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 November 30, 20202021
¨ | 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) |
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Registrant’s telephone number, including area code: (619) 275-1400
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 (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:
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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 January 4, 20213, 2022 was 13,688,20313,687,367.
WD-40 COMPANY
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended November 30, 20202021
TABLE OF CONTENTS
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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’s products are sold in various locations around the world. Maintenance products are sold worldwide in markets throughout North, Central and South America, Asia, Australia, Europe, the Middle East and Africa. Homecare and cleaning products are sold primarily in North America, the United Kingdom (“U.K.”) and Australia. The Company’s products are sold primarily through warehouse club stores, hardware stores, automotive parts outlets, industrial distributors and suppliers, mass retail and home center stores, value retailers, grocery stores, online retailers, farm supply, sport retailers, and independent bike 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 “ 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 Company utilizes foreign currency forward contracts to limit its exposure to net asset balances held in non-functional currencies, primarily at its U.K. subsidiary. The Company regularly monitors its foreign currency exchange rate exposures to ensure the overall effectiveness of its foreign currency hedge positions. While the Company engages in foreign currency hedging activity to reduce its risk, for accounting purposes, none of its foreign currency forward contracts are designated as hedges. Foreign currency forward contracts are carried at fair value, with net realized and unrealized gains and losses recognized 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 November 30,
Recently In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes” under ASC 740, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and December 15, 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
Note 4. Property and Equipment Property and equipment, net, consisted of the following (in thousands):
At August 31, 2021, capital in progress on the balance sheet included $30.3 million associated with capital costs related to proprietary machinery and equipment for the Company’s next generation of delivery systems for its WD-40 Smart Straw® products. During the three months ended November 30, 2021, $13.5 million of this machinery and equipment was placed in service and thus the Company reclassified these amounts from capital in progress to machinery, equipment and vehicles.
Note 5. Goodwill and Other Intangible Assets Goodwill The following table summarizes the changes in the carrying amounts of goodwill by segment (in thousands):
There were no indicators of impairment identified as a result of the Company’s review of events and circumstances related to its goodwill subsequent to December 1,
Definite-lived Intangible Assets The Company’s definite-lived intangible assets, which include the Spot Shot, Carpet Fresh, 1001, EZ REACH and GT85 trade names, are included in other intangible assets, net in the Company’s condensed consolidated balance sheets. The following table summarizes the definite-lived intangible assets and the related accumulated amortization (in thousands):
There has been 0 impairment charge for the three months ended November 30, Changes in the carrying amounts of definite-lived intangible assets by segment for the three months ended November 30,
The estimated amortization expense for the Company’s definite-lived intangible assets is not significant in any future individual fiscal
Note Accrued liabilities consisted of the following (in thousands):
Accrued payroll and related expenses consisted of the following (in thousands):
Note As of November 30, The Company holds borrowings under its Note Purchase and Private Shelf Agreement (the “Note Agreement”) by and among the Company, PGIM, Inc. (“Prudential”), and certain affiliates and managed accounts of Prudential (the “Note Purchasers”). C notes issued under this Note Agreement. The Company’s Amended and Restated Credit Agreement (the “Credit Agreement”) with Bank of America consists of a revolving commitment for borrowing by the Company up to $150.0 million with a sublimit of $100.0 million for WD-40 Company Limited, a wholly owned operating subsidiary of the Company for Europe, the Middle East, Africa and India. The Credit Agreement currently has a maturity date of September 30, 2025. On Short-term and long-term borrowings under the Company’s Credit Agreement and Note Agreement consisted of the following (in thousands):
(1)The Company has the ability to refinance any draw under the line of credit with successive short-term borrowings through the maturity date. Outstanding draws for which management has 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 November 30, (2)Principal payments are required semi-annually in May and November of each year in equal installments of $0.4 million through May 15, 2032. The remaining outstanding principal in the amount of $8.4 million will become due on November 15, 2032. (3) 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 of the Company’s capital stock and enter into certain merger or consolidation transactions. The Credit Agreement includes, among other limitations on indebtedness, a $125.0 million limit on other unsecured indebtedness. 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 three and a half to one. The consolidated leverage ratio means, as of any date of determination, the ratio of (a) consolidated funded indebtedness as of such date to (b) consolidated EBITDA for the most recently completed four fiscal quarters. The consolidated interest coverage ratio cannot be less than 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 November 30,
Note On Note | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended November 30, | Three Months Ended November 30, | |||||||||
2020 | 2019 | 2021 | 2020 | |||||||
Net income | $ | 23,623 | $ | 12,194 | $ | 18,555 | $ | 23,623 | ||
Less: Net income allocated to | ||||||||||
participating securities | (110) | (67) | (64) | (110) | ||||||
Net income available to common shareholders | $ | 23,513 | $ | 12,127 | $ | 18,491 | $ | 23,513 | ||
The table below summarizes the weighted-average number of common shares outstanding included in the calculation of basic and diluted EPS (in thousands):
Three Months Ended November 30, | Three Months Ended November 30, | |||||||||
2020 | 2019 | 2021 | 2020 | |||||||
Weighted-average common | ||||||||||
shares outstanding, basic | 13,675 | 13,714 | 13,716 | 13,675 | ||||||
Weighted-average dilutive securities | 31 | 32 | 36 | 31 | ||||||
Weighted-average common | ||||||||||
shares outstanding, diluted | 13,706 | 13,746 | 13,752 | 13,706 | ||||||
For the three months ended November 30, 2020, there were 0 anti-dilutive stock-based equity awards outstanding. For the three months ended November 30, 2019,2021, weighted-average stock-based equity awards outstanding that are non-participating securities in the amount of 5,7295,145 were excluded from the calculation of diluted EPS under the treasury stock method as they were anti-dilutive.anti-dilutive
. For the three months ended November 30, 2020, there were 0 anti-dilutive stock-based equity awards outstanding.
Note 11.10. 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 rebates/other discounts (cooperative marketing programs, volume-based discounts, shelf price reductions and allowances for shelf space, charges from customers for services they provided to us related to the sale and penalties/fines charged to us by customers associated with failing to adhere to contractual obligations), coupon offers, cash discount allowances, and sales returns, as a reduction of sales in its consolidated statements of operations. These estimates are based on the expected value method considering all reasonably available information, including current and past trade promotion spending patterns, status of trade promotion activities, the interpretation of historical spending trends by customer and category, customer agreements and/or currently known factors that arise in the normal course of business. The Company reviews its assumptions and adjusts these estimates accordingly on a quarterly basis.
Rebates/Other Discounts — The Company offers various on-going trade promotion programs with customers and provides other discounts to customers that require management to estimate and accrue for the expected costs of such programs or discounts. These programs include cooperative marketing, volume-based discounts, shelf price reductions, consideration and allowances given to retailers for shelf space and/or favorable display positions in their stores and other promotional activities.
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. The Company had a $7.9 million and $7.5 million balance in rebate/other discount liabilities as of November 30 and August 31, 2020, respectively, which are included in accrued liabilities on the Company’s condensed consolidated balance sheets. The Company recorded approximately $5.3 million and $5.0 million in rebates/other discounts as a reduction to sales during the three months ended November 30, 2020 and 2019, respectively.
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 November 30, 2020 and August 31, 2020. Coupons recorded as a reduction to sales during the three months ended November 30, 2020 and 2019 were also not significant.
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. The Company had a $0.4 million and $0.5 million balance in the allowance for cash discounts at November 30, 2020 and August 31, 2020, respectively. The Company recorded approximately $1.2 million and $1.0 million in cash discounts as a reduction to sales during the three months ended November 30, 2020 and 2019, respectively.
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. The Company presents its provision for sales returns on a gross basis as a liability. The Company’s refund liability for sales returns is included in accrued liabilities and represents the amount expected to be owed to the customers for product returns. The Company’s refund liability for sales returns was not significant at both November 30, 2020 and August 31, 2019. The Company also records an asset for the value of inventory that represents the right to recover products from customers associated with sales returns. The value of this inventory is recorded to other current assets and the balance in this account associated with product returns was not significant at November 30, 2020 and August 31, 2020.
The Company's revenue is presented on a disaggregated basis in Note 14 – Business Segmentsfollowing table presents our revenues by segment and Foreign Operations included in this report. The Company discloses certain information about its business segments, which are determined consistent with the way the Company’s Chief Operating Decision Maker organizesmajor source (in thousands):
:
Three Months Ended November 30, 2021: | |||||||||||
Americas | EMEA | Asia-Pacific | Total | ||||||||
Maintenance products | $ | 51,984 | $ | 55,443 | $ | 18,603 | $ | 126,030 | |||
HCCP (1) | 4,304 | 2,112 | 2,300 | 8,716 | |||||||
Total net sales | $ | 56,288 | $ | 57,555 | $ | 20,903 | $ | 134,746 | |||
Three Months Ended November 30, 2020: | |||||||||||
Americas | EMEA | Asia-Pacific | Total | ||||||||
Maintenance products | $ | 48,503 | $ | 52,376 | $ | 13,464 | $ | 114,343 | |||
HCCP (1) | 5,685 | 2,373 | 2,158 | 10,216 | |||||||
Total net sales | $ | 54,188 | $ | 54,749 | $ | 15,622 | $ | 124,559 | |||
(1)Homecare and evaluates financial information internally for making operating decisions and assessing performance. The Chief Operating Decision Maker assesses and measures revenue based on geographic area and product groups.cleaning products (“HCCP”)
Contract liabilities consist of deferred revenue related to undelivered products. Deferred revenue is recorded when payments have been received from customers for undelivered products. Revenue is subsequently recognized when revenue recognition criteria are met, generally when control of the product transfers to the customer. The Company had contract liabilities of $2.3$5.0 million and $1.4$3.7 million as of November 30, 20202021 and August 31, 2020,2021, respectively. All of the $3.7 million that was included in contract liabilities as of August 31, 2021 was recognized to revenue during the three months ended November 30, 2021. These contract liabilities are recorded in accrued liabilities on the Company’s condensed consolidated balance sheets. The Company did 0t have any contract assets as of November 30, 20202021 and August 31, 2020.2021.
Note 12.11. Commitments and Contingencies
Purchase Commitments
The Company has ongoing relationships with various suppliers (contract manufacturers) that manufacture the Company’s products and third-party distribution centers that warehouse and ship the Company’s 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 the Company’s customers or third-party distribution centers in accordance with agreed upon shipment terms. Although the Company has definitive minimum purchase obligations included in the contract terms with certain of its contract manufacturers, when such obligations have been included, they have either been immaterial or the minimum amounts have been such that they are well below the volume of goods that the Company has historically purchased. In the ordinary course of business, supply needs are communicated by the Company to its contract manufacturers based on orders and short-term projections, ranging from two months to six months. The Company is committed to purchase the products produced by the contract manufacturers based on the projections provided.
Upon the termination of contracts with contract manufacturers, the Company obtains certain inventory control rights and is obligated to work with the contract manufacturer to sell through all product held by or manufactured by the contract manufacturer on behalf of the Company during the termination notification period. If any inventory remains at the contract manufacturer at the termination date, the Company is obligated to purchase such inventory which may include raw materials, components and finished goods. The amounts for inventory purchased under termination commitments have been immaterial.
In addition to the commitments to purchase products from contract manufacturers described above, the Company may also enter into commitments with other manufacturers to purchase finished goods and components to support innovation and renovation initiatives and/or supply chain initiatives. As of November 30, 2020,2021, 0 such commitments were outstanding.
Litigation
From time to time, the Company is subject to various claims, lawsuits,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 November 30, 2020,matters. Except as disclosed herein, there were 0no 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 of November 30, 2021. As to claims that the Company believes may result in a reasonably possible loss, the Company believes that no reasonably possible outcome of any such claim will have a materially adverse impact on the Company’s financial condition, results of operations or cash flows.
On or about August 18, 2020, Benny Bong (“Bong”) filed a civil action against the Company and the Company’s wholly-owned subsidiary, WD-40 Manufacturing Company (“WD-40 Manufacturing”), in Indonesia in the Commercial District Court of Central Jakarta, case reference number 41 / Pdt.Sus-Merek / 2020 / PN.Niaga.Jkt.Pst. (the “Jakarta Litigation”). In April 2021, the Company and WD-40 Manufacturing, owner of the WD-40 brand trademarks, were served with Summons and Complaint for the Jakarta Litigation, in which Bong is seeking damages based on the Company’s enforcement actions against Bong following registration of a Get All-40 trademark that includes a yellow shield logo similar to the WD-40 brand shield logo. The complaint asserted claims for damages for more than $25.0 million.
The dispute underlying the Jakarta Litigation follows 2018 litigation filed by WD-40 Manufacturing, in which the Commercial District Court ordered cancellation of two earlier Get All-40 trademark registrations. In January 2021, WD-40 Manufacturing filed a new cancellation action in a separate proceeding before the Commercial District Court seeking to invalidate the most recent Get All-40 Trademark registration. In August 2021, the Commercial District Court granted WD-40 Manufacturing’s action for cancellation of the Get All-40 Trademark. Bong initiated appeal of the cancellation decision in September 2021.
On October 28, 2021, the Commercial District Court in the Jakarta Litigation found in favor of the Company and dismissed Bong’s claim. On November 26, 2021, Bong submitted a memorandum of cassation to appeal the decision in the Jakarta Litigation. The Jakarta Litigation and trademark cancellation are pending appellate proceedings. The Company denies the allegations asserted by Bong and will vigorously defend itself in the Jakarta Litigation. The Company believes that an unfavorable outcome in the Jakarta Litigation is remote.
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, 2020,2021, which was filed with the SEC on October 21, 2020.22, 2021.
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 November 30, 2020.2021.
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 November 30, 2020.2021.
Note 13.12. Income Taxes
The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter.
The provision for income taxes was 15.7%19.8% and 14.7%15.7% of income before income taxes for the three months ended November 30, 2021 and 2020, and 2019, respectively. Discrete benefits, primarily those related to excess tax benefits from settlements of stock-based equity awards, reducedThe increase in 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 first quarter of fiscal year 2021 which resulted in a higher effective income tax rate from period to period.period was primarily due to an increase in nondeductible performance-based compensation expenses.
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 20172018 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 2017 are no longer subject to examination. The Company is currently under audit in various state and foreign jurisdictions for fiscal years 2017 through 2019.2020. Estimated unrecognized tax benefits related to income tax positions may be affected by the resolution of tax examinations or expiring statutes of limitation within the next twelve months were not significant. Audit outcomes and the timing of settlements are subject to significant uncertainty.
Note 14.13. Business Segments and Foreign Operations
The Company evaluates the performance of its segments and allocates resources to them based on sales and operating income. The Company is organized on the basis of geographical area into the following 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):
Unallocated | Unallocated | |||||||||||||||||||||||||||
For the Three Months Ended | Americas | EMEA | Asia-Pacific | Corporate (1) | Total | Americas | EMEA | Asia-Pacific | Corporate (1) | Total | ||||||||||||||||||
November 30, 2021: | ||||||||||||||||||||||||||||
Net sales | $ | 56,288 | $ | 57,555 | $ | 20,903 | $ | - | $ | 134,746 | ||||||||||||||||||
Income from operations | $ | 12,017 | $ | 14,213 | $ | 7,302 | $ | (9,472) | $ | 24,060 | ||||||||||||||||||
Depreciation and | ||||||||||||||||||||||||||||
amortization expense | $ | 1,043 | $ | 784 | $ | 74 | $ | 86 | $ | 1,987 | ||||||||||||||||||
Interest income | $ | - | $ | - | $ | 25 | $ | - | $ | 25 | ||||||||||||||||||
Interest expense | $ | 498 | $ | 121 | $ | 1 | $ | - | $ | 620 | ||||||||||||||||||
November 30, 2020: | ||||||||||||||||||||||||||||
Net sales | $ | 54,188 | $ | 54,749 | $ | 15,622 | $ | - | $ | 124,559 | $ | 54,188 | $ | 54,749 | $ | 15,622 | $ | - | $ | 124,559 | ||||||||
Income from operations | $ | 14,626 | $ | 17,743 | $ | 5,060 | $ | (9,037) | $ | 28,392 | $ | 14,626 | $ | 17,743 | $ | 5,060 | $ | (9,037) | $ | 28,392 | ||||||||
Depreciation and | ||||||||||||||||||||||||||||
amortization expense | $ | 791 | $ | 756 | $ | 75 | $ | 78 | $ | 1,700 | $ | 791 | $ | 756 | $ | 75 | $ | 78 | $ | 1,700 | ||||||||
Interest income | $ | 1 | $ | 1 | $ | 17 | $ | - | $ | 19 | $ | 1 | $ | 1 | $ | 17 | $ | - | $ | 19 | ||||||||
Interest expense | $ | 455 | $ | 114 | $ | 1 | $ | - | $ | 570 | $ | 455 | $ | 114 | $ | 1 | $ | - | $ | 570 | ||||||||
November 30, 2019: | ||||||||||||||||||||||||||||
Net sales | $ | 46,736 | $ | 39,245 | $ | 12,575 | $ | - | $ | 98,556 | ||||||||||||||||||
Income from operations | $ | 10,580 | $ | 8,592 | $ | 3,202 | $ | (7,670) | $ | 14,704 | ||||||||||||||||||
Depreciation and | ||||||||||||||||||||||||||||
amortization expense | $ | 1,172 | $ | 634 | $ | 74 | $ | 77 | $ | 1,957 | ||||||||||||||||||
Interest income | $ | 4 | $ | 1 | $ | 20 | $ | - | $ | 25 | ||||||||||||||||||
Interest expense | $ | 342 | $ | 99 | $ | 1 | $ | - | $ | 442 | ||||||||||||||||||
(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):
Three Months Ended November 30, | |||||
2020 | 2019 | ||||
Maintenance products | $ | 114,343 | $ | 89,670 | |
Homecare and cleaning products | 10,216 | 8,886 | |||
Total | $ | 124,559 | $ | 98,556 | |
Note 15.14. Subsequent Events
On December 7, 2020,13, 2021, the Company’s Board of Directors declared aapproved an 8% increase in the regular quarterly cash dividend, of $0.67increasing it from $0.72 per share to $0.78 per share. The $0.78 per share dividend declared on December 13, 2021 is payable on January 29, 202131, 2022 to shareholders of record on January 15, 2021.14, 2022.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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, 2020,2021, which was filed with the Securities and Exchange Commission (“SEC”) on October 21, 2020.22, 2021.
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. dollarsDollars 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 current COVID-19 pandemic and its impact on the global economy and the Company’sour financial results; the impacts from inflationary trends and supply chain constraints; and forecasted foreign currency exchange rates and commodity prices. These forward-looking statements are generally identified with words such as “believe,” “expect,” “intend,” “plan,” “could,” “may,” “aim,” “anticipate,” “target,” “estimate” and similar expressions. The Company undertakesWe undertake no obligation to revise or update any forward-looking statements.
Actual events or results may differ materially from those projected in forward-looking statements due to various factors, including, but not limited to, those identified in Part I―Item 1A, “Risk Factors,” in the Company’sour Annual Report on Form 10-K for the fiscal year ended August 31, 2020,2021, and in the Company’sour Quarterly Reports on Form 10-Q, which may be updated from time to time.
Overview
The Company
WD-40 Company (“the Company”), based in San Diego, California, is a global marketing organization dedicated to creating positive lasting memories by developing and selling products that solve problems in workshops, factories and homes around the world. We market a wide range of maintenance products and homecare and cleaning products under the following well-known brands: WD-40®, 3-IN-ONE®, GT85®, X-14®, 2000 Flushes®, Carpet Fresh®, no vac®, Spot Shot®, 1001®, Lava® and Solvol®. Currently included in the WD-40 brand are the WD-40 Multi-Use Product and the WD-40 Specialist® and WD-40 BIKE® product lines.
Our products are sold in various locations around the world. Maintenance products are sold worldwide in markets throughout North, Central and South America, Asia, Australia, Europe, the Middle East and Africa. Homecare and cleaning products are sold primarily in North America, the United Kingdom (“U.K.”) and Australia. We sell our products primarily through
warehouse club stores, hardware stores, automotive parts outlets, industrial distributors and suppliers, mass retail and home center stores, value retailers, grocery stores, online retailers, farm supply, sport retailers, and independent bike dealersdealers.
The following summarizes the financial and operational highlights for our business during the three months ended November 30, 2020:2021:
Although consolidated results for the three months ended November 30, 2020 were significantly improveddecreased $5.7 million, or 24%, 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.period.
Our strategic initiatives and the areas where we will continue to focus our time, talent and resources in future periods include: (i) maximizingbuilding a business for the future; (ii) attracting, developing and engaging outstanding tribe members; (iii) striving for operational excellence; (iv) growing 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 byProduct; (v) growing the WD-40 Specialist product line; (iii) leveraging the strengths of the Company through broadened product and revenue base; (iv) attracting, developing(vi) expanding and retaining talented people; and (v) operating with excellence.supporting portfolio opportunities that help us grow.
Sales increased in all three segments during the three months ended November 30, 2020 as compared to the corresponding period of the prior fiscal year. Although ourOur financial results and operations continuedcontinue to be impacted by the COVID-19 pandemic that began during our fiscal year 2020. The ongoing COVID-19 pandemic has impacted global economies, the rate of inflation, supply chains, distribution networks and consumer behavior around the world. We have experienced both favorable and unfavorable impacts to our financial results and our operations as a result of the direct and indirect effects of the COVID-19 pandemic. For example, although sales have been negatively impacted at varying times in early calendar year 2020,the regions in which we were able to reduce the adverse impacts of these challenging timesoperate due to the strength of our brands,health and safety restrictions required by local governmental authorities, those negative sales impacts have generally been more than offset by increased focus on e-commerce, global expansion in the distribution ofdemand for our products as a result of the shift in consumer spending patterns compared to periods before the pandemic. This shift in spending patterns, which has included increased renovation and a continued focus on our strategic initiatives. While we experienced significantmaintenance activities as well as increased online purchases, contributed to record sales declinesfor the Company in fiscal year 20202021. However, global supply chain issues have resulted in increased raw material and other input costs, as comparedwell as significantly higher competition for freight resources and labor constraints within distribution networks, which has also caused increased costs. These increased costs started to the previous fullnegatively impact our gross margin and financial results in our fiscal year sales during2021, but we began to experience more significant negative impacts from this inflationary environment in the first quarter of fiscal year 2021 rebounded significantly due2022 as evidenced by our lower gross margin as compared to various reasons, including the following:first quarter of the prior fiscal year.
Some of the supply chain challenges that we have experienced include general aerosol production capacity constraints and competition for such capacity by other companies who utilize the same third-party manufacturers for their aerosol production. Supply chains at many companies globally are being strained due to shortages of certain materials and this is impacting the
ability of our third-party manufacturers to procure certain of the raw materials needed to manufacture our products. These challenges have periodically resulted in renovationus not being able to meet the high level of demand for our products by customers and maintenance activities by end-users in certain markets, most significantly those markets in our Americas segment where demand for aerosols has significantly outpaced the available production capacity in the region. We are continuing to actively manage supply chain and transportation disruptions and constraints that have arisen periodically within all three of our business segments, but particularly in the Americas, during the pandemic, particularlyCOVID-19 pandemic. We have been actively working on various initiatives in North America, some countriespartnership with our existing third-party manufacturers and we have also been working to identify and onboard new third-party manufacturers in EMEAorder to increase the capacity and flexibility of our supply chain to meet strong end-user demand. When we onboard new third-party manufacturers, it comes with inherent risks and in Australia;
Increased distribution and sales within the e-commerce channel;
Recoveries current economic environment, it also potentially comes with higher costs. Although we are experiencing in industrial channels globallynot able to estimate the degree of the impact or the costs associated with potential future disruptions within our supply chain and distribution networks, or the costs associated with our initiatives to address these challenges, we believe that the changes we continue to implement as a result of the pandemic will have a positive lasting impact on our ability to better manage any future disruptions. However, some of the additional costs resulting from these recent supply chain constraints, as well as in markets where we do not have direct operations (distributor markets), particularly inthe inflationary environment that is impacting our EMEA and Asia distributor markets where these distributors have been participating in moreraw material costs, are expected to unfavorably impact our cost of our promotional activities and have been adjusting to more normal levels of inventorygoods sold for our products;
Significant increases in sales of our WD-40 Bike product; and
Continued increased sales of our homecare and cleaning products due to the high demand foras long as such products during the pandemic.conditions exist.
These combined impactsAlthough several vaccines and treatments are authorized for use against COVID-19, these vaccines and treatments are being produced, a 26% increase in our consolidated net sales during the first quarter of fiscal year 2021 compared to the corresponding period of the prior fiscal year, a period in which the COVID-19 pandemic had not yet commenced.
Due to the speeddistributed and fluidity with which the situation continuesaccepted at varying rates globally and circumstances continue to evolve with COVID-19 case count rates and new variants. The severity and duration of this rapidly evolving pandemic remains uncertain and it is very difficult for us to estimate with certainty the extent to which the COVID-19 pandemic will impact our financial results and operations in future periods. Although sales increased during the first quarter of fiscal year 2021, many regions globally are experiencing increased COVID-19 case counts and governmental authorities are reimplementing temporary closures, lockdowns and restrictions intended to combat the COVID-19 pandemic at certain physical store retailers, suppliers and manufacturers. These increased restrictions may have negative economic impacts on our customers and may limit the ability of our customers in certain trade channels and markets to sell our products, which could adversely impact our financial results and operations for the remainder of fiscal year 2021. WeIt is also cannot predict when certain restrictions to protect our customers, retailers and our employees will be either increased or safely reduced in future periods. These impacts could be material in all business segments during any future period affected either directly or indirectly by this pandemic. Also, if social distancing requirements resulting from the COVID-19 pandemic lessen in future periods, particularly as vaccinations becomeuncertain how more widely available, this may result in a decrease in renovation and maintenance activities by end-users which could adversely impact our financial results. In addition, if there are decreases in future periods in the benefits provided to our end-users via government assistance programs which have been put in place due tostable conditions surrounding the pandemic this may alsoor the end of the pandemic will impact the levelhigh levels of renovation and maintenance activities that we have experiencedseen by end-users in recent periods. If such activities decrease in future periods, and this could adversely impact our financial results.
We are continuinghave continued to actively manage and monitor supply chain and transportation disruptions and constraints that have arisen at our suppliers and other third-party distribution centers and manufacturers as a result of the COVID-19 pandemic. Some of the challenges that we have experienced at our third-party manufacturers include general capacity constraints and competition for such capacity by other companies who utilize the same third-party manufacturers. While we have been successful to date in managing such disruptions in our supply chain and the distribution of our products, we have experienced some challenges in meeting the high level of demand for our products by customers and end-users in certain markets. Although we have positioned ourselves to continue managing these challenges in our supply chain and distribution networks in future periods, we are not able at this time to estimate the impact of future disruptions within our supply chain or the additional costs that we might incur due to these challenges and we are continually monitoring and managing this situation.
We have takenfollow a variety of measures during the COVID-19 pandemic to ensure the availability and functioning of our critical infrastructure, to promote the safety and security of our employees, and to support the communities in which we operate. Theseoperate and ensure the availability and functioning of our critical infrastructure. During the pandemic, these measures includehave included allowing for or requiring remote working arrangements for employees where practicable. We are following publicin some regions and private sector policies and initiatives to reduce the transmission of COVID-19, such as the imposition of various travel restrictions, the promotion of social distancing and the adoption of work-from-home arrangements. These policies and
initiatives willrestrictions. In addition, we continue to impact how we operatedevelop and monitor plans to support a safe working environment for as long as they are in effect. As a result of these policies and initiatives, travel and meeting expenses have decreased significantly, positively impacting our net income. If the current social distancing requirements and policies lessen in future periods, travel and meeting expenses may return to higher levels. To date, we have been successful in conducting our daily operations and meeting the requirements in all areas of our business with these work-from-home arrangements. We are still working to determine safe and effective phased officeemployees which includes reentry plans for employees at all of ourvarious office locations globally. However,in which we operate around the timing and nature of these reentryworld. These plans will vary by location and some ofregion based on the specifics related to many ofevolving situation within those regions. In connection with these plans, are still uncertain at this time. The safety of our employees and adherence to public and private sector policies related to COVID-19 will remain our top priorities as we have put in place our “Work from Where” philosophy to support work-life integration, and enable management and employees return to working at our global office locations.align on where work is completed.
See the Company’sour risk factors disclosed in Part I―Item 1A, “Risk Factors,” in itsour Annual Report on Form 10-K for the fiscal year ended August 31, 2020,2021, which was filed with the SEC on October 21, 202022, 2021 for information on risks associated with pandemics in general and COVID-19 specifically.
Results of Operations
Three Months Ended November 30, 20202021 Compared to Three Months Ended November 30, 20192020
Operating Items
The following table summarizes operating data for our consolidated operations (in thousands, except percentages and per share amounts):
Three Months Ended November 30, | Three Months Ended November 30, | |||||||||||||||||||||
Change from | Change from | |||||||||||||||||||||
2020 | 2019 | Dollars | Percent | 2021 | 2020 | Dollars | Percent | |||||||||||||||
Net sales: | ||||||||||||||||||||||
Maintenance products | $ | 114,343 | $ | 89,670 | $ | 24,673 | 28% | $ | 126,030 | $ | 114,343 | $ | 11,687 | 10% | ||||||||
Homecare and cleaning products | 10,216 | 8,886 | 1,330 | 15% | ||||||||||||||||||
HCCP (1) | 8,716 | 10,216 | (1,500) | (15)% | ||||||||||||||||||
Total net sales | 124,559 | 98,556 | 26,003 | 26% | 134,746 | 124,559 | 10,187 | 8% | ||||||||||||||
Cost of products sold | 54,313 | 45,013 | 9,300 | 21% | 66,276 | 54,313 | 11,963 | 22% | ||||||||||||||
Gross profit | 70,246 | 53,543 | 16,703 | 31% | 68,470 | 70,246 | (1,776) | (3)% | ||||||||||||||
Operating expenses | 41,854 | 38,839 | 3,015 | 8% | 44,410 | 41,854 | 2,556 | 6% | ||||||||||||||
Income from operations | $ | 28,392 | $ | 14,704 | $ | 13,688 | 93% | $ | 24,060 | $ | 28,392 | $ | (4,332) | (15)% | ||||||||
Net income | $ | 23,623 | $ | 12,194 | $ | 11,429 | 94% | $ | 18,555 | $ | 23,623 | $ | (5,068) | (21)% | ||||||||
Earnings per common share - diluted | $ | 1.72 | $ | 0.88 | $ | 0.84 | 95% | |||||||||||||||
Shares used in per share calculations - diluted | 13,706 | 13,746 | (40) | - | ||||||||||||||||||
EPS - diluted | $ | 1.34 | $ | 1.72 | $ | (0.38) | (22)% | |||||||||||||||
Shares used in diluted EPS | 13,752 | 13,706 | 46 | - | ||||||||||||||||||
(1)Homecare and cleaning products (“HCCP”)
The following table summarizes net sales by segment (in thousands, except percentages):
Three Months Ended November 30, | Three Months Ended November 30, | |||||||||||||||||||||
Change from | Change from | |||||||||||||||||||||
2020 | 2019 | Dollars | Percent | 2021 | 2020 | Dollars | Percent | |||||||||||||||
Americas | $ | 54,188 | $ | 46,736 | $ | 7,452 | 16% | $ | 56,288 | $ | 54,188 | $ | 2,100 | 4% | ||||||||
EMEA | 54,749 | 39,245 | 15,504 | 40% | 57,555 | 54,749 | 2,806 | 5% | ||||||||||||||
Asia-Pacific | 15,622 | 12,575 | 3,047 | 24% | 20,903 | 15,622 | 5,281 | 34% | ||||||||||||||
Total | $ | 124,559 | $ | 98,556 | $ | 26,003 | 26% | $ | 134,746 | $ | 124,559 | $ | 10,187 | 8% | ||||||||
Americas Sales
The following table summarizes net sales by product line for the Americas segment, (in thousands, except percentages):
Three Months Ended November 30, | |||||||||||
Change from | |||||||||||
2020 | 2019 | Dollars | Percent | ||||||||
Maintenance products | $ | 48,503 | $ | 41,690 | $ | 6,813 | 16% | ||||
Homecare and cleaning products | 5,685 | 5,046 | 639 | 13% | |||||||
Total | $ | 54,188 | $ | 46,736 | $ | 7,452 | 16% | ||||
% of consolidated net sales | 44% | 47% | |||||||||
Sales in the Americas segment, which includes the U.S., Canada and Latin America increased to $54.2 million, up $7.5 million, or 16%,(in thousands, except percentages):
Three Months Ended November 30, | |||||||||||
Change from | |||||||||||
2021 | 2020 | Dollars | Percent | ||||||||
Maintenance products | $ | 51,984 | $ | 48,503 | $ | 3,481 | 7% | ||||
HCCP | 4,304 | 5,685 | (1,381) | (24)% | |||||||
Total | $ | 56,288 | $ | 54,188 | $ | 2,100 | 4% | ||||
% of consolidated net sales | 42% | 44% | |||||||||
CC Net sales - non-GAAP (1) | $ | 55,793 | $ | 54,188 | $ | 1,605 | 3% | ||||
(1)Current fiscal year constant currency (“CC”) net sales translated at the exchange rates in effect for the three months ended 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 November 30, 2020year, compared to the correspondingprior period of the prior fiscal year.actual net sales.
Americas Sales - Three Months Ended – November 30, 2021 Compared to November 30, 2020
Net sales of maintenance products in the Americas segment increased $6.8due to the following:
Latin America sales increased $4.0 million, or 16%41%, fordue to higher sales throughout many markets in the three months endedregion, including in our direct market in Mexico. Increased sales were partially due to many customers building inventory levels in advance of a price increase that went into effect in November 30, 2020 compared2021. Successful promotional programs and increased product availability also resulted in higher sales levels in many of our Latin America markets during the first quarter of fiscal year 2022. In addition, the continued momentum from the shift in the Mexico market from a distributor model to the corresponding perioddirect model that we made in late fiscal year 2020 favorably impacted sales. This momentum included new distribution, increased purchasing levels from existing customers and increased product availability, all of the prior fiscal year. This sales increase was mainly driven bywhich resulted in increased sales of maintenance products$1.7 million, or 59%, in our Mexico direct market.
The United States sales decreased $0.5 million, or 1%. Although the U.S. and Latin America, which were up $3.4 million and $2.8 million, or 10% and 42%, respectively, from periodcontinued to period. In addition, sales of maintenance products in Canadaexperience increased $0.6 million from period to period. Increased demand for our productmaintenance products 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 dueit also continued to the transition to the direct marketing model in Mexico. In the third quarter of fiscal year 2020, 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 increased sales in Latin Americaexperience significant supply chain constraints during the first quarter of fiscal year 2021 compared2022. As a result, sales of maintenance products were mixed from period to period due to difficulty meeting this high level of demand. Although WD-40 Multi-Use Product sales increased $1.5 million, or 5% due to a certain level of product availability, sales of WD-40 Specialist and 3-in-One products decreased $1.3 million, or 28%, and $0.6 million, or 30%, respectively due to capacity constraints within the correspondingU.S. supply chain. WD-40 Specialist products are sourced at certain third-party manufacturers that have been particularly impacted by the recent global supply chain constraints.
Canada sales remained relatively consistent period of the prior fiscal year.over period.
SalesNet sales of homecare and cleaning productsHCCP brands in the Americas increased $0.6 million, or 13%, for the three months ended November 30, 2020 compareddecreased primarily due to the corresponding period of the prior fiscal year. This sales increase was drivenfollowing:
Challenges in our Americas supply chain, primarily by an increase in sales of the 2000 Flushes brand products in the U.S., which were up $0.7 million or 47% from period to period. We experienced a significant increaseUnited States, resulted in decreased net 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. most HCCP brands.
While each of our homecare and cleaning products have continued to generate positive cash flows, we hadhave experienced decreased or flat sales for many of these products in recent fiscal years prior to the start of the COVID-19 pandemic.
For the Americas segment, 76%70% of sales came from the U.S., and 24%30% of sales came from Canada and Latin America combined for the three months ended November 30, 20202021 compared to the distribution for the three months ended November 30, 20192020 when 80%76% of sales came from the U.S., and 20%24% of sales came from Canada and Latin America.
EMEA Sales
The following table summarizes net sales by product line for the EMEA segment, (in thousands, except percentages):
Three Months Ended November 30, | |||||||||||
Change from | |||||||||||
2020 | 2019 | Dollars | Percent | ||||||||
Maintenance products | $ | 52,376 | $ | 36,900 | $ | 15,476 | 42% | ||||
Homecare and cleaning products | 2,373 | 2,345 | 28 | 1% | |||||||
Total | $ | 54,749 | $ | 39,245 | $ | 15,504 | 40% | ||||
% of consolidated net sales | 44% | 40% | |||||||||
Sales in the EMEA segment, which includes Europe, the Middle East, Africa and India increased to $54.7 million, up $15.5 million, or 40%, for(in thousands, except percentages):
Three Months Ended November 30, | |||||||||||
Change from | |||||||||||
2021 | 2020 | Dollars | Percent | ||||||||
Maintenance products | $ | 55,443 | $ | 52,376 | $ | 3,067 | 6% | ||||
HCCP | 2,112 | 2,373 | (261) | (11)% | |||||||
Total (1) | $ | 57,555 | $ | 54,749 | $ | 2,806 | 5% | ||||
% of consolidated net sales | 43% | 44% | |||||||||
CC Net sales - non-GAAP (2) | $ | 55,077 | $ | 54,749 | $ | 328 | 1% | ||||
(1)While the three months ended November 30, 2020 compared toCompany’s reporting currency is the corresponding periodU.S. Dollar, the functional currency of our U.K. subsidiary, the prior fiscal year. Changesentity in foreignwhich the EMEA results are generated, is Pound Sterling. Although the functional currency exchange rates hadof this subsidiary is Pound Sterling, approximately 50% of its sales are generated in Euro and 15-20% are generated in U.S. Dollar. As a favorable impact onresult, the Pound Sterling sales and earnings for the EMEA segment can be negatively or positively impacted from period to period. Sales forperiod upon translation from these currencies depending on whether the three months ended November 30, 2020Euro and U.S. Dollar are weakening or strengthening against the Pound Sterling.
(2)Current fiscal year constant currency net sales translated at the exchange rates in effect for the corresponding period of the prior fiscal year, would have been $52.1 million in the EMEA segment. Thus, on a constant currency basis, sales would have increased by $12.8 million, or 33%, fromcompared to prior period to period.actual net sales.
The countries and regions 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 $35.4 million, up $10.6 million, or 43%, for the three months ended November 30, 2020, compared to the corresponding period of the prior fiscal year primarily due to increased sales of WD-40 Multi-Use Product and WD-40 Specialist of $7.1 million or 41% and $1.7 million or 61%, respectively, throughout the direct markets. This increase in sales was primarily due to increased demand for our products as a result of a higher level of renovation 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 e-commerce channel. Sales from direct markets accounted for 65% of the EMEA segment’s sales for the three months ended November 30, 2020 compared to 63% 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.
EMEA Sales - Three Months Ended – November 30, 2021 Compared to November 30, 2020
Net sales increased in the distributor marketsEMEA segment primarily due to the following:
Direct market sales increased $4.9$1.0 million, or 34%3%, for the three months ended November 30, 2020 compared to the corresponding period of the prior fiscal year, primarily due to increased sales of the WD-40 Multi-Use Product in Northern Europe, Eastern EuropeFrance, Iberia and India, whichItaly of $0.8 million, $0.7 million and $0.5 million, respectively. These increases were up 62%, 24% and 120%, respectively. This increase in sales from period to period was primarily due to recoveries experiencednew distribution and successful promotional programs during the first quarter of fiscal year 20212022.
These increases were partially offset by lower sales of maintenance products in distributor markets that previously experienced more severe lockdowns during the second half of fiscal year 2020United Kingdom, which were down $1.2 million, or 17%, due to the COVID-19 pandemic. During the first quarterdecreased sales of fiscal year 2021, many of these regions experienced improved economic conditionsour Multi-Use Product as a result of reductionsa lower level of promotional programs that were conducted period over period.
Sales in COVID-19 related restrictions. This allowed our marketing distributors to participate in moredirect markets benefited from the strengthening of the Pound Sterling, the functional currency of our promotional activitiesU.K. subsidiary, against the U.S. dollar. However, these benefits were more than offset in the opposite direction as a result of the weakening of the Euro against the Pound Sterling from period to period for sales generated in our Euro-based direct markets.
Distributor market sales increased $1.8 million, or 9%, primarily due to increased sales of maintenance products in Poland, Russia and to adjust to more normal levels of inventory for our product,India, which resulted in increased sales. In addition, continued increases in renovationwere up $1.0 million, $0.7 million and maintenance activities by end-users during the pandemic also positively impacted$0.6 million, respectively.
Increased sales in some of our distributor markets. The distributor markets accounted for 35% of the EMEA segment’s total sales for the three months ended November 30, 2020, comparedwere primarily due to 37% for the corresponding period of the prior fiscal year.new distribution, successful promotional programs and favorable changes in foreign currency exchange rates.
Asia-Pacific Sales
The following table summarizes net sales by product line for the Asia-Pacific segment, (in thousands, except percentages):
Three Months Ended November 30, | |||||||||||
Change from | |||||||||||
2020 | 2019 | Dollars | Percent | ||||||||
Maintenance products | $ | 13,464 | $ | 11,081 | $ | 2,383 | 22% | ||||
Homecare and cleaning products | 2,158 | 1,494 | 664 | 44% | |||||||
Total | $ | 15,622 | $ | 12,575 | $ | 3,047 | 24% | ||||
% of consolidated net sales | 12% | 13% | |||||||||
Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region increased to $15.6 million, up $3.0 million, or 24%, for the three months ended November 30, 2020 compared to the corresponding period of the prior(in thousands, except percentages):
Three Months Ended November 30, | |||||||||||
Change from | |||||||||||
2021 | 2020 | Dollars | Percent | ||||||||
Maintenance products | $ | 18,603 | $ | 13,464 | $ | 5,139 | 38% | ||||
HCCP | 2,300 | 2,158 | 142 | 7% | |||||||
Total | $ | 20,903 | $ | 15,622 | $ | 5,281 | 34% | ||||
% of consolidated net sales | 15% | 12% | |||||||||
CC Net sales - non-GAAP (1) | $ | 20,456 | $ | 15,622 | $ | 4,834 | 31% | ||||
(1)Current fiscal year. Changes in foreignyear constant currency exchange rates had a favorable impact on(“CC”) net sales for the Asia-Pacific segment from period to period. Sales for the three months ended November 30, 2020 translated at the exchange rates in effect for the corresponding period of the prior fiscal year, would have been $15.2 million in the compared to prior period actual net sales.
Asia-Pacific segment. Thus, on a constant currency basis, sales would have increased by $2.6 million, or 21%, from periodSales - Three Months Ended – November 30, 2021 Compared to period.November 30, 2020
Sales in Asia, which represented 67% of the total sales in the Asia-Pacific segment increased $1.9primarily due to the following:
China sales increased $2.5 million, or 23%, for the three months ended November 30, 2020 compared to the corresponding period of the prior fiscal year. Sales in China increased $1.2 million, or 53%69%, primarily due to a higher level of promotional activities and many customers buying product in advance of a price increase that went into effect in December 2021. In addition, sales increased due to the timing of customer orders as 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 duefrom period to activities associated with the country’s preparation for the 70period.
th Anniversary National Day in China which resulted in temporary factory closures and slowed market conditions, with no comparable event occurring in the first quarter of the current fiscal year. Sales in the Asia distributor markets sales increased $0.7$2.5 million, or 11%36%, forprimarily due to higher sales of WD-40 Multi-Use Product as a result of the three months ended November 30, 2020continued easing of COVID-19 lockdown measures and restrictions compared to the corresponding period of the prior fiscal year. These increased sales were primarily due to the easing of COVID-19reduced lockdown measures in many of the Asia marketspositively impacted economic conditions during the first quarter of fiscal year 2021 compared to late in fiscal year 2020. These reduced lockdown measures have positively impacted economic conditions in industrial channels2022 and resulted in marketing distributors adjustingincreased demand and higher sales in most countries, particularly in Indonesia, Malaysia, Taiwan, Singapore and Hong Kong.
Australia sales increased $0.3 million, or 7%, primarily due to more normal levels of our product, which resulted in increased sales period over period.of WD-40 Specialist, which were up $0.2 million, or 45%.
Gross Profit
SalesThe following general information regarding the timing and nature of our product costs is important when assessing fluctuations in Australia increased $1.1 million, or 28%, for the three months ended 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 in Australia. On a constant currency basis, sales in Australia would have increased by $0.8 million, or 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,our gross margin from period to period primarily due to a higher level of renovation and maintenance activities exhibited 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 to 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 during the COVID-19 pandemic.period:
Gross Profit
Gross profit increased to $70.2 million for the three months ended November 30, 2020 compared to $53.5 million for the corresponding period of the prior fiscal year. As a percentage of net sales, gross profit increased to 56.4% for the three months ended November 30, 2020 compared to 54.3% for the corresponding period of the prior fiscal year.
Gross margin was favorably impacted by 2.6 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 costsmaterials, such as specialty chemicals used in the formulation of our products, impact the cost of products sold due to production and inventory life cycles. The average costcycles;
In general, the timing 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 resultingadvertising, promotional and other discounts may cause fluctuations in favorable impacts to our gross margin from period to period. DueThe 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;
In the EMEA segment, the majority of our cost of goods sold is denominated in Pound Sterling whereas sales are generated in Pound Sterling, Euro and the U.S. Dollar. The strengthening or weakening of the Euro and U.S. Dollar against the Pound Sterling may result in foreign currency related changes 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 pointssegment from period to period due to sales price increases, primarily in the EMEAperiod; 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.O
Note that ourur 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 $4.1$4.8 million and $3.0$4.1 million for the three months ended November 30, 2021 and 2020, respectively.
The following table summarizes gross margin and 2019, respectively.gross profit (in thousands, except percentages):
Three Months Ended November 30, | |||||||||||
2021 | 2020 | Change from | |||||||||
Gross profit | $ | 68,470 | $ | 70,246 | $ | (1,776) | |||||
Gross margin | 50.8% | 56.4% | (560) | bps (1) | |||||||
(1)Basis point (“bps”) change in gross margin.
Gross Margin - Three Months Ended – November 30, 2021 Compared to November 30, 2020
Gross margin decreased 560 bps primarily due to the following unfavorable impacts, partially offset by favorable impacts:
1010 | ||
Unfavorable Impacts | Favorable Impacts | |
(390) bps - Higher costs of specialty chemicals used in the formulation of our products. (140) bps - Higher warehousing, distribution and freight costs primarily from supply chain constraints in the Americas and EMEA segments as a result of the COVID-19 pandemic. Pandemic-related supply chain challenges began to significantly impact the Americas segment starting in the second quarter of fiscal year 2021 and have continued through the first quarter of fiscal year 2022. (80) bps - Changes in foreign currency exchange rates in the EMEA segment. (70) bps - Higher filling fees paid to our third-party contract manufacturers, primarily in the Americas segment. | 120 bps - Sales price increases implemented during the last 12 months, primarily in the Americas and EMEA segments. |
Three Months Ended November 30, | |||||||||||
Change from | |||||||||||
(in thousands) | 2021 | 2020 | Dollars | Percent | |||||||
SG&A Expenses | $ | 38,423 | $ | 35,977 | $ | 2,446 | 7% | ||||
% of net sales | 28.5% | 28.9% | |||||||||
Selling, general and administrative (“
SG&A”) expenses for the three months ended&A Expenses - Three Months Ended – November 30, 2020 increased $3.4 million2021 Compared to $36.0 million from $32.6 million for the corresponding period of the prior fiscal year. As a percentage of net sales, SG&A expenses decreased to 28.9% for the three months ended November 30, 2020 compared to 33.1% for the corresponding period of the prior fiscal year.
The increase in SG&A expenses from period to period was due to a variety of factors, but most significantly due to increased employee-related costs of $3.0 million due to increased earned incentive compensation, increased headcount, and higher stock-based compensation from period to period. Increases in freight costs associated with higher sales from period to period also increased SG&A expenses by $1.0 million.factors. Changes in foreign currency exchange rates from period to period increasedresulted in an increase of $0.7 million in SG&A expenses by $0.6 million. In addition, professional services fees, including cloud-based software,expenses. Travel and meeting expense increased $0.6 million and other miscellaneous expenses increased $0.4 million from perioddue to period. These increases to SG&A were offset by a decreasethe reduction in travel restrictions related to COVID-19. In addition, freight costs increased $0.5 million due to higher sales levels as well as carrier price increases associated with supply chain constraints and meeting expenses of $2.2 million. Travel and meeting expenses decreasedlimited capacity in the global distribution networks. Employee-related costs also increased $0.2 million primarily due to continued initiatives to reduce the transmission of COVID-19, including the imposition of business travel restrictions for all employeeshigher headcount and the cancellation of all large meetings, such as regional sales meetings and global leadership meetings, in support of social distancing requirements.compensation increases, which were mostly offset by lower incentive compensation accruals.
WeNote that 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 $1.6$1.3 million and $1.7$1.6 million for the three months ended November 30, 2021 and 2020, and 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 (“A&P”) Expenses
Three Months Ended November 30, | |||||||||||
Change from | |||||||||||
(in thousands) | 2021 | 2020 | Dollars | Percent | |||||||
A&P Expenses | $ | 5,624 | $ | 5,519 | $ | 105 | 2% | ||||
% of net sales | 4.2% | 4.4% | |||||||||
Advertising and sales promotion expenses for the three months ended
A&P Expenses - Three Months Ended – November 30, 2020 decreased $0.1 million, or 1%,2021 Compared to $5.5 million from $5.6 million for the corresponding period of the prior fiscal year. As a percentage of net sales, these expenses decreased to 4.4% for the three months ended November 30, 2020 from 5.7% for the corresponding period of the prior fiscal year.
Changes in foreign currency exchange rates did not haveincreased advertising and sales promotion expenses by $0.2 million. Thus, on a significant impact onconstant currency basis, advertising and sales promotion expenses for the three months ended 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 trade shows and marketing activities due to the COVID-19 pandemic. Advertising and sales promotion expenses as a percentage of net sales was significantly lower in the first quarter of fiscal year 2021 compared2022 would have decreased slightly from period to the corresponding period of the prior fiscal year, partiallyprimarily due to higher salesa lower level of promotional programs and a reduction of activities at physical
locationsmarketing support 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.Americas.
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 was $6.9 million and $5.8 million for the three months ended November 30, 2021 and 2020, were $5.8 million compared to $5.0 million for the corresponding period of the prior fiscal year.respectively. Therefore, our total investment in advertising and sales promotion activities totaled $11.3$12.5 million and $10.6$11.3 million for the three months ended November 30, 20202021 and 2019,2020, respectively.
Amortization of our definite-lived intangible assets decreased to $0.4 million for the three months ended November 30, 2020 compared to $0.7 million for the three months ended 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):
Three Months Ended November 30, | Three Months Ended November 30, | |||||||||||||||||||||
Change from | Change from | |||||||||||||||||||||
2020 | 2019 | Dollars | Percent | 2021 | 2020 | Dollars | Percent | |||||||||||||||
Americas | $ | 14,626 | $ | 10,580 | $ | 4,046 | 38% | $ | 12,017 | $ | 14,626 | $ | (2,609) | (18)% | ||||||||
EMEA | 17,743 | 8,592 | 9,151 | 107% | 14,213 | 17,743 | (3,530) | (20)% | ||||||||||||||
Asia-Pacific | 5,060 | 3,202 | 1,858 | 58% | 7,302 | 5,060 | 2,242 | 44% | ||||||||||||||
Unallocated corporate | (9,037) | (7,670) | (1,367) | (18)% | (9,472) | (9,037) | (435) | (5)% | ||||||||||||||
Total | $ | 28,392 | $ | 14,704 | $ | 13,688 | 93% | $ | 24,060 | $ | 28,392 | $ | (4,332) | (15)% | ||||||||
Americas
Americas Operating Income - Three Months Ended – November 30, 2021 Compared to November 30, 2020
Income from operations for the Americas increaseddecreased to $14.6$12.0 million, up $4.0down $2.6 million, or 38%18%, for the three months ended November 30, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $7.5lower gross margin and higher operating expenses, partially offset by a $2.1 million increase in salessales. Gross margin for the Americas segment decreased from 54.2% to 48.7% primarily due to increases in the costs of petroleum-based specialty chemicals. In addition, gross margin was unfavorably impacted by higher costs at our third-party manufacturers and increased warehousing, distribution and freight costs due to supply chain constraints and inflationary impacts as a higherresult of the direct and indirect effects of the COVID-19 pandemic. These unfavorable impacts to gross margin were partially offset by the combined favorable impacts of price increases that were implemented over the last twelve months as well as increased supplier rebates primarily as a result of higher can purchase volumes from period to period. Operating expenses increased period over period primarily due to higher outbound freight costs as a result of increased sales as well as higher freight costs in our distribution networks from period to period. In addition, operating expenses increased period over period due to increased employee-related expenses, as well as higher travel and meeting expenses. AsOperating income as a percentage of net sales gross profitdecreased from 27.0% to 21.3% period over period.
EMEA
EMEA Operating Income - Three Months Ended – November 30, 2021 Compared to November 30, 2020
Income from operations for the AmericasEMEA segment increaseddecreased to $14.2 million, down $3.5 million, or 20%, primarily due to a lower gross margin and an increase in operating expenses, partially offset by a $2.8 million increase in sales. Gross margin for the EMEA segment decreased from 53.1%58.5% to 54.2%51.5% period over period primarily due tothe combined favorable impacts of decreased increased costs of petroleum-based specialty chemicals and aerosol cans as well as unfavorable changes in foreign currency exchange rates. In addition, gross margin was also unfavorably impacted by increases in costs at our third-party manufacturers and increased warehousing, distribution and freight costs from period to period due to supply chain constraints and inflationary impacts as a result of the direct and indirect effects of the COVID-19 pandemic. These unfavorable impacts to gross margin were partially offset by price increases that were implemented over the last twelve months, as well as decreases to advertising, promotional, and other discounts that we give to our customers. These favorable impactscustomers from period 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. period.Operating expenses increased $0.5 million period over period, primarily due to higher accruals for earned incentive compensationadvertising and othersales promotion expenses from period to period. In addition, operating expenses increased period over period due to increased employee-related costs,expenses, as well as higher outbound freight costs due to the increase in sales from period to period. These increases in operating expenses were partially offset by lower 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.expenses. Operating income as a percentage of net sales increaseddecreased from 22.6%32.4% to 27.0%24.7% period over period.period.
EMEA
Income from operations for the EMEA segment increased to $17.7 million, up $9.2 million, or 107%, for the three months ended November 30, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $15.5 million increase in sales and a higher gross margin, partially offset by higher operating expenses. As a percentage of net sales, gross profit for the EMEA segment increased from 55.9% to 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,
as 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 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 increases in operating expenses were partially offset by lower travel and meeting expenses due to the Company’s COVID-19 pandemic reduced travel initiatives
. Operating income as a percentage of net sales increased from 21.9% to 32.4% period over period.Asia-Pacific
Asia-Pacific Operating Income - Three Months Ended – November 30, 2021 Compared to November 30, 2020
Income from operations for the Asia-Pacific segment increased to $5.1$7.3 million, up $1.9$2.2 million, or 58%44%, for the three months ended November 30, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $3.0$5.3 million increase in sales, and higher gross margin, which were partially offset by slightly higher operating expenses. As a percentage of net sales,lower gross profitmargin. Gross margin for the Asia-Pacific segment increaseddecreased from 54.0%56.7% to 56.7%54.5% period over period primarily due to decreases to the cost of petroleum-based specialty chemicals and favorable changesincreases in both sales product mix and market mix, as well as sales price increases from period to period. These favorable impacts to gross margin were slightly offset by increases to advertising, promotional, and other discounts that we give to our customers.customers, as well as increases to the cost of petroleum-based specialty chemicals and aerosol cans from period to period The increased sales were accompanied by a $0.2 million increase in total operating expenses period over period, primarily due. These unfavorable impacts to higher accruals for earned incentive compensation and increased outbound freight costs, whichgross margin were partially offset by a lower level of advertising and sales promotion expensesfavorable changes in market mix from period to period. Operating income as a percentage of net sales increased from 25.5%32.4% to 32.4%34.9% period over period.
Non-Operating Items
The following table summarizes non-operating income and expenses for our consolidated operations (in thousands):
Three Months Ended November 30, | Three Months Ended November 30, | |||||||||||||||
2020 | 2019 | Change | 2021 | 2020 | Change | |||||||||||
Interest income | $ | 19 | $ | 25 | $ | (6) | $ | 25 | $ | 19 | $ | 6 | ||||
Interest expense | $ | 570 | $ | 442 | $ | 128 | $ | 620 | $ | 570 | $ | 50 | ||||
Other income (expense), net | $ | 179 | $ | 5 | $ | 174 | $ | (329) | $ | 179 | $ | (508) | ||||
Provision for income taxes | $ | 4,397 | $ | 2,098 | $ | 2,299 | $ | 4,581 | $ | 4,397 | $ | 184 | ||||
Interest income was insignificantnot significant for both the three months ended November 30, 20202021 and 2019.2020.
Interest expense increased $0.1 millionwas relatively constant for both the three months ended November 30, 2021 and 2020 compared to the corresponding period of the prior fiscal year primarily due to .higher aggregate outstanding balances on our credit and note agreements combined from period over period.
Other Income (Expense), Net
Other income (expense), net was insignificantnot significant for both the three months ended November 30, 20202021 and 2019.2020.
The provision for income taxes was 15.7%19.8% and 14.7%15.7% of income before income taxes for the three months ended November 30, 2020 and 2019, respectively. Discrete benefits, primarily those related to 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 first quarter of fiscal year 2021 and resulted2020, respectively. The increase in a higherthe effective income tax rate from period to period.period was primarily due to an increase in nondeductible performance-based compensation expenses.
Net Income
Net income was $23.6$18.6 million, or $1.72$1.34 per common share on a fully diluted basis, for the three months ended November 30, 20202021 compared to $12.2$23.6 million, or $0.88$1.72 per common share on a fully diluted basis, for the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates had a favorable impact of $0.8$0.6 million on consolidated net income for the three months ended November 30, 202030,2021 compared to the corresponding period of the prior fiscal year. OnThus, on a constant currency basis, net income would have increased by $10.6decreased $5.7 million, or 24%, 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.time.
The following table summarizes the results of these performance measures for the periods presented:
Three Months Ended November 30, | Three Months Ended November 30, | |||||||||
2020 | 2019 | 2021 | 2020 | |||||||
Gross margin - GAAP | 56% | 54% | 51% | 56% | ||||||
Cost of doing business as a percentage | ||||||||||
of net sales - non-GAAP | 32% | 38% | 32% | 32% | ||||||
EBITDA as a percentage of net sales - non-GAAP (1) | 24% | 17% | 19% | 24% | ||||||
(1)Percentages may not aggregate to EBITDA percentage due to rounding and because amounts recorded in other income (expense), net on the Company’sour 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 theour 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 November 30, | Three Months Ended November 30, | |||||||||
2020 | 2019 | 2021 | 2020 | |||||||
Total operating expenses - GAAP | $ | 41,854 | $ | 38,839 | $ | 44,410 | $ | 41,854 | ||
Amortization of definite-lived intangible assets | (358) | (650) | (363) | (358) | ||||||
Depreciation (in operating departments) | (1,042) | (947) | (1,098) | (1,042) | ||||||
Cost of doing business | $ | 40,454 | $ | 37,242 | $ | 42,949 | $ | 40,454 | ||
Net sales | $ | 124,559 | $ | 98,556 | $ | 134,746 | $ | 124,559 | ||
Cost of doing business as a percentage | ||||||||||
of net sales - non-GAAP | 32% | 38% | 32% | 32% | ||||||
EBITDA (in thousands, except percentages)
Three Months Ended November 30, | Three Months Ended November 30, | |||||||||
2020 | 2019 | 2021 | 2020 | |||||||
Net income - GAAP | $ | 23,623 | $ | 12,194 | $ | 18,555 | $ | 23,623 | ||
Provision for income taxes | 4,397 | 2,098 | 4,581 | 4,397 | ||||||
Interest income | (19) | (25) | (25) | (19) | ||||||
Interest expense | 570 | 442 | 620 | 570 | ||||||
Amortization of definite-lived intangible assets | 358 | 650 | 363 | 358 | ||||||
Depreciation | 1,342 | 1,307 | 1,623 | 1,342 | ||||||
EBITDA | $ | 30,271 | $ | 16,666 | $ | 25,717 | $ | 30,271 | ||
Net sales | $ | 124,559 | $ | 98,556 | $ | 134,746 | $ | 124,559 | ||
EBITDA as a percentage of net sales - non-GAAP | 24% | 17% | 19% | 24% | ||||||
Liquidity and Capital Resources
Overview
The Company’sOur financial condition and liquidity remain strong. Net cash provided byused in operations was $23.9$0.9 million for the three months ended November 30, 20202021 compared to $15.2net cash provided by operations of $23.9 million for the corresponding period of the prior fiscal year. Although there continues to be a certain level of uncertainty related to the anticipated impact of the current COVID-19 pandemic on the Company’sour future results, we believe our efficient business model and the steps that we have taken 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 CompanyWe also holdshold borrowings under a Note Purchase and Private Shelf Agreement. See Note 87 – Debt for additional information on these agreements. Included in Note 8 – Debt is information on the Credit Agreement that we amended with Bank of America on September 30, 2020, and 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 United States through the issuance of new notes under the Note Agreement in the amount of $52.0 million.
We have historically maintainedheld a balance of outstanding draws on our line of credit in either U.S. Dollars in the Americas segment, as well asor 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. DuringAs of November 30, 2021, the first quarter of fiscal year 2021, we repaid $50.0entire $44.7 million of our U.S. borrowings outstanding under our line of credit using $52.0 million in proceeds that we received on September 30, 2020 from the issuance and sale of the Series B and C Notes which mature in November
2027 and 2030, respectively. Our remaining outstanding balance under our line of credit resides in the EMEA segment and is denominated completely in Euros and Pound Sterling as of November 30, 2020.Sterling. 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 November 30, 2020, we had a $45.9 million balance of2021, all outstanding draws on the revolving credit facility all of which waswere classified as long-term. In addition,the Unites States, we held $68.8 million in fixed rate long-term borrowings as of November 30, 2021, consisting of senior notes under our Note Agreement. We paid $0.4 million in principal payments on our Series A Notes during the first three months of fiscal year 2021, which had an outstanding balance of $17.6 million as of November 30, 2020.2022. There were no other letters of credit outstanding or restrictions on the amount available on our line of credit or 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 87 – Debt for additional information on these financial covenants. At November 30, 2020,2021, we were in compliance with all debt covenants. We continue to monitor our compliance with all debt covenants. Atcovenants and, at the present time, we believe that the likelihood of being unable to satisfy these covenants is remote.At November 30, 2021, we had a total of $59.5 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.
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, dividend payments, acquisitions, new business development activities and share repurchases. On April 8, 2020, we suspended repurchases underOctober 12, 2021, 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 impactsBoard of the COVID-19 pandemic. Management does not expect to seek Board approval forDirectors approved a new share buy-back plan. Under the plan, until it startswhich became effective on November 1, 2021, we are authorized to see a reduced levelacquire up to $75.0 million of uncertainty regarding the pandemic’s impact on the economy. At November 30, 2020, we had a total of $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.its outstanding shares through August 31, 2023.
Cash Flows
The following table summarizes our cash flows by category for the periods presented (in thousands):
Three Months Ended November 30, | Three Months Ended November 30, | |||||||||||||||
2020 | 2019 | Change | 2021 | 2020 | Change | |||||||||||
Net cash provided by operating activities | $ | 23,921 | $ | 15,206 | $ | 8,715 | ||||||||||
Net cash provided by (used in) operating activities | $ | (947) | $ | 23,921 | $ | (24,868) | ||||||||||
Net cash used in investing activities | (3,670) | (5,770) | 2,100 | (2,362) | (3,670) | 1,308 | ||||||||||
Net cash provided by (used in) financing activities | (11,089) | (8,520) | (2,569) | (21,937) | (11,089) | (10,848) | ||||||||||
Effect of exchange rate changes on cash and cash equivalents | 220 | 531 | (311) | (1,196) | 220 | (1,416) | ||||||||||
Net increase (decrease) in cash and cash equivalents | $ | 9,382 | $ | 1,447 | $ | 7,935 | $ | (26,442) | $ | 9,382 | $ | (35,824) | ||||
Net cash provided byused in operating activities increased $8.7 million to $23.9was $0.9 million for the three months ended November 30, 2020 from $15.22021 compared to net cash provided by operating activities of $23.9 million for the corresponding period of the prior fiscal year.year, resulting in a net change of $24.9 million. Cash flows from operating activities depend heavily on operating performance and changes in working capital. Our primary source of operating cash flows for the three months ended November 30, 20202021 was net income of $23.6$18.6 million, which increased $11.4decreased approximately $5.0 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 increases in trade accounts receivable balances during the three months ended 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 our working capital which increased net cash used in operating activities was also impacted byprimarily attributable to increases in inventory in the Americas segment from period to income tax accrualsperiod. This increase in inventory was due to deliberate actions we took to stock certain raw materials and finished goods given the current challenges within supply chain. In addition, net cash used in operating activities increased due to a larger decrease in accrued payroll and related to theas a result of higher pre-tax income duringearned incentive payouts in the first quarter of fiscal year 20212022 compared to the correspondingsame period of the prior fiscal year.
Net cash used in investing activities decreased $2.1$1.3 million to $3.7$2.4 million for the three months ended November 30, 20202021 from $5.8$3.7 million for the corresponding period of the prior fiscal year, primarily due to decreaseda lower level of manufacturing-related capital expenditures. Capital expenditures decreased by $2.2 million primarily duewithin the United Kingdom and the United States from period to the renovations and equipping of the Company’s office building in Milton Keynes, England that were occurring and were completed in the first quarter of fiscal year 2020.period. Capital expenditures during the first quarter of fiscal yearyears 2021 and 2022 were primarily related to manufacturing equipment, some of which is currentlystill 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 inby financing activities increased $2.6$10.8 million to $11.1$21.9 million for the three months ended November 30, 20202021 from $8.5$11.1 million for the corresponding period of the prior fiscal year. This change was primarily due to a decreasethe resumption of treasury stock purchases in net proceeds from our debt instrumentsNovember 2021, resulting in increased treasury stock purchases of $5.9$7.4 million. InAdditionally, in the first quarter of fiscal year 2021, we repaid $50.0 million of our U.S. borrowings outstanding under our line of credit using $52.0 million in proceeds that we received from the issuance and sale of senior notes during the quarter. This net borrowing activity resulted in a $2.0 million cash inflow during the period compared to $7.9 million in net proceeds on our linefirst quarter of credit infiscal year 2021 with no comparable event during the corresponding period of the prior fiscal year.current period. In addition, increases in shares withheld to cover taxes on conversion of equity rewards of $0.8 million and increases in dividends paid to our shareholders of $0.9$0.7 million and $0.8 million, respectively, resulted in higher cash outflows from period to period. Offsetting these increases in cash outflows was a decrease in treasury stock repurchases due to the suspension of such 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.
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 increasea decrease in cash of $0.2 million and $0.5$1.2 million for the three months ended November 30, 2020 and 2019, respectively.2021 as compared to an increase in cash of $0.2 million for the three months ended November 30, 2020. These changes were primarily due to fluctuations in various foreign currency exchange rates from period to period. For the three months ended November 30, 2020,period, but the majority wasis 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 third-party suppliers (contract manufacturers) that manufacture our products and third-party distribution centers whowhich 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 haswe have historically purchased. In addition, in the ordinary course of business, we communicate supply needs to our contract manufacturers based on orders and short-term projections, ranging from two to six 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 productsproduct 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 November 30, 2020,2021, 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 98 — Share Repurchase Plan, included in this report.
Dividends
On December 7,13, 2021, the Company’s Board of Directors declared a cash dividend of $0.67$0.78 per share payable on January 29, 202131, 2022 to shareholders of record on January 15, 2021. 14, 2022Our 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 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, 2020,2021, which was filed with the SEC on October 21, 2020.22, 2021.
Recently Issued Accounting Standards
Information on Recently Issued Accounting Standards that could potentially impact the Company’sour 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 November 30, 2020,2021, 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.
There were no changes in our internal control over financial reporting during the three months ended November 30, 20202021 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 1211 — Commitments and Contingencies, included in this report.
Item 1A. Risk Factors
There 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, 2020,2021, which was filed with the SEC on October 21, 202022, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On April 8, 2020,October 12, 2021, the Company elected to suspend repurchases under its previouslyCompany’s Board of Directors approved share buy-back plan, which subsequently expired on August 31, 2020. The Company 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. Under the plan, until it startswhich became effective on November 1, 2021, the Company is authorized to see a reduced levelacquire up to $75.0 million of uncertainty regarding the pandemic’s impactits outstanding shares through August 31, 2023. The timing and amount of repurchases are based on the economyterms and conditions as may be acceptable to the Company’s business. Therefore, no repurchase transactionsChief Executive Officer and Chief Financial Officer, subject to present loan covenants and in compliance with all laws and regulations applicable thereto. During the period from November 1, 2021 through November 30, 2021, the Company repurchased 32,000 shares at a total cost of $7.4 million under this $75.0 million plan.
The following table provides information with respect to all purchases made by the Company during the three months ended November 30, 2021. All purchases listed below were made duringin the first quarteropen market at prevailing market prices. Purchase transactions between November 16, 2021 and November 30, 2021 were executed pursuant to trading plans adopted by the Company pursuant to Rule 10b5-1 under the Securities Exchange Act of fiscal year 2021.1934.
Total Shares Purchased | Max $ Value of Shares | ||||||||||
as Part of Publicly | That May Yet By | ||||||||||
Total # of Shares | Average Price Paid | Announced Plans | Purchased Under the | ||||||||
Purchased | Per Share | & Programs | Plans & Programs | ||||||||
Period | $ | 75,000,000 | |||||||||
November 1 - November 30 | 32,000 | $ | 230.79 | 32,000 | $ | 67,614,176 | |||||
Total | 32,000 | $ | 230.79 | 32,000 | |||||||
Item 6. Exhibits
HIDDEN_ROW | ||
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Exhibit No. |
| Description |
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3(a) |
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3(b) |
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10(a) | ||
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31(a) |
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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. |
101 |
| The following materials from WD-40 Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, |
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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Date: January |
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| By: |
| /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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