for the periods presented:
Three Months Ended February 29/28, | Six Months Ended February 29/28, | Three Months Ended November 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||
Gross margin - GAAP | 54% | 55% | 54% | 55% | 56% | 54% | ||||||||||
Cost of doing business as a percentage | ||||||||||||||||
of net sales - non-GAAP | 34% | 34% | 36% | 36% | 32% | 38% | ||||||||||
EBITDA as a percentage of net sales - non-GAAP (1) | 20% | 22% | 18% | 20% | 24% | 17% | ||||||||||
(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)
Three Months Ended February 29/28, | Six Months Ended February 29/28, | Three Months Ended November 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||
Total operating expenses - GAAP | $ | 35,417 | $ | 36,443 | $ | 74,256 | $ | 75,873 | $ | 41,854 | $ | 38,839 | ||||
Amortization of definite-lived intangible assets | (654) | (668) | (1,304) | (1,401) | (358) | (650) | ||||||||||
Depreciation (in operating departments) | (1,049) | (962) | (1,996) | (1,898) | (1,042) | (947) | ||||||||||
Cost of doing business | $ | 33,714 | $ | 34,813 | $ | 70,956 | $ | 72,574 | $ | 40,454 | $ | 37,242 | ||||
Net sales | $ | 100,049 | $ | 101,335 | $ | 198,605 | $ | 202,617 | $ | 124,559 | $ | 98,556 | ||||
Cost of doing business as a percentage | ||||||||||||||||
of net sales - non-GAAP | 34% | 34% | 36% | 36% | 32% | 38% | ||||||||||
EBITDA (in thousands, except percentages)
Three Months Ended February 29/28, | Six Months Ended February 29/28, | Three Months Ended November 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||
Net income - GAAP | $ | 14,327 | $ | 15,906 | $ | 26,521 | $ | 29,185 | $ | 23,623 | $ | 12,194 | ||||
Provision for income taxes | 3,064 | 3,666 | 5,162 | 6,505 | 4,397 | 2,098 | ||||||||||
Interest income | (28) | (45) | (53) | (96) | (19) | (25) | ||||||||||
Interest expense | 593 | 685 | 1,035 | 1,395 | 570 | 442 | ||||||||||
Amortization of definite-lived intangible assets | 654 | 668 | 1,304 | 1,401 | 358 | 650 | ||||||||||
Depreciation | 1,432 | 1,232 | 2,739 | 2,424 | 1,342 | 1,307 | ||||||||||
EBITDA | $ | 20,042 | $ | 22,112 | $ | 36,708 | $ | 40,814 | $ | 30,271 | $ | 16,666 | ||||
Net sales | $ | 100,049 | $ | 101,335 | $ | 198,605 | $ | 202,617 | $ | 124,559 | $ | 98,556 | ||||
EBITDA as a percentage of net sales - non-GAAP | 20% | 22% | 18% | 20% | 24% | 17% | ||||||||||
Liquidity and Capital Resources
Overview
The Company’s financial condition and liquidity remain strong. Net cash provided by operations was $23.4$23.9 million for the sixthree months ended February 29,November 30, 2020 compared to $17.2$15.2 million for the corresponding period of the prior fiscal year. Although there iscontinues to be a certain level of uncertainty related to the anticipated impact of the recentcurrent COVID-19 outbreakpandemic on the Company’s future results, we believe our efficient business model and the recent steps that we have taken to strengthen our balance sheet leave us positioned to manage our business through this crisis as it continues to unfold. 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, as well as cash generated from operations and cash currently available from our existing unsecured Credit Agreement with Bank of America. We use proceeds of the revolving credit facility primarily for our general working capital needs. The Company also holds borrowings under a Note Purchase and Private Shelf Agreement. See Note 8 – Debt and Note 16 – Subsequent Events for additional information on these agreements. Included in Note 168 – Subsequent EventsDebt is information on an Amended and Restatedthe Credit Agreement that we executedamended with Bank of America on March 13,September 30, 2020, which includes, among other amended provisions, an increaseand a third amendment to the Note Agreement. In the first quarter of fiscal year 2021, we refinanced existing draws under our Credit Agreement in the revolving commitment from $100.0 million to $150.0 million. DuringUnited States through the weekissuance of March 23, 2020, we drew an additional $80.0 million in U.S. Dollars under this line of credit with Bank of America, bringing the balance on the line of credit to approximately $149.0 million. As a result of this additional borrowing, we have now drawn almost the entirety of the $150.0 million availablenew notes under the Credit Agreement. Although we do not have any presently anticipated need for this additional liquidity, we decided to draw this additionalNote Agreement in the amount to ensure for future liquidity given the recent significant impact on global financial markets and the economy as a result of the COVID-19 outbreak.$52.0 million.
The Company maintainsWe have historically maintained a balance of outstanding draws on our line of credit in U.S. Dollars in the Americas segment, as well as in Euros and Pound Sterling in the EMEA segment. Euro and Pound Sterling denominated draws will fluctuate in U.S. Dollars from period to period due to changes in foreign currency exchange rates. During the six months ended February 29, 2020, the Companyfirst quarter of fiscal year 2021, we repaid $5.0$50.0 million in short-termof our U.S. borrowings outstanding under theour line of credit and drew an additional $10.0using $52.0 million in short-term borrowingsproceeds that we received on September 30, 2020 from the issuance and sale of the Series B and C Notes which mature in U.S. Dollars.November
2027 and 2030, respectively. Our remaining outstanding balance under our line of credit is denominated completely in Euros and Pound Sterling as of November 30, 2020. We regularly convert many of our draws on our line of credit to new draws with new maturity dates and interest rates. We have the ability to refinance any draws under the line of credit with successive short-term borrowings through the September 30, 2025 maturity date of the Credit Agreement. Outstanding draws for which we have both 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 February 29,November 30, 2020, we had a $68.5$45.9 million balance of outstanding draws on the revolving credit facility, all of which $43.5 was classified as long-term and the remaining $25.0 was classified as short-term.long-term. In addition, net borrowings under the auto-borrow agreement in the United States were $15.5 million and we paid $0.4 million in principal payments on our Series A Notes during the first sixthree months of fiscal year 2021, which had an outstanding balance of $17.6 million as of November 30, 2020. There were no other letters of credit outstanding or restrictions on the amount available on thisour line of credit or the Series A Notes.notes. Per the terms of both the Note Agreement and the Credit Agreement, our consolidated leverage ratio cannot be greater than three and a half to one and our consolidated interest coverage ratio cannot be less than three to one. See Note 8 – Debt for additional information on these financial covenants. At February 29,November 30, 2020, we were in compliance with all debt covenants. We continue to monitor our compliance with all debt covenants. Our consolidated leverage ratio and consolidated interest coverage ratio covenants, as
well as the restricted payment covenant pertaining to the payment of dividends, are dependent upon our ability to maintain certain levels of EBITDA and net income, respectively, for our most recently completed four fiscal quarters. At the present time, we have no reason to believe that we will bethe likelihood of being unable to satisfy these covenants but the COVID-19 outbreak has limited our ability to forecast EBITDA and net income for the remainder of the year.is remote.
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. activities and share repurchases. On April 8, 2020, we suspended repurchases under our most recent share buy-back plan, which subsequently expired on August 31, 2020, in order to preserve cash while we monitor the long-term impacts of the COVID-19 pandemic. Management does not expect to seek Board approval for a new share buy-back plan until it starts to see a reduced level of uncertainty regarding the pandemic’s impact on the economy. At February 29,November 30, 2020, we had a total of $30.5$65.8 million in cash and cash equivalents. We do not foresee any ongoing issues with repaying our borrowings and we closely monitor the use of this credit facility.
Cash Flows
The following table summarizes our cash flows by category for the periods presented (in thousands):
Six Months Ended February 29/28, | Three Months Ended November 30, | |||||||||||||||
2020 | 2019 | Change | 2020 | 2019 | Change | |||||||||||
Net cash provided by operating activities | $ | 23,382 | $ | 17,226 | $ | 6,156 | $ | 23,921 | $ | 15,206 | $ | 8,715 | ||||
Net cash used in investing activities | (10,483) | (4,882) | (5,601) | (3,670) | (5,770) | 2,100 | ||||||||||
Net cash used in financing activities | (9,816) | (28,498) | 18,682 | |||||||||||||
Net cash provided by (used in) financing activities | (11,089) | (8,520) | (2,569) | |||||||||||||
Effect of exchange rate changes on cash and cash equivalents | 187 | (1,116) | 1,303 | 220 | 531 | (311) | ||||||||||
Net increase (decrease) in cash and cash equivalents | $ | 3,270 | $ | (17,270) | $ | 20,540 | $ | 9,382 | $ | 1,447 | $ | 7,935 | ||||
Operating Activities
Net cash provided by operating activities increased $6.2$8.7 million to $23.4$23.9 million for the sixthree months ended February 29,November 30, 2020 from $17.2$15.2 million for the corresponding period of the prior fiscal year. Cash flows from operating activities depend heavily on operating performance and changes in working capital. Our primary source of operating cash flows for the sixthree months ended February 29,November 30, 2020 was net income of $26.5$23.6 million, which decreased $2.7increased $11.4 million from period to period. The changes in our working capital from period to period, which decreased net cash provided by operating activities, were primarily attributable to a lower level of increases in trade accounts receivable and inventory balances during the sixthree months ended February 29,November 30, 2020 compared to the corresponding period of the prior fiscal year as a result of significantly increased sales from period to period. These working capital changes were partially offset by increases in accounts payable in the EMEA segment related to increased production and the timing of payments to vendors from period to period. In addition, accrued payroll and related expenses decreased by a lower amount during the first quarter of fiscal year 2021 primarily due to lower payments of earned incentive compensation from period to period. The change in working capital was also impacted by increases to income tax accruals related to the higher pre-tax income during the first quarter of fiscal year 2021 compared to the corresponding period of the prior fiscal year.
Investing Activities
Net cash used in investing activities increased $5.6decreased $2.1 million to $10.5$3.7 million for the sixthree months ended February 29,November 30, 2020 from $4.9$5.8 million for the corresponding period of the prior fiscal year, primarily due to increaseddecreased capital expenditures. Capital expenditures increaseddecreased by $5.7$2.2 million primarily due to the renovations and equipping of the Company’s new office building in Milton Keynes, England as well as increased manufacturing-related capital expenditures within the U.K.that were occurring and the United States. The renovations to the new U.K. office building were completed and employees located in the U.K. were relocated to itfirst quarter of fiscal year 2020. Capital expenditures during the first quarter of 2020.fiscal year 2021 were primarily related to manufacturing equipment which is currently under construction and will be located at our third-party manufacturers in the United States and the United Kingdom once completed.
Financing Activities
Net cash used in financing activities decreased $18.7increased $2.6 million to $9.8$11.1 million for the sixthree months ended February 29,November 30, 2020 from $28.5$8.5 million for the corresponding period of the prior fiscal yearyear. This change was primarily due to highera decrease in net proceeds provided byfrom our debt instruments of $5.9 million. In the Company’s revolvingfirst quarter of fiscal year 2021, we repaid $50.0 million of our U.S. borrowings outstanding under our line of credit facility, which increased $18.1using $52.0 million in proceeds that we received from the issuance and sale of senior notes during the six months ended February 29, 2020quarter. This resulted in a $2.0 million cash inflow during the period compared to $7.9 million in net proceeds on our line of credit in the corresponding period of the prior fiscal year. Also contributingIn addition, increases in shares withheld to cover taxes on conversion of equity rewards and dividends paid of $0.9 million and $0.8 million, respectively, resulted in higher cash inflows was a reduction in treasury stock purchases of $2.4 millionoutflows from period to period. Offsetting these increases in cash inflowsoutflows was an increasea decrease in dividends paidtreasury stock repurchases due to the suspension of $1.6such repurchases beginning in the third quarter of fiscal year 2020, which resulted in a decrease in cash outflows of $5.0 million from period to period.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 an increase in cash of $0.2 million and $0.5 million for the sixthree months ended February 29,November 30, 2020 as compared to a decrease in cash of $1.1 million for six months ended February 28, 2019.and 2019, respectively. These changes were primarily due to fluctuations in various foreign currency exchange rates from period to period, butperiod. For the three months ended November 30, 2020, the majority iswas related to the fluctuations in the Chinese Yuan against the U.S. Dollar whereas for the three months ended November 30, 2019, it was primarily related to fluctuations in the Pound Sterling against the U.S. Dollar.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as defined by Item 303(a)(4)(ii) of Regulation S-K.
Commercial Commitments
We have ongoing relationships with various suppliers (contract manufacturers) whothat manufacture our products.products and third-party distribution centers who warehouse and ship our products to customers. 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 months to fivesix 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 productproducts 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.
In addition to the commitments to purchase products from contract manufacturers described above, we may also enter into commitments with other manufacturers to purchase finished goods and components to support innovation initiatives and/or supply chain initiatives. As of February 29,November 30, 2020, no such commitments were outstanding.
Share Repurchase Plan
The information required by this item is incorporated by reference to Part I—Item 1, “Notes to Condensed Consolidated Financial Statements” Note 9 — Share Repurchase Plan, included in this report.
Dividends
On March 17, 2020,December 7, 2021, the Company’s Board of Directors declared a cash dividend of $0.67 per share payable on April 30, 2020January 29, 2021 to shareholders of record on April 17, 2020.January 15, 2021. Our ability to pay dividends could be affected by future business performance, liquidity, capital needs, alternative investment opportunities and loan covenants.
Critical Accounting Policies
Our discussion and analysis of our operating results and financial condition is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.
Critical accounting policies are those that involve subjective or complex judgments, often as a result of the need to make estimates. The following areas all require the use of judgments and estimates: revenue recognition, accounting for income
taxes valuation of goodwill and impairment of definite-lived intangible assets. Estimates in each of these areas are based on historical experience and various judgments and assumptions that we believe are appropriate. Actual results may differ from these estimates.
There have been no material changes in our critical accounting policies from those disclosed in Part II―Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 2 to our consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended August 31, 2019,2020, which was filed with the SEC on October 22, 2019.21, 2020.
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 I—Item 1, “Notes to Condensed Consolidated Financial Statements” Note 2 — Basis of Presentation and Summary of Significant Accounting Policies, included in this report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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 Exchange 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 February 29,November 30, 2020, 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.
Beginning September 1, 2019, the Company implemented the new lease guidance under ASC 842. In connection with the adoption of this standard, the Company made enhancements to its internal controls over financial reporting and procedures related to lease accounting, as well as the associated control activities within them. These enhancements included the development of new policies based on the updated lease guidance, new training, ongoing contract review requirements and gathering of information provided for disclosures.
Other than the updates described above, thereThere were no other changes in our internal control over financial reporting during the sixthree months ended February 29,November 30, 2020 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II — OTHER INFORMATION
The information required by this item is incorporated by reference to the information set forth in Part I—Item 1, “Notes to Condensed Consolidated Financial Statements” Note 1312 — Commitments and Contingencies, included in this report.
Item 1A. Risk Factors
We have updated our existing risk factor on global economic conditions to include information associated with the current events related to COVID-19 that was first detected in China and impacted global markets due to outbreaks occurring in many countries beginning in early calendar year 2020. Except for the updates to this risk factor set forth below, thereThere have been no material changes in our risk factors from those disclosed in Part I—Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2019,2020, which was filed with the SEC on October 22, 2019.21, 2020
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, public health crises or other changes that may affect the principal markets, trade channels, and industrial segments in which the Company conducts its business. Public health crises, including epidemics or pandemics, may affect the principal markets, trade channels, and industrial segments in which the Company conducts its business. For example, the Company is monitoring the impact of the recent COVID-19 outbreak, which has already caused a significant disruption to global financial markets and supply chains beginning in early calendar year 2020. The significance of the operational and financial impact to the Company will depend on how long and widespread this disruption proves to be. The extent to which COVID-19 impacts the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the outbreak and the international actions that are being taken to contain and treat it. While the Company currently expects this business disruption to be temporary, there is uncertainty around its duration and its broader impact, and therefore the effects it will have on the Company’s financial results and operations. 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 their suppliers may experience financial difficulties or business disruptions 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
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On June 19, 2018,April 8, 2020, the Company’s Board of DirectorsCompany elected to suspend repurchases under its previously approved a share buy-back plan. Under the plan, which became effectivesubsequently expired on September 1, 2018, the Company is authorized to acquire up to $75.0 million of its outstanding shares through August 31, 2020. The timingCompany made this election in order to preserve cash while it continued to monitor the long-term impacts of the COVID-19 pandemic. Management does not expect to seek Board approval for a new share buy-back plan until it starts to see a reduced level of uncertainty regarding the pandemic’s impact on the economy and amount of repurchases are based on terms and conditions as may be acceptable to the Company’s Chief Executive Officer and Chief Financial Officer and in compliance with all laws and regulations applicable thereto. Duringbusiness. Therefore, no repurchase transactions were made during the period from September 1, 2018 through February 29, 2020, the Company repurchased 227,529 shares at a total costfirst quarter of $39.3 million under this $75.0 million plan.fiscal year 2021.
The following table provides information with respect to all purchases made by the Company during the three months ended February 29, 2020. All purchases listed below were made in the open market at prevailing market prices. Purchase transactions between December 1, 2019 and January 13, 2020 and between February 14, 2020 and February 29, 2020 were executed pursuant to trading plans adopted by the Company pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934.
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 | |||||||||||
December 1 - December 31 | 6,488 | $ | 193.80 | 6,488 | $ | 39,161,400 | |||||
January 1 - January 31 | 8,500 | $ | 189.77 | 8,500 | $ | 37,548,178 | |||||
February 1 - February 29 | 9,786 | $ | 187.04 | 9,786 | $ | 35,717,579 | |||||
Total | 24,774 | $ | 189.75 | 24,774 | |||||||
Item 6. Exhibits
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31(b) |
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32(a) |
| Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32(b) |
| Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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104 | The cover page from this Quarterly Report on Form 10-Q, formatted in Inline XBRL and contained in Exhibit 101. | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| WD-40 COMPANY Registrant | ||||||
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| /s/ GARRY O. RIDGE | ||||
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| Garry O. Ridge Chief Executive Officer (Principal Executive Officer) | ||
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| /s/ JAY W. REMBOLT | ||||
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| Jay W. Rembolt Vice President, Finance Treasurer and Chief Financial Officer | ||
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| /s/ RAE ANN PARTLO | ||||
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| Rae Ann Partlo Vice President, Corporate Controller and Principal Accounting Officer | ||
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