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WDFC WD-40

Filed: 8 Apr 21, 4:26pm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2021

 

¨

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)

 

 

 

 

Delaware

 

95-1797918

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

9715 Businesspark Avenue, San Diego, California

 

92131

(Address of principal executive offices)

 

(Zip code)

Registrant’s telephone number, including area code: (619) 275-1400

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  þ     No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

Emerging growth company  ¨       

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of exchange on which registered

Common stock, par value $0.001 per share

WDFC

NASDAQ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  þ

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of April 5, 2021 was 13,707,767.

1


WD-40 COMPANY

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended February 28, 2021

TABLE OF CONTENTS

2


PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

WD-40 COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited and in thousands, except share and per share amounts)

February 28,

August 31,

2021

2020

Assets

Current assets:

Cash and cash equivalents

$

72,381

$

56,462

Trade accounts receivable, less allowance for doubtful

accounts of $550 and $362 at February 28, 2021

and August 31, 2020, respectively

93,577

80,672

Inventories

44,539

41,264

Other current assets

11,339

6,756

Total current assets

221,836

185,154

Property and equipment, net

67,077

60,759

Goodwill

95,987

95,731

Other intangible assets, net

8,020

8,633

Operating lease right-of-use assets

8,741

8,168

Deferred tax assets, net

498

464

Other assets

3,828

3,728

Total assets

$

405,987

$

362,637

Liabilities and Shareholders' Equity

Current liabilities:

Accounts payable

$

27,729

$

21,676

Accrued liabilities

24,451

21,660

Accrued payroll and related expenses

16,667

14,767

Short-term borrowings

800

800

Income taxes payable

2,236

1,213

Total current liabilities

71,883

60,116

Long-term borrowings

116,731

113,098

Deferred tax liabilities, net

11,535

11,291

Long-term operating lease liabilities

6,945

6,520

Other long-term liabilities

11,313

11,299

Total liabilities

218,407

202,324

Commitments and Contingencies (Note 12)

 

 

Shareholders' equity:

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

19,855,666 and 19,812,685 shares issued at February 28, 2021 and

August 31, 2020, respectively; and 13,707,767 and 13,664,786 shares

outstanding at February 28, 2021 and August 31, 2020, respectively

20

20

Additional paid-in capital

158,897

157,850

Retained earnings

421,129

398,731

Accumulated other comprehensive loss

(24,386)

(28,208)

Common stock held in treasury, at cost ― 6,147,899 and 6,147,899

shares at February 28, 2021 and August 31, 2020, respectively

(368,080)

(368,080)

Total shareholders' equity

187,580

160,313

Total liabilities and shareholders' equity

$

405,987

$

362,637

See accompanying notes to condensed consolidated financial statements.

3


WD-40 COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except per share amounts)

Three Months Ended February 28/29,

Six Months Ended February 28/29,

2021

2020

2021

2020

Net sales

$

111,905

$

100,049

$

236,464

$

198,605

Cost of products sold

49,898

46,447

104,211

91,460

Gross profit

62,007

53,602

132,253

107,145

Operating expenses:

Selling, general and administrative

35,478

29,906

71,455

62,505

Advertising and sales promotion

5,512

4,857

11,031

10,447

Amortization of definite-lived intangible assets

362

654

720

1,304

Total operating expenses

41,352

35,417

83,206

74,256

Income from operations

20,655

18,185

49,047

32,889

Other income (expense):

Interest income

19

28

38

53

Interest expense

(610)

(593)

(1,180)

(1,035)

Other income (expense), net

151

(229)

330

(224)

Income before income taxes

20,215

17,391

48,235

31,683

Provision for income taxes

3,024

3,064

7,421

5,162

Net income

$

17,191

$

14,327

$

40,814

$

26,521

Earnings per common share:

Basic

$

1.25

$

1.04

$

2.97

$

1.92

Diluted

$

1.24

$

1.04

$

2.96

$

1.92

Shares used in per share calculations:

Basic

13,700

13,712

13,687

13,713

Diluted

13,729

13,737

13,718

13,741

See accompanying notes to condensed consolidated financial statements.


4


WD-40 COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited and in thousands)

Three Months Ended February 28/29,

Six Months Ended February 28/29,

2021

2020

2021

2020

Net income

$

17,191

$

14,327

$

40,814

$

26,521

Other comprehensive income (loss):

Foreign currency translation adjustment

3,234

(98)

3,822

2,014

Total comprehensive income

$

20,425

$

14,229

$

44,636

$

28,535

See accompanying notes to condensed consolidated financial statements.

5


WD-40 COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited and in thousands, except share and per share amounts)

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Treasury Stock

Shareholders'

Shares

Amount

Capital

Earnings

Income (Loss)

Shares

Amount

Equity

Balance at August 31, 2020

19,812,685 

$

20 

$

157,850 

$

398,731 

$

(28,208)

6,147,899 

$

(368,080)

$

160,313 

Issuance of common stock under share-based

compensation plan, net of shares withheld for taxes

23,417 

-

(3,490)

(3,490)

Stock-based compensation

2,665 

2,665 

Cash dividends ($0.67 per share)

(9,199)

(9,199)

Foreign currency translation adjustment

588 

588 

Net income

23,623 

23,623 

Balance at November 30, 2020

19,836,102 

$

20 

$

157,025 

$

413,155 

$

(27,620)

6,147,899 

$

(368,080)

$

174,500 

Issuance of common stock under share-based

compensation plan, net of shares withheld for taxes

19,564 

-

(5)

(5)

Stock-based compensation

1,877 

1,877 

Cash dividends ($0.67 per share)

(9,217)

(9,217)

Foreign currency translation adjustment

3,234 

3,234 

Net income

17,191 

17,191 

Balance at February 28, 2021

19,855,666 

$

20 

$

158,897 

$

421,129 

$

(24,386)

6,147,899 

$

(368,080)

$

187,580 

See accompanying notes to condensed consolidated financial statements.


6


WD-40 COMPANY

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

(Unaudited and in thousands, except share and per share amounts)

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Treasury Stock

Shareholders'

Shares

Amount

Capital

Earnings

Income (Loss)

Shares

Amount

Equity

Balance at August 31, 2019

19,773,977 

$

20 

$

155,132 

$

374,060 

$

(32,482)

6,055,316 

$

(351,255)

$

145,475 

Issuance of common stock under share-based

compensation plan, net of shares withheld for taxes

22,342 

-

(2,640)

(2,640)

Stock-based compensation

2,214 

2,214 

Cash dividends ($0.61 per share)

(8,406)

(8,406)

Acquisition of treasury stock

26,800 

(4,957)

(4,957)

Foreign currency translation adjustment

2,112 

2,112 

Net income

12,194 

12,194 

Balance at November 30, 2019

19,796,319 

$

20 

$

154,706 

$

377,848 

$

(30,370)

6,082,116 

$

(356,212)

$

145,992 

Issuance of common stock under share-based

compensation plan, net of shares withheld for taxes

16,366 

-

-

Stock-based compensation

1,675 

1,675 

Cash dividends ($0.67 per share)

(9,236)

(9,236)

Acquisition of treasury stock

24,774 

(4,701)

(4,701)

Foreign currency translation adjustment

(98)

(98)

Net income

14,327 

14,327 

Balance at February 29, 2020

19,812,685 

$

20 

$

156,381 

$

382,939 

$

(30,468)

6,106,890 

$

(360,913)

$

147,959 

See accompanying notes to condensed consolidated financial statements.

7


WD-40 COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)

Six Months Ended February 28/29,

2021

2020

Operating activities:

Net income

$

40,814

$

26,521

Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation and amortization

3,458

4,024

Net gains on sales and disposals of property and equipment

(104)

(66)

Deferred income taxes

152

(79)

Stock-based compensation

4,542

3,889

Unrealized foreign currency exchange losses (gains)

139

(249)

Provision for bad debts

175

61

Changes in assets and liabilities:

Trade accounts receivable

(10,111)

(1,313)

Inventories

(2,104)

(1,648)

Other assets

(4,386)

(1,781)

Operating lease assets and liabilities, net

9

211

Accounts payable and accrued liabilities

7,398

1,969

Accrued payroll and related expenses

1,584

(7,345)

Other long-term liabilities and income taxes payable

944

(812)

Net cash provided by operating activities

42,510

23,382

Investing activities:

Purchases of property and equipment

(7,605)

(10,695)

Proceeds from sales of property and equipment

239

212

Net cash used in investing activities

(7,366)

(10,483)

Financing activities:

Treasury stock purchases

-

(9,658)

Dividends paid

(18,416)

(17,642)

Proceeds from issuance of long-term senior notes

52,000

-

Repayments of long-term senior notes

(400)

(400)

Net (repayments) proceeds of revolving credit facility

(50,000)

20,524

Shares withheld to cover taxes upon conversions of equity awards

(3,495)

(2,640)

Net cash used in financing activities

(20,311)

(9,816)

Effect of exchange rate changes on cash and cash equivalents

1,086

187

Net increase in cash and cash equivalents

15,919

3,270

Cash and cash equivalents at beginning of period

56,462

27,233

Cash and cash equivalents at end of period

$

72,381

$

30,503

Supplemental disclosure of noncash investing activities:

Accrued capital expenditures

$

1,638

$

5,724

See accompanying notes to condensed consolidated financial statements.

8


WD-40 COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1. The Company

WD-40 Company (“the Company”), based in San Diego, California, is a global marketing organization dedicated to creating positive lasting memories by developing and selling products that solve problems in workshops, factories and homes around the world. The Company markets 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

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 dealers.

Note 2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Consolidation

The condensed consolidated financial statements included herein have been prepared by the Company, without audit, according to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The August 31, 2020 year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP.

 

In the opinion of management, the unaudited financial information for the interim periods shown reflects all adjustments necessary for a fair statement thereof and such adjustments are of a normal recurring nature. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2020, which was filed with the SEC on October 21, 2020.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year.

COVID-19 Considerations

The COVID-19 pandemic has adversely impacted global economic conditions and has contributed to significant volatility in financial markets beginning in early calendar year 2020, as described in the “Significant Developments” section included in Part I – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Although the Company’s current estimates contemplate current conditions, the inputs into certain of the Company’s significant and critical accounting estimates include judgments and assumptions about the economic implications of the COVID-19 pandemic and how management expects them to change in the future, as appropriate. It is reasonably possible that actual results experienced

9


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 currently in other income (expense) in the Company’s consolidated statements of operations. Cash flows from settlements of foreign currency forward contracts are included in operating activities in the consolidated statements of cash flows. Foreign currency forward contracts in an asset position at the end of the reporting period are included in other current assets, while foreign currency forward contracts in a liability position at the end of the reporting period are included in accrued liabilities in the Company’s consolidated balance sheets. At February 28, 2021, the Company had a notional amount of $8.9 million outstanding in foreign currency forward contracts, which matured on March 30, 2021. Unrealized net gains and losses related to foreign currency forward contracts were 0t significant at February 28, 2021 and August 31, 2020. Realized net gains and losses related to foreign currency forward contracts were 0t significant for both the three months ended February 28, 2021 and February 29, 2020. Realized net gains and losses related to foreign currency forward contracts were 0t significant for both the six months ended February 28, 2021 and February 29, 2020. Both unrealized and realized net gains and losses are recorded in other income (expense), net on the Company’s condensed consolidated statements of operations.

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 February 28, 2021, the Company had 0 assets or liabilities that are measured at fair value in the financial statements on a recurring basis, with the exception of the foreign currency forward contracts, which are classified as Level 2 within the fair value hierarchy. The carrying values of cash equivalents and short-term borrowings are recorded at cost, which approximates their fair values, primarily due to their short-term nature. In addition, the carrying value of borrowings held under the Company’s revolving credit facility approximates fair value, based on Level 2 inputs, due to the variable nature of underlying interest rates, which generally reflect market conditions. The Company’s fixed rate long-term borrowings consist of senior notes and are recorded at carrying value. The Company estimates that the fair value of its senior notes, based on Level 2 inputs, was approximately $67.9 million as of February 28, 2021, which was determined based on a discounted cash flow analysis using current market interest rates for instruments with similar terms, compared to their carrying value of $69.6 million. During the six months ended February 28, 2021, the Company did 0t record any significant nonrecurring fair value measurements for assets or liabilities in periods subsequent to their initial recognition.


10


Recently Issued Accounting Standards

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 amends existing guidance to improve consistent application. This guidance is effective for fiscal years beginning after December 15, 2021, including interim periods within that fiscal year. Early adoption is permitted. The Company is in the process of evaluating the impacts of this guidance on its consolidated financial statements and related disclosures.

Note 3. Inventories

Inventories consist primarily of raw materials and components, finished goods, and product held at third-party contract manufacturers. Inventories are stated at the lower of cost or market and cost is determined based on a first-in, first-out method or, for a portion of raw materials inventory, the average cost method. Inventories consisted of the following (in thousands): 

February 28,

August 31,

2021

2020

Product held at third-party contract manufacturers

$

6,354

$

4,393

Raw materials and components

5,394

5,034

Work-in-process

1,296

385

Finished goods

31,495

31,452

Total

$

44,539

$

41,264

Note 4. Property and Equipment

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

February 28,

August 31,

2021

2020

Machinery, equipment and vehicles

$

20,687

$

20,434

Buildings and improvements

29,849

28,271

Computer and office equipment

5,890

5,420

Software

10,613

9,959

Furniture and fixtures

2,722

2,641

Capital in progress

28,101

21,939

Land

4,435

4,374

Subtotal

102,297

93,038

Less: accumulated depreciation and amortization

(35,220)

(32,279)

Total

$

67,077

$

60,759


11


Note 5. Goodwill and Other Intangible Assets

Goodwill

The following table summarizes the changes in the carrying amounts of goodwill by segment (in thousands):

Americas

EMEA

Asia-Pacific

Total

Balance as of August 31, 2020

$

85,461

$

9,060

$

1,210

$

95,731

Translation adjustments

28

229

(1)

256

Balance as of February 28, 2021

$

85,489

$

9,289

$

1,209

$

95,987

During the second quarter of fiscal year 2021, the Company performed its annual goodwill impairment test. The annual goodwill impairment test was performed at the reporting unit level as required by the authoritative guidance as of the Company’s most recent goodwill impairment testing date, December 1, 2020. During the fiscal year 2021 annual goodwill impairment test, the Company performed a qualitative assessment of each reporting unit to determine whether it was more likely than not that the fair value of a reporting unit was less than its carrying amount. In performing this qualitative assessment, the Company assessed relevant events and circumstances that may impact the fair value and the carrying amount of each of its reporting units. Factors that were considered included, but were not limited to, the following: (1) macroeconomic conditions, including the impacts of the COVID-19 pandemic; (2) industry and market conditions; (3) historical financial performance and expected financial performance; (4) other entity specific events, such as changes in management or key personnel; and (5) events affecting the Company’s reporting units, such as a change in the composition of net assets or any expected dispositions. Based on the results of this qualitative assessment, the Company determined that it is more likely than not that the carrying value of each of its reporting units is less than its fair value as of the goodwill impairment testing date and, thus, a quantitative analysis was not required. As a result, the Company concluded that 0 impairment of its goodwill existed as of December 1, 2020. In addition, the Company concluded that 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, 2020 through February 28, 2021. To date, there have been 0 impairment losses identified and recorded related to the Company’s goodwill.

Definite-lived Intangible Assets

The Company’s definite-lived intangible assets, which include the 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):

February 28,

August 31,

2021

2020

Gross carrying amount

$

36,912

$

36,363

Accumulated amortization

(28,892)

(27,730)

Net carrying amount

$

8,020

$

8,633

There has been 0 impairment charge for the six months ended February 28, 2021 and there were no indicators of impairment identified as a result of the Company’s review of events and circumstances related to its existing definite-lived intangible assets. The Company’s review of events and circumstances included consideration of the ongoing COVID-19 pandemic.


12


Changes in the carrying amounts of definite-lived intangible assets by segment for the six months ended February 28, 2021 are summarized below (in thousands):

Americas

EMEA

Asia-Pacific

Total

Balance as of August 31, 2020

$

6,553

$

2,080

$

-

$

8,633

Amortization expense

(529)

(191)

-

(720)

Translation adjustments

-

107

-

107

Balance as of February 28, 2021

$

6,024

$

1,996

$

-

$

8,020

The estimated amortization expense for the Company’s definite-lived intangible assets in future fiscal years is as follows (in thousands):

Trade Names

Customer-Based

Remainder of fiscal year 2021

$

642

$

90

Fiscal year 2022

1,283

180

Fiscal year 2023

1,037

-

Fiscal year 2024

1,031

-

Fiscal year 2025

949

-

Thereafter

2,808

-

Total

$

7,750

$

270

Included in the total estimated future amortization expense is the amortization expense for the 1001 trade name and the GT85 intangible assets, which are based on current foreign currency exchange rates, and as a result amounts in future periods may differ from those presented due to fluctuations in those rates.

Note 6. Leases

The Company leases real estate for its regional sales offices, a research and development facility, and offices located at its international subsidiaries and branch locations. In addition, the Company leases an automobile fleet in the United States. The Company has also identified warehouse leases within certain third-party distribution center service contracts. All other leases are insignificant to the Company’s consolidated financial statements. To determine if a contract contains a lease, the Company assesses its contracts and determines if there is an identified asset for which the Company has obtained the right to control, as defined in ASC 842.

The Company records right-of-use assets and lease liabilities on its consolidated balance sheets for leases with an expected term greater than one year. The lease term includes the committed lease term, also taking into account early termination and renewal options that management is reasonably certain to exercise. For leases that do not have a readily determinable implicit rate, the Company uses its estimated secured incremental borrowing rate based on the information available at the lease commencement date to determine the present value of lease payments. The Company’s estimated secured incremental borrowing rate is determined using a portfolio approach based on the rate of interest the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The Company uses the unsecured borrowing rate and risk-adjusts that rate to approximate a collateralized rate in the currency of the lease. As of February 28, 2021, finance leases were not significant and all leases recorded on the Company’s consolidated balances sheets were operating leases. Residual value guarantees, restrictions, covenants, sublease income, net gains or losses from sale and leaseback transactions, and transactions with related parties associated with leases are also not significant. The Company has made the accounting policy election to use certain ongoing practical expedients made available by ASC 842 to: (i) not separate lease components from nonlease components for real estate – office buildings, machinery and equipment, lab equipment, office equipment, furniture and fixtures, and IT equipment; and (ii) exclude leases with an initial term of 12 months or less (“short-term” leases) from the consolidated balance sheets and will recognize related lease payments in the consolidated statements of operations on a straight-line basis over the lease term. However, the Company had 0 significant short-term leases as of February 28, 2021. The Company obtained additional right-of-use assets of $1.1 million in exchange for lease

13


obligations related to renewals of existing leases during the six months ended February 28, 2021. The Company did 0t obtain significant additional right-of-use assets during the six months ended February 28, 2020.

The Company recorded $0.5 million and $1.0 million in lease expense during both the three and six months ended February 28, 2021 and February 29, 2020. This lease expense was included in selling, general and administrative expenses. An insignificant amount of lease expense was classified within cost of products sold for both the three and six months ended February 28, 2021 and February 29, 2020. During the three and six months ended February 28, 2021 and February 29, 2020, the Company paid cash of $0.6 million and $1.1 million related to lease liabilities, respectively, compared to $0.5 million and $1.0 million in the corresponding period of the prior fiscal year. Variable lease expense under the Company’s lease agreements were not significant for both the three and six months ended February 28, 2021 and February 29, 2020. As of February 28, 2021, the weighted-average remaining lease term was 6.3 years and the weighted-average discount rate was 2.9% for the Company’s operating leases. There were 0 leases that had not yet commenced as of February 28, 2021 that will create additional significant rights and obligations for the Company.

Right-of-use assets and lease liabilities consisted of the following (in thousands):

February 28,

August 31,

2021

2020

Assets:

Operating lease right-of-use assets

$

8,741

$

8,168

Liabilities:

Current operating lease liabilities(1)

1,945

1,840

Long-term operating lease liabilities

6,945

6,520

Total operating lease liabilities

$

8,890

$

8,360

(1)Current operating lease liabilities are classified in accrued liabilities on the Company’s condensed consolidated balance sheet.

The Company’s maturities of its operating lease liabilities, including early termination and renewal options that management is reasonably certain to exercise, are as follows (in thousands):

Operating

Leases

Remainder of fiscal year 2021

$

1,100

Fiscal year 2022

2,085

Fiscal year 2023

1,732

Fiscal year 2024

1,516

Fiscal year 2025

959

Thereafter

2,495

Total undiscounted future cash flows

$

9,887

Less: Interest

(997)

Present value of lease liabilities

$

8,890


14


Note 7. Accrued and Other Liabilities

Accrued liabilities consisted of the following (in thousands): 

February 28,

August 31,

2021

2020

Accrued advertising and sales promotion expenses

$

12,069

$

10,787

Accrued professional services fees

2,315

1,761

Accrued sales taxes and other taxes

2,892

1,751

Short-term operating lease liability

1,945

1,840

Other

5,230

5,521

Total

$

24,451

$

21,660

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

February 28,

August 31,

2021

2020

Accrued incentive compensation

$

8,696

$

5,702

Accrued payroll

4,731

4,396

Accrued profit sharing

994

2,726

Accrued payroll taxes

1,740

1,446

Other

506

497

Total

$

16,667

$

14,767

Note 8. Debt

As of February 28, 2021, the Company held borrowings under 2 separate agreements as detailed below.

Note Purchase and Private Shelf Agreement

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”). The note agreement has been amended three times, most recently on September 30, 2020 (the “Third Amendment”). The Third Amendment permitted the Company to enter into the first amendment of its existing amended and restated revolving credit agreement with Bank of America and also included certain conforming amendments to the credit agreement, including the revision of financial and restrictive covenants.

Credit 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.

On September 30, 2020, the Company entered into a First Amendment to Credit Agreement (the “First Amendment to Credit Agreement”) with Bank of America. In addition to other non-material and technical amendments to the Credit Agreement, the First Amendment to Credit Agreement extended the maturity date from March 16, 2025 to September 30, 2025, revised certain financial and restrictive covenants, increased the limitation amounts on other unsecured Indebtedness and Investments and adjusted the interest rates on subsequent borrowings under the Credit Agreement using a three-tier pricing approach tied to the Company’s Consolidated Leverage Ratio. Capitalized terms not otherwise defined in this report have the meaning given to such terms in the Credit Agreement.

15


Short-term and long-term borrowings under the Company’s Credit Agreement and Note Agreement consisted of the following (in thousands):

Maturities

February 28,

August 31,

Issuance

(calendar year)

2021

2020

Credit Agreement - revolving credit facility (1)(3)

Various

9/30/2025

$

47,931

$

95,898

Note Agreement

Series A Notes - 3.39% fixed rate(2)

11/15/2017

2021-2032

17,600

18,000

Series B Notes - 2.50% fixed rate(3)

9/30/2020

11/15/2027

26,000

-

Series C Notes - 2.69% fixed rate(3)

9/30/2020

11/15/2030

26,000

-

Total borrowings

117,531

113,898

Short-term portion of borrowings

(800)

(800)

Total long-term borrowings

$

116,731

$

113,098

(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 February 28, 2021, the entire balance on this facility is classified as long-term and only contains amounts denominated in Euros and Pound Sterling. Euro and Pound Sterling denominated draws will fluctuate in U.S. Dollars from period to period due to changes in foreign currency exchange rates.

(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)On September 30, 2020, the Company refinanced $50.0 million of existing draws under its Credit Agreement in the United States through the issuance of 2 new $26.0 million notes (“Series B Notes” and “Series C Notes”, respectively) under its Note Agreement. Interest on these new notes is payable semi-annually in May and November of each year with no principle due until the maturity date. The first interest payment on both the Series B and Series C Notes is due in May 2021.

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 February 28, 2021, the Company was in compliance with all debt covenants under both the Note Agreement and the Credit Agreement.

16


Note 9. Share Repurchase Plan

On April 8, 2020, the Company elected to suspend repurchases under its previously approved share buy-back plan, which subsequently expired on August 31, 2020. The Company made this election in order to preserve cash while it continues to monitor the long-term impacts of the COVID-19 pandemic. Management will continue to evaluate future authorizations under its share buy-back program and the Board will consider approval based on management’s recommendations. Therefore, 0 repurchase transactions were made during the six months ended February 28, 2021.

Note 10. Earnings per Common Share

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

Three Months Ended February 28/29,

Six Months Ended February 28/29,

2021

2020

2021

2020

Net income

$

17,191

$

14,327

$

40,814

$

26,521

Less: Net income allocated to

participating securities

(64)

(68)

(174)

(135)

Net income available to common shareholders

$

17,127

$

14,259

$

40,640

$

26,386

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 February 28/29,

Six Months Ended February 28/29,

2021

2020

2021

2020

Weighted-average common

shares outstanding, basic

13,700

13,712

13,687

13,713

Weighted-average dilutive securities

29

25

31

28

Weighted-average common

shares outstanding, diluted

13,729

13,737

13,718

13,741

For the three and six months ended February 28, 2021, there were 0 anti-dilutive stock-based equity awards outstanding. For the three and six months ended February 29, 2020, weighted-average stock-based equity awards outstanding that are non-participating securities in the amount of 7,604 and 9,479, respectively, were excluded from the calculation of diluted EPS under the treasury stock method as they were anti-dilutive.

Note 11. Revenue Recognition

The following paragraphs detail the Company’s revenue recognition policies and provide additional information used in its determination of net sales and contract balances under ASC 606.

Revenue Recognition

The Company generates revenue from sales of its products to customers in its Americas, EMEA and Asia-Pacific segments. Product sales for the Company include maintenance products and homecare and cleaning products. The Company recognizes revenue related to the sale of these products when it satisfies a performance obligation in an amount reflecting the consideration to which it expects to be entitled. Sales are recorded net of allowances for damaged goods and other sales returns, sales incentives, trade promotions and cash discounts. The Company applies a five-step approach in determining the amount and timing of revenue to be recognized which includes the following: (1) identifying the contract with a customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing revenue when the performance obligation is satisfied.

17


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 $7.8 million and $7.5 million balance in rebate/other discount liabilities as of February 28, 2021 and August 31, 2020, respectively, which are included in accrued liabilities on the Company’s condensed consolidated balance sheets. The Company recorded approximately $5.8 million and $11.1 million in rebates/other discounts as a reduction to sales during the three and six months ended February 28, 2021, respectively. Rebates/other discounts as a reduction to sales during the three and six months ended February 29, 2020 were approximately $4.4 million and $9.4 million, 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 February 28, 2021 and August 31, 2020. Coupons recorded as a reduction to sales during the three and six months ended February 28, 2021 and February 29, 2020, were also not significant.

18


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 $0.5 million balance in the allowance for cash discounts at both February 28, 2021 and August 31, 2020. The Company recorded approximately $1.1 million and $2.3 million in cash discounts as a reduction to sales during the three and six months ended February 28, 2021, respectively. Cash discounts as a reduction to sales during the three and six months ended February 29, 2020 were approximately $1.0 million and $2.0 million, 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 February 28, 2021 and August 31, 2020. 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 February 28, 2021 and August 31, 2020.

Disaggregation of Revenue

The Company's revenue is presented on a disaggregated basis in Note 14 – Business Segments 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 organizes 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.

Contract Balances

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 million and $1.4 million as of February 28, 2021 and August 31, 2020, respectively. 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 February 28, 2021 and August 31, 2020.

Note 12. 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,

19


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 February 28, 2021, 0 such commitments were outstanding.

Litigation

From time to time, the Company is subject to various claims, lawsuits, investigations and proceedings arising in the ordinary course of business, including but not limited to, product liability litigation and other claims and proceedings with respect to intellectual property, breach of contract, labor and employment, tax and other matters. As of February 28, 2021, there were 0 unasserted claims or pending proceedings for claims against the Company that the Company believes will result in a probable loss for the Company and, as to claims that the Company believes may result in a reasonably possible loss, the Company believes that no reasonably possible outcome of any such claim will have a materially adverse impact on the Company’s financial condition, results of operations or cash flows.

For further information on the risks the Company faces from existing and future claims, suits, investigations and proceedings, see the Company’s risk factors disclosed in Part I―Item 1A, “Risk Factors,” in its Annual Report on Form 10-K for the fiscal year ended August 31, 2020, which was filed with the SEC on October 21, 2020.

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 February 28, 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 February 28, 2021.


20


Note 13. 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 15.0% and 17.6% of income before income taxes for the three months ended February 28, 2021 and February 29, 2020, respectively. The decrease in the effective income tax rate from period to period was primarily due to an increase in excess tax benefits from settlements of stock-based equity awards, as well as the release of liabilities related to uncertain tax positions due to the expiration of statutes during the second quarter of fiscal year 2021.

The provision for income taxes was 15.4% and 16.3% of income before income taxes for the six months ended February 28, 2021 and February 29, 2020, respectively. The decrease in the effective income tax rate from period to period was primarily due to a benefit from the High Tax Exemption associated with Global Intangible Low Taxed Income during the first half of fiscal year 2021, as well as an increase in excess tax benefits from settlements of stock-based equity awards. The impact of these items on income tax expense percentages was partially offset by the effect of significantly higher pre-tax income for the six months ended February 28, 2021 when compared to the corresponding period in the prior fiscal year.

The Company is subject to taxation in the U.S. and in various state and foreign jurisdictions. Due to expired statutes, the Company’s federal income tax returns for years prior to fiscal year 2018 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 jurisdictions for fiscal years 2017 through 2019. 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.


21


Note 14. 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

For the Three Months Ended

Americas

EMEA

Asia-Pacific

Corporate (1)

Total

February 28, 2021:

Net sales

$

46,157

$

49,813

$

15,935

$

-

$

111,905

Income from operations

$

10,356

$

14,176

$

5,188

$

(9,065)

$

20,655

Depreciation and

amortization expense

$

795

$

807

$

75

$

80

$

1,757

Interest income

$

-

$

3

$

16

$

-

$

19

Interest expense

$

491

$

118

$

1

$

-

$

610

February 29, 2020:

Net sales

$

46,842

$

41,753

$

11,454

$

-

$

100,049

Income from operations

$

11,400

$

10,582

$

3,106

$

(6,903)

$

18,185

Depreciation and

amortization expense

$

1,210

$

741

$

76

$

40

$

2,067

Interest income

$

9

$

-

$

19

$

-

$

28

Interest expense

$

390

$

201

$

2

$

-

$

593

Six Months Ended:

February 28, 2021:

Net sales

$

100,344

$

104,563

$

31,557

$

-

$

236,464

Income from operations

$

24,982

$

31,919

$

10,247

$

(18,101)

$

49,047

Depreciation and

amortization expense

$

1,586

$

1,563

$

151

$

158

$

3,458

Interest income

$

1

$

5

$

32

$

-

$

38

Interest expense

$

946

$

232

$

2

$

-

$

1,180

February 29, 2020:

Net sales

$

93,578

$

80,998

$

24,029

$

-

$

198,605

Income from operations

$

21,980

$

19,174

$

6,308

$

(14,573)

$

32,889

Depreciation and

amortization expense

$

2,382

$

1,375

$

150

$

117

$

4,024

Interest income

$

13

$

1

$

39

$

-

$

53

Interest expense

$

732

$

300

$

3

$

-

$

1,035

(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.

22


Net sales by product group are as follows (in thousands):

Three Months Ended February 28/29,

Six Months Ended February 28/29,

2021

2020

2021

2020

Maintenance products

$

102,729

$

91,147

$

217,072

$

180,817

Homecare and cleaning products

9,176

8,902

19,392

17,788

Total

$

111,905

$

100,049

$

236,464

$

198,605

Note 15. Subsequent Events

On March 16, 2021, the Company’s Board of Directors approved a 7% increase in the regular quarterly cash dividend, increasing it from $0.67 per share to $0.72 per share. The $0.72 per share dividend declared on March 16, 2021 is payable on April 30, 2021 to shareholders of record on April 16, 2021.


23


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

As used in this report, the terms “we,” “our,” “us” and “the Company” refer to WD-40 Company and its wholly-owned subsidiaries, unless the context suggests otherwise. Amounts and percentages in tables and discussions may not total due to rounding.

The following information is provided as a supplement to, and should be read in conjunction with, the unaudited condensed consolidated financial statements and notes thereto included in Part IItem 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, which was filed with the Securities and Exchange Commission (“SEC”) on October 21, 2020.

In order to show the impact of changes in foreign currency exchange rates on our results of operations, we have included constant currency disclosures, where necessary, in the Overview and Results of Operations sections which follow. Constant currency disclosures represent the translation of our current fiscal year revenues and expenses from the functional currencies of our subsidiaries to U.S. dollars using the exchange rates in effect for the corresponding period of the prior fiscal year. We use results on a constant currency basis as one of the measures to understand our operating results and evaluate our performance in comparison to prior periods. Results on a constant currency basis are not in accordance with accounting principles generally accepted in the United States of America (“non-GAAP”) and should be considered in addition to, not as a substitute for, results prepared in accordance with GAAP.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. This report contains forward-looking statements, which reflect the Company’s current views with respect to future events and financial performance.

These forward-looking statements include, but are not limited to, discussions about future financial and operating results, including:  growth expectations for maintenance products; expected levels of promotional and advertising spending; anticipated input costs for manufacturing and the costs associated with distribution of our products; plans for and success of product innovation, the impact of new product introductions on the growth of sales; anticipated results from product line extension sales; expected tax rates and the impact of tax legislation and regulatory action; the length and severity of the current COVID-19 pandemic and its impact on the global economy and the Company’s financial results; and forecasted foreign currency exchange rates and commodity prices. These forward-looking statements are generally identified with words such as “believe,” “expect,” “intend,” “plan,” “could,” “may,” “aim,” “anticipate,” “target,” “estimate” and similar expressions. The Company undertakes no obligation to revise or update any forward-looking statements.

Actual events or results may differ materially from those projected in forward-looking statements due to various factors, including, but not limited to, those identified in Part IItem 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2020, and in the Company’s 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

24


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 dealers.

Highlights

The following summarizes the financial and operational highlights for our business during the six months ended February 28, 2021:

Consolidated net sales increased $37.9 million for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates had a favorable impact of $5.5 million on consolidated net sales for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year. Thus, on a constant currency basis, net sales would have increased by $32.4 million from period to period. This favorable impact from changes in foreign currency exchange rates mainly came from our EMEA segment, which accounted for 44% of our consolidated sales for the six months ended February 28, 2021.

Gross profit as a percentage of net sales increased to 55.9% for the six months ended February 28, 2021 compared to 53.9% for the corresponding period of the prior fiscal year.

Consolidated net income increased $14.3 million, or 54%, for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates had a favorable impact of $1.5 million on consolidated net income for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year. Thus, on a constant currency basis, net income would have increased $12.8 million.

Although consolidated results for the six months ended February 28, 2021 were significantly improved from the same period last fiscal year due to a variety of factors, the Company’s operations and business continue to be impacted by the COVID-19 pandemic. See Significant Developments section which follows for details.

Diluted earnings per common share for the six months ended February 28, 2021 were $2.96 versus $1.92 in the prior fiscal year period.

Our strategic initiatives and the areas where we will continue to focus our time, talent and resources in future periods include: (i) maximizing WD-40 Multi-Use Product sales through geographic expansion, increased market penetration and the development of new and unique delivery systems; (ii) leveraging the WD-40 brand by growing the WD-40 Specialist product line; (iii) leveraging the strengths of the Company through broadened product and revenue base; (iv) attracting, developing and retaining talented people; and (v) operating with excellence.


25


Significant Developments

Sales increased in all three segments during the six months ended February 28, 2021 as compared to the corresponding period of the prior fiscal year. Although our financial results and operations continued to be impacted by the COVID-19 pandemic that began in early calendar year 2020, we have been able to reduce the adverse impacts of these challenging times due to the strength of our brands, increased focus on e-commerce, global expansion in the distribution of our products and a continued focus on our strategic initiatives. While we experienced significant sales declines in fiscal year 2020 as compared to the previous full fiscal year, sales during the six months ended February 28, 2021 increased significantly due to various reasons, including the following:

Continued increases in renovation and maintenance activities by end-users during the pandemic, particularly in North America, some countries in EMEA and in Australia;

Increased distribution and sales within the e-commerce channel;

Recoveries we are experiencing in industrial channels globally as well as in markets where we do not have direct operations (distributor markets), particularly in our EMEA distributor markets where these distributors have been participating in more of our promotional activities and have been adjusting to more normal levels of inventory for our products;

Significant increases in sales of our WD-40 Bike product; and

Continued increased sales of many of our homecare and cleaning products due to the high demand for such products during the pandemic.

These combined impacts produced a 19% increase in our consolidated net sales during the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year, a period in which the COVID-19 pandemic had not yet resulted in significant government restrictions on movement and commerce in most regions, with the exception of certain regions within our Asia-Pacific segment. We are continuing to actively manage and monitor supply chain and transportation disruptions and constraints that have arisen periodically within all three of our business segments during the COVID-19 pandemic, which has both directly and indirectly impacted our suppliers and other third-party distribution centers and manufacturers. 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. These challenges were significantly compounded in the Americas segment during the second quarter of fiscal year 2021 as a result of severe winter storms in parts of the United States that directly impacted some of our third-party contract manufacturers and distribution centers. While we have been successful in managing most of the disruptions in our supply chain and the distribution of our products as a result of the pandemic, the timing and magnitude of the challenges that we experienced in our supply chain in the Americas segment during the second quarter of fiscal year 2021 resulted in us not being able to meet the high level of demand for our products by customers and end-users in certain markets. In addition, the Americas has incurred significant additional costs within its supply chain as a result of these constraints. Although we have positioned ourselves to address these disruptions in the Americas supply chain and we will continue to manage these challenges in our global supply chain and distribution networks in future periods, we are not able at this time to estimate the degree of the impact of future disruptions within our supply chain or the level of additional costs that we will continue to incur due to these challenges. Some of these additional costs are expected to unfavorably impact our cost of goods sold for the remainder of fiscal year 2021 and this will result in a lower gross margin for the second half of fiscal year 2021 as compared to the gross margin that we realized for the first six months of the fiscal year. We are continually monitoring and actively managing this situation with our supply chain.

Due to the speed and fluidity with which the situation continues to evolve, 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 six months ended February 28, 2021, many regions globally are experiencing continued fluctuations in their COVID-19 case counts. This has resulted in governmental authorities periodically adjusting temporary closures, lockdowns and restriction policies intended to combat the COVID-19 pandemic at certain physical store retailers, suppliers and manufacturers in reaction to those changes. These 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. We 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, this may result in a decrease in renovation and maintenance activities by end-users which could adversely impact our financial results.

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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 to the pandemic, this may also impact the level of renovation and maintenance activities that we have experienced in recent periods and this could adversely impact our financial results.

We have taken 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. These measures have included requiring remote working arrangements for employees where practicable. We are continuing to follow public and private sector policies and initiatives to reduce the transmission of COVID-19, such as the imposition of travel restrictions, the promotion of social distancing and the adoption of work-from-home arrangements. These policies and initiatives will continue to impact how we operate 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 significantly 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 office reentry plans for employees at all of our office locations globally. However, the timing and nature of these reentry plans will vary by location and some of the specifics related to many of these plans are still uncertain at this time. The safety of our employees and adherence to public and private sector policies related to the COVID-19 pandemic will remain our top priorities as we have our employees return to working at our global office locations.

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, which was filed with the SEC on October 21, 2020 for information on risks associated with pandemics in general and COVID-19 specifically.


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Results of Operations

Three Months Ended February 28, 2021 Compared to Three Months Ended February 29, 2020

Operating Items

The following table summarizes operating data for our consolidated operations (in thousands, except percentages and per share amounts):

Three Months Ended February 28/29,

Change from
Prior Year

2021

2020

Dollars

Percent

Net sales:

Maintenance products

$

102,729

$

91,147

$

11,582

13%

Homecare and cleaning products

9,176

8,902

274

3%

Total net sales

111,905

100,049

11,856

12%

Cost of products sold

49,898

46,447

3,451

7%

Gross profit

62,007

53,602

8,405

16%

Operating expenses

41,352

35,417

5,935

17%

Income from operations

$

20,655

$

18,185

$

2,470

14%

Net income

$

17,191

$

14,327

$

2,864

20%

Earnings per common share - diluted

$

1.24

$

1.04

$

0.20

19%

Shares used in per share calculations - diluted

13,729

13,737

(8)

-

Net Sales by Segment

The following table summarizes net sales by segment (in thousands, except percentages):

Three Months Ended February 28/29,

Change from
Prior Year

2021

2020

Dollars

Percent

Americas

$

46,157

$

46,842

$

(685)

(1)%

EMEA

49,813

41,753

8,060

19%

Asia-Pacific

15,935

11,454

4,481

39%

Total

$

111,905

$

100,049

$

11,856

12%


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Americas

 

The following table summarizes net sales by product line for the Americas segment (in thousands, except percentages):

Three Months Ended February 28/29,

Change from
Prior Year

2021

2020

Dollars

Percent

Maintenance products

$

41,310

$

42,421

$

(1,111)

(3)%

Homecare and cleaning products

4,847

4,421

426

10%

Total

$

46,157

$

46,842

$

(685)

(1)%

% of consolidated net sales

41%

47%

Sales in the Americas segment, which includes the U.S., Canada and Latin America, decreased to $46.2 million, down $0.7 million, or 1%, for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates did not have a significant impact on sales for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year.

Sales of maintenance products in the Americas segment decreased $1.1 million, or 3%, for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year. This sales decrease was mainly driven by decreased sales of maintenance products in the U.S., which were down $3.5 million or 11%, from period to period due to supply chain constraints and disruptions related to the COVID-19 pandemic during the second quarter of fiscal year 2021. In particular, widespread supply chain disruptions within the consumer products industry during the pandemic has increased competition for production capacity, particularly at some of our third-party manufacturers. While we have been successful in managing most of the supply chain and distribution disruptions related to the pandemic, the magnitude of these challenges increased during the second quarter of fiscal year 2021 and were significantly compounded as a result of severe winter storms in parts of the United States that directly impacted some of our third-party contract manufacturers and distribution centers. This combination of factors resulted in us not being able to meet the high level of demand for our products by customers and end-users in certain markets during the second quarter of fiscal year 2021. These sales decreases were partially offset by increased sales of maintenance products in the Latin America region, which were up $1.9 million or 28%. Sales in Latin America increased primarily due 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 shift in distribution model combined with increased demand for our product, primarily due to decreased COVID restrictions, resulted in increased sales in Latin America during the first half of fiscal year 2021 compared to the corresponding period of the prior fiscal year. Sales of maintenance products in Canada also increased $0.6 million from period to period primarily as a result of a higher level of renovation and maintenance activities exhibited by our end-users during the COVID-19 pandemic as well as increased sales within the ecommerce channel.

Sales of homecare and cleaning products in the Americas increased $0.4 million, or 10%, for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year. This sales increase was driven primarily by an increase in sales of the 2000 Flushes brand products in the U.S., which were up $0.4 million or 31% from period to period. We started to experience a significant increase in sales of many of our homecare and cleaning products beginning in the third quarter of fiscal year 2020 due to increased demand for such products as a result of the COVID-19 pandemic. We are not able at this time to estimate the duration of this unexpected increase in the demand for these products and its impact on our financial results and operations in future periods. While each of our homecare and cleaning products have continued to generate positive cash flows, we had experienced decreased or flat sales for many of these products in recent years prior to the COVID-19 pandemic.

For the Americas segment, 72% of sales came from the U.S., and 28% of sales came from Canada and Latin America combined for the three months ended February 28, 2021 compared to the distribution for the three months ended February 29, 2020 when 78% of sales came from the U.S., and 22% of sales came from Canada and Latin America.


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EMEA

The following table summarizes net sales by product line for the EMEA segment (in thousands, except percentages):

Three Months Ended February 28/29,

Change from
Prior Year

2021

2020

Dollars

Percent

Maintenance products

$

47,736

$

38,974

$

8,762

22%

Homecare and cleaning products

2,077

2,779

(702)

(25)%

Total (1)

$

49,813

$

41,753

$

8,060

19%

% of consolidated net sales

45%

42%

(1)While the Company’s reporting currency is the U.S. Dollar, the functional currency of our U.K. subsidiary, the entity in which the EMEA results are generated, is Pound Sterling. Although the functional currency of this subsidiary is Pound Sterling, approximately 50% of its sales are generated in Euro and 15-20% are generated in U.S. Dollar. As a result, the Pound Sterling sales and earnings for the EMEA segment can be negatively or positively impacted from period to period upon translation from these currencies depending on whether the Euro and U.S. Dollar are weakening or strengthening against the Pound Sterling.

Sales in the EMEA segment, which includes Europe, the Middle East, Africa and India, increased to $49.8 million, up $8.1 million, or 19%, for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates had a favorable impact on sales for the EMEA segment from period to period. Sales for the three months ended February 28, 2021 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $47.9 million in the EMEA segment. Thus, on a constant currency basis, sales would have increased by $6.1 million, or 15%, from period to period.

The countries in Europe where we sell through a direct sales force include the U.K., Italy, France, Iberia (which includes Spain and Portugal) and the Germanics sales region (which includes Germany, Austria, Denmark, Switzerland, Belgium and the Netherlands). Sales in the direct markets increased to $33.3 million, up $3.7 million, or 13%, for the three months ended February 28, 2021, 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 $2.8 million or 14% and $1.0 million or 31%, respectively, throughout all of 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 67% of the EMEA segment’s sales for the three months ended February 28, 2021 compared to 71% for the corresponding period of the prior fiscal year.

The regions in the EMEA segment where we sell through local distributors include the Middle East, Africa, India, Eastern and Northern Europe. Sales in the distributor markets increased $4.3 million, or 35%, for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year, primarily due to increased sales of the WD-40 Multi-Use Product in India, the Middle East and Northern Europe, which were up $1.8 million, $1.4 million, and $1.0 million, respectively. This increase in sales from period to period was primarily due to the continued recoveries in the EMEA distributor markets which had previously experienced more severe lockdowns during the second half of fiscal year 2020 due to the COVID-19 pandemic. During the first half of fiscal year 2021, many of these regions experienced improved economic conditions as a result of reductions in COVID-19 related restrictions. This allowed our marketing distributors to participate in more of our promotional activities and to adjust to more normal levels of inventory for our product, which resulted in increased sales. In addition, continued increases in renovation and maintenance activities by end-users during the pandemic also positively impacted sales in some of our distributor markets. The distributor markets accounted for 33% of the EMEA segment’s total sales for the three months ended February 28, 2021, compared to 29% for the corresponding period of the prior fiscal year.


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Asia-Pacific

The following table summarizes net sales by product line for the Asia-Pacific segment (in thousands, except percentages):

Three Months Ended February 28/29,

Change from
Prior Year

2021

2020

Dollars

Percent

Maintenance products

$

13,682

$

9,751

$

3,931

40%

Homecare and cleaning products

2,253

1,703

550

32%

Total

$

15,935

$

11,454

$

4,481

39%

% of consolidated net sales

14%

11%

Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region, increased to $15.9 million, up $4.5 million, or 39%, for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates had a favorable impact on sales for the Asia-Pacific segment from period to period. Sales for the three months ended February 28, 2021 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $15.1 million in the Asia-Pacific segment. Thus, on a constant currency basis, sales would have increased by $3.7 million, or 32%, from period to period.

Sales in Asia, which represented 67% of the total sales in the Asia-Pacific segment, increased $3.0 million, or 39%, for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year. Sales in China increased $3.3 million, or 227%, primarily due to improved market conditions as a result of the reduction of COVID-19 lockdown measures compared to the corresponding period of the prior fiscal year when the COVID-19 outbreak was in its earliest stages. These disruptions in the second quarter of the prior fiscal year included those related to supply chain, transportation and demand for our product, as a result of the government’s response to the public health crisis caused by COVID-19 during the second quarter of fiscal year 2020. The impact to sales due to these disruptions were material since China had a significant number of orders that were expected to be shipped to customers after the Chinese New Year’s holiday in early February 2020 and those shipments could not take place due to COVID-19. No such comparable event occurred in the second quarter of the current fiscal year. Sales in the Asia distributor markets decreased $0.3 million, or 4%, for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year primarily due to a shift in the timing of customer orders from period to period, particularly in Indonesia, Singapore and the Philippines, and the delayed shipment of certain customer orders in the second quarter of fiscal year 2021 as a result of shipping container shortages.

Sales in Australia increased $1.5 million, or 39%, for the three months ended February 28, 2021 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 $1.0 million, or 26%, primarily due to increased demand for WD-40 Multi Use Product and WD-40 Specialist, which were up $0.5 million, or 37%, and $0.4 million or 92%, respectively, due to a higher level of renovation and maintenance activities undertaken by our end-users during the COVID-19 pandemic which resulted in increased sales. In addition, demand for homecare and cleaning products were up $0.6 million or 32%, from period to period, primarily as a result of the COVID-19 pandemic. 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 our key customers remaining open for business during the COVID-19 pandemic.

Gross Profit

Gross profit increased to $62.0 million for the three months ended February 28, 2021 compared to $53.6 million for the corresponding period of the prior fiscal year. As a percentage of net sales, gross profit increased to 55.4% for the three months ended February 28, 2021 compared to 53.6% for the corresponding period of the prior fiscal year.

Gross margin was favorably impacted by 1.6 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, which was late in the second quarter of our fiscal year 2020, the price of crude oil dropped significantly for a period of several months. Although the price

31


of crude oil has recently recovered to the prices seen in early calendar year 2020, the average cost of crude oil which flowed through our cost of goods sold was lower during the second quarter of fiscal year 2021 compared to the corresponding period of the prior fiscal year, thus resulting in favorable impacts to our gross margin from period to period. There is often a delay of one quarter or more before changes in raw material costs impact the cost of products sold due to production and inventory life cycles. Due to the volatility of the price of crude oil, it is uncertain the level to which gross margin will be impacted by such costs in future periods. Gross margin was also positively impacted by 0.5 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 0.2 percentage points from period to period due to sales price increases, primarily in the EMEA and Asia-Pacific segments during the last twelve months. Gross margin was also positively impacted by 0.2 percentage points due to the favorable impacts of changes to product mix and market mix, primarily in the Asia-Pacific segment resulting from increased sales in China from period to period. Changes in foreign currency exchange rates from period to period in the EMEA segment positively impacted by 0.2 percentage points.

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 0.6 percentage points from period to period. Gross margin was also negatively impacted by 0.3 percentage points from period to period due to increases to advertising, promotional, and other discounts that we give to our customers, primarily in the EMEA and Americas segments. In general, the timing of advertising, promotional and other discounts may cause fluctuations in gross margin from period to period. The costs associated with certain promotional activities are recorded as a reduction to sales while others are recorded as advertising and sales promotion expenses. Advertising, promotional and other discounts that are given to our customers are recorded as a reduction to sales, whereas advertising and sales promotional costs associated with promotional activities that we pay to third parties are recorded as advertising and sales promotion expenses.

Several of the unfavorable impacts to gross margin were caused by the widespread supply chain disruptions and constraints within the consumer products industry and distribution networks that occurred during the second quarter of fiscal year 2021 related to the COVID-19 pandemic. These disruptions and constraints have included increased competition for more limited production capacity at our third-party manufacturers and reduced availability of freight providers, both of which have resulted in increased costs to the Company. The recent increase in the magnitude of these trends combined with the continued increases in the price of crude oil that we are seeing in the market are expected to unfavorably impact our cost of goods sold for the remainder of fiscal year 2021 and this will result in a lower gross margin for the second half of fiscal year 2021 as compared to the gross margin that we have realized for the first six months of the fiscal year.

Note that our gross profit and gross margin may not be comparable to those of other consumer product companies, since some of these companies include all costs related to distribution of their products in cost of products sold, whereas we exclude the portion associated with amounts paid to third parties for shipment to our customers from our distribution centers and contract manufacturers and include these costs in selling, general and administrative expenses. These costs totaled $3.5 million and $3.1 million for the three months ended February 28, 2021 and February 29, 2020, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses for the three months ended February 28, 2021 increased $5.6 million to $35.5 million from $29.9 million for the corresponding period of the prior fiscal year. As a percentage of net sales, SG&A expenses increased to 31.7% for the three months ended February 28, 2021 compared to 29.9% 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 $5.9 million as a result of increased incentive compensation accruals, increased headcount and higher stock-based compensation from period to period. Changes in foreign currency exchange rates from period to period increased SG&A expenses by $0.6 million. Increases in freight costs associated with higher sales from period to period also increased SG&A expenses by $0.3 million. In addition, professional services fees increased $0.3 million due to increased cloud-based software usage and license fees and other miscellaneous expenses increased $0.2 million from period to period. These increases to SG&A expenses were offset by a decrease in travel and meeting expenses of $1.7 million from period to period. Travel and meeting expenses decreased primarily due to continued initiatives to reduce the transmission of COVID-19, including the imposition of business travel restrictions for all employees and the cancellation of all large meetings, such as regional sales meetings and global leadership meetings, in support of social distancing requirements.

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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 $1.3 million and $1.5 million for the three months ended February 28, 2021 and February 29, 2020, respectively. Our research and development team engages in consumer research, product development, current product improvements and testing activities. This team leverages its development capabilities by partnering with a network of outside resources including our current and prospective third-party contract manufacturers. The level and types of expenses incurred within research and development can vary from period to period depending upon the types of activities being performed.

Advertising and Sales Promotion Expenses

Advertising and sales promotion expenses for the three months ended February 28, 2021 increased $0.6 million, or 13%, to $5.5 million from $4.9 million for the corresponding period of the prior fiscal year. As a percentage of net sales, these expenses remained constant at 4.9% for both the three months ended February 28, 2021 and February 29, 2020. Changes in foreign currency exchange rates did not have a significant impact on advertising and sales promotion expenses for the three months ended February 28, 2021. The increase in advertising and sales promotion expenses was primarily due to a higher level of promotional programs and marketing support in all three segments as a result of increased consumer demand and higher sales from period to period.

As a percentage of net sales, advertising and sales promotion expenses may fluctuate period to period based upon the type of marketing activities we employ and the period in which the costs are incurred. Total promotional costs recorded as a reduction to sales was $5.9 million and $4.5 million for three months ended February 28, 2021 and February 29, 2020, respectively. Therefore, our total investment in advertising and sales promotion activities totaled $11.4 million and $9.4 million for the three months ended February 28, 2021 and February 29, 2020, respectively.

Amortization of Definite-lived Intangible Assets Expense

Amortization of our definite-lived intangible assets decreased to $0.4 million for the three months ended February 28, 2021 compared to $0.7 million for the corresponding period in the prior year 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 February 28/29,

Change from
Prior Year

2021

2020

Dollars

Percent

Americas

$

10,356

$

11,400

$

(1,044)

(9)%

EMEA

14,176

10,582

3,594

34%

Asia-Pacific

5,188

3,106

2,082

67%

Unallocated corporate (1)

(9,065)

(6,903)

(2,162)

(31)%

Total

$

20,655

$

18,185

$

2,470

14%

Americas

Income from operations for the Americas decreased to $10.4 million, down $1.0 million, or 9%, for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year, primarily due to a $1.2 million increase in operating expenses and a $0.7 million decrease in sales, partially offset by a higher gross margin. Operating expenses increased period over period primarily due to higher accruals for incentive compensation and other employee-related costs. 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. In addition, operating

33


expenses were favorably impacted by decreased amortization associated with the 2000 Flushes trade name, which became fully amortized during the third quarter of fiscal year 2020. As a percentage of net sales, gross profit for the Americas segment increased from 52.4% to 53.5% 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. These favorable impacts to gross margin were partially offset by increases in warehousing, distribution and freight costs as well as unfavorable changes in sales mix and higher miscellaneous costs from period to period. Operating income as a percentage of net sales decreased from 24.3% to 22.4% period over period.

EMEA

Income from operations for the EMEA segment increased to $14.2 million, up $3.6 million, or 34% from period to period, primarily due to a $8.1 million increase in sales and a higher gross margin, partially offset by a $1.7 million increase in operating expenses. As a percentage of net sales, gross profit for the EMEA segment increased from 55.0% to 56.7% 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 favorable changes to exchange rates and 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 increases to advertising, promotional, and other discounts that we give to our customers from period to period. The increased sales were accompanied by a $1.7 million increase in total operating expenses period over period, primarily due to higher accruals for incentive compensation and other employee-related costs as well as increased outbound freight costs due to the higher sales volumes. These increases in operating expenses were partially offset by lower travel and meeting expenses due to the Company’s reduced travel initiatives as a result of the COVID-19 pandemic. Operating income as a percentage of net sales increased from 25.3% to 28.5% period over period.

Asia-Pacific

Income from operations for the Asia-Pacific segment increased to $5.2 million, up $2.1 million, or 67%, for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year, primarily due to a $4.5 million increase in sales and a higher gross margin, partially offset by a $0.9 million increase in operating expenses. As a percentage of net sales, gross profit for the Asia-Pacific segment increased from 53.1% to 56.9% period over period primarily due to decreases to the cost of petroleum-based specialty chemicals and favorable changes in both sales product mix and market mix, as well as sales price increases and decreases to advertising, promotional, and other discounts that we give to our customers from period to period. These favorable impacts to gross margin were slightly offset by the unfavorable impact of increased costs of aerosol cans from period to period. The increased sales were accompanied by a $0.9 million increase in total operating expenses period over period, primarily due to a higher level of advertising and sales promotion expenses and higher accruals for incentive compensation. Operating income as a percentage of net sales increased from 27.1% to 32.6% period over period.

Non-Operating Items

The following table summarizes non-operating income and expenses for our consolidated operations (in thousands):

Three Months Ended February 28/29,

2021

2020

Change

Interest income

$

19

$

28

$

(9)

Interest expense

$

610

$

593

$

17

Other (expense) income, net

$

151

$

(229)

$

380

Provision for income taxes

$

3,024

$

3,064

$

(40)

Interest Income

Interest income was insignificant for both the three months ended February 28, 2021 and February 29, 2020.


34


Interest Expense

Interest expense remained relatively constant at $0.6 million for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year.

Other Income (Expense), Net

Other income (expense), net was insignificant for both the three months ended February 28, 2021 and February 29, 2020.

Provision for Income Taxes

The provision for income taxes was 15.0% and 17.6% of income before income taxes for the three months ended February 28, 2021 and February 29, 2020, respectively. The decrease in the effective income tax rate from period to period was primarily due to an increase in excess tax benefits from settlements of stock-based equity awards, as well as the release of liabilities related to uncertain tax positions due to the expiration of statutes during the second quarter of fiscal year 2021.

Net Income

Net income was $17.2 million, or $1.24 per common share on a fully diluted basis, for the three months ended February 28, 2021 compared to $14.3 million, or $1.04 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 $0.6 million on net income for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year. On a constant currency basis, net income would have increased by $2.2 million from period to period.


35


Six Months Ended February 28, 2021 Compared to Six Months Ended February 29, 2020

Operating Items

The following table summarizes operating data for our consolidated operations (in thousands, except percentages and per share amounts):

Six Months Ended February 28/29,

Change from
Prior Year

2021

2020

Dollars

Percent

Net sales:

Maintenance products

$

217,072

$

180,817

$

36,255

20%

Homecare and cleaning products

19,392

17,788

1,604

9%

Total net sales

236,464

198,605

37,859

19%

Cost of products sold

104,211

91,460

12,751

14%

Gross profit

132,253

107,145

25,108

23%

Operating expenses

83,206

74,256

8,950

12%

Income from operations

$

49,047

$

32,889

$

16,158

49%

Net income

$

40,814

$

26,521

$

14,293

54%

Earnings per common share - diluted

$

2.96

$

1.92

$

1.04

54%

Shares used in per share calculations - diluted

13,718

13,741

(23)

-

Net Sales by Segment

The following table summarizes net sales by segment (in thousands, except percentages):

Six Months Ended February 28/29,

Change from
Prior Year

2021

2020

Dollars

Percent

Americas

$

100,344

$

93,578

$

6,766

7%

EMEA

104,563

80,998

23,565

29%

Asia-Pacific

31,557

24,029

7,528

31%

Total

$

236,464

$

198,605

$

37,859

19%


36


Americas

 

The following table summarizes net sales by product line for the Americas segment (in thousands, except percentages):

Six Months Ended February 28/29,

Change from
Prior Year

2021

2020

Dollars

Percent

Maintenance products

$

89,812

$

84,111

$

5,701

7%

Homecare and cleaning products

10,532

9,467

1,065

11%

Total

$

100,344

$

93,578

$

6,766

7%

% of consolidated net sales

43%

47%

Sales in the Americas segment, which includes the U.S., Canada and Latin America, increased to $100.3 million, up $6.8 million, or 7%, for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates had an unfavorable impact on sales for the Americas segment from period to period. Sales for the six months ended February 28, 2021 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $100.8 million in the Americas segment. Thus, on a constant currency basis, sales would have increased by $7.3 million, or 8%, from period to period.

Sales of maintenance products in the Americas segment increased $5.7 million, or 7%, for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year. This sales increase was mainly driven by increased sales of maintenance products in the Latin America and Canada, which were up $4.7 million and $1.2 million, or 35% and 23%, respectively, from period to period. Increased demand for our product as a result of a higher level of renovation and maintenance activities exhibited by our end-users during the COVID-19 pandemic resulted in increased sales of maintenance products in Canada, including within the e-commerce channel. In addition, sales in Latin America increased due 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 America during the first six months of fiscal year 2021 compared to the corresponding period of the prior fiscal year. Sales of maintenance products in the United States were relatively constant, down only $0.1 million, or less than 1%, from period to period. Although sales were significantly higher in the United States during the first three months of fiscal year 2021 due to increased demand driven by higher renovation and maintenance activities exhibited by our end users, this was more than offset by lower sales during the second quarter of fiscal year 2021 as a result of supply chain constraints and disruptions related to the both COVID-19 pandemic and the severe winter storms that impacted parts of the United States. For further information on these supply chain disruptions in the United States during the second quarter of fiscal year 2021, see Results of Operations – Americas for the three months ended February 28, 2021 within Part I―Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Sales of homecare and cleaning products in the Americas increased $1.1 million, or 11%, for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year. This sales increase was driven primarily by an increase in sales of the 2000 Flushes brand products in the U.S., which were up $1.2 million or 39% from period to period. We started to experience a significant increase in sales of most of our homecare and cleaning products beginning in the third quarter of fiscal year 2020 due to increased demand for such products as a result of the COVID-19 pandemic. We are not able at this time to estimate the duration of this unexpected increase in the demand for these products and its impact on our financial results and operations in future periods. While each of our homecare and cleaning products have continued to generate positive cash flows, we had 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, 75% of sales came from the U.S., and 25% of sales came from Canada and Latin America combined for the six months ended February 28, 2021 compared to the distribution for the six months ended February 29, 2020 when 79% of sales came from the U.S., and 21% of sales came from Canada and Latin America.


37


EMEA

The following table summarizes net sales by product line for the EMEA segment (in thousands, except percentages):

Six Months Ended February 28/29,

Change from
Prior Year

2021

2020

Dollars

Percent

Maintenance products

$

100,114

$

75,874

$

24,240

32%

Homecare and cleaning products

4,449

5,124

(675)

(13)%

Total

$

104,563

$

80,998

$

23,565

29%

% of consolidated net sales

44%

41%

Sales in the EMEA segment, which includes Europe, the Middle East, Africa and India, increased to $104.6 million, up $23.6 million, or 29%, for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates had a favorable impact on sales for the EMEA segment from period to period. Sales for the six months ended February 28, 2021 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $99.9 million in the EMEA segment. Thus, on a constant currency basis, sales would have increased by $18.9 million, or 23%, from period to period.

The countries in Europe where we sell through a direct sales force include the U.K., Italy, France, Iberia (which includes Spain and Portugal) and the Germanics sales region (which includes Germany, Austria, Denmark, Switzerland, Belgium and the Netherlands). Sales in the direct markets increased to $68.7 million, up $14.3 million, or 26%, for the six months ended February 28, 2021 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 $9.9 million or 26% and $2.7 million or 45%, respectively, throughout all of 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 66% of the EMEA segment’s sales for the six months ended February 28, 2021 compared to 67% for the corresponding period of the prior fiscal year.

The regions in the EMEA segment where we sell through local distributors include the Middle East, Africa, India, Eastern and Northern Europe. Sales in the distributor markets increased $9.2 million, or 35%, for the six months ended February 28, 2021 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, India, the Middle East and Eastern Europe, which were up $3.3 million, $2.9 million, $1.4 million and $1.3 million, respectively. This increase in sales from period to period was primarily due to recoveries experienced during the first half of fiscal year 2021 in distributor markets that previously experienced more severe lockdowns during the second half of fiscal year 2020 due to the COVID-19 pandemic. During the first half of fiscal year 2021, many of these regions experienced improved economic conditions as a result of reductions in COVID-19 related restrictions. This allowed our marketing distributors to participate in more of our promotional activities and to adjust to more normal levels of inventory for our product, which resulted in increased sales. In addition, continued increases in renovation and maintenance activities by end-users during the pandemic also positively impacted sales in some of our distributor markets. The distributor markets accounted for 34% of the EMEA segment’s total sales for the six months ended February 28, 2021, compared to 33% for the corresponding period of the prior fiscal year.


38


Asia-Pacific

The following table summarizes net sales by product line for the Asia-Pacific segment (in thousands, except percentages):

Six Months Ended February 28/29,

Change from
Prior Year

2021

2020

Dollars

Percent

Maintenance products

$

27,146

$

20,832

$

6,314

30%

Homecare and cleaning products

4,411

3,197

1,214

38%

Total

$

31,557

$

24,029

$

7,528

31%

% of consolidated net sales

13%

12%

Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region, increased to $31.6 million, up $7.5 million, or 31%, for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates had a favorable impact on sales for the Asia-Pacific segment from period to period. Sales for the six months ended February 28, 2021 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $30.3 million in the Asia-Pacific segment. Thus, on a constant currency basis, sales would have increased by $6.2 million, or 26%, from period to period.

Sales in Asia, which represented 67% of the total sales in the Asia-Pacific segment, increased $4.9 million, or 30%, for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year. Sales in China increased $4.5 million, or 119%, primarily due to improved market conditions as a result of the reduction of COVID-19 lockdown measures compared to the corresponding period of the prior fiscal year when the COVID-19 outbreak was in its earliest stages during the second quarter of fiscal year 2020. In addition, sales in China during the first half of fiscal year 2020 were negatively impacted due to activities associated with the country’s preparation for the 70th Anniversary National Day in China which resulted in temporary factory closures and slowed market conditions, as well as government restrictions imposed in response to the COVID-19 pandemic. The impact to sales due to these disruptions in the first half of the prior fiscal year were material since China had a significant number of orders that were expected to be shipped to customers after the Chinese New Year’s holiday in early February 2020 and those shipments could not take place due to COVID-19. No such comparable event occurred in the first half of the current fiscal year. Sales in the Asia distributor markets increased $0.4 million, or 3%, for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year. These increased sales were primarily due to the easing of COVID-19 lockdown measures in many of the Asia markets during the first half of fiscal year 2021 compared to late in fiscal year 2020, which resulted in a higher level of sales particularly during the first three months of fiscal year 2021. These reduced lockdown measures have positively impacted economic conditions in industrial channels and resulted in marketing distributors adjusting to more normal levels of our product, which resulted in increased sales during the six months ended February 28, 2021.

Sales in Australia increased $2.6 million, or 33%, for the six months ended February 28, 2021 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 $1.8 million, or 23%, partially due to continued increased demand for homecare and cleaning products, which were up $1.2 million, or 38%, as a result of the COVID-19 pandemic. In addition, sales of WD-40 Multi Use Product and WD-40 Specialist were up $0.9 million, or 27%, and $0.5 million, or 57%, respectively, from period to period primarily due to a higher level of renovation and maintenance activities undertaken 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 our key customers remaining open for business during the COVID-19 pandemic.

Gross Profit

Gross profit increased to $132.3 million for the six months ended February 28, 2021 compared to $107.1 million for the corresponding period of the prior fiscal year. As a percentage of net sales, gross profit increased to 55.9% for the six months ended February 28, 2021 compared to 53.9% for the corresponding period of the prior fiscal year.

39


Gross margin was favorably impacted by 2.0 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, which was late in the second quarter of our fiscal year 2020, the price of crude oil dropped significantly for a period of several months. Although the price of crude oil has recently recovered to the prices seen in early calendar year 2020, the average cost of crude oil which flowed through our cost of goods sold was lower during the first half of fiscal year 2021 compared to the corresponding period of the prior fiscal year, thus resulting in favorable impacts to our gross margin from period to period. There is often a delay of one quarter or more before changes in raw material costs impact the cost of products sold due to production and inventory life cycles. 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 0.3 percentage points from period to period due to sales price increases, primarily in the EMEA and Asia Pacific segments during the last twelve months. Changes in foreign currency exchange rates from period to period in the EMEA segment positively impacted by 0.1 percentage points.

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 1.0 percentage points from period to period. Gross margin was also negatively impacted by 0.1 percentage point from period to period due to the combined effects of changes to sales mix and increases in other miscellaneous costs from period to period in the Americas and EMEA segments, which were significantly offset by favorable market mix changes in the Asia-Pacific segment. In addition, gross margin was negatively impacted by 0.1 percentage point from period to period due to increases to advertising, promotional, and other discounts that we give to our customers, primarily in the EMEA segment.

Note that our gross profit and gross margin may not be comparable to those of other consumer product companies, since some of these companies include all costs related to distribution of their products in cost of products sold, whereas we exclude the portion associated with amounts paid to third parties for shipment to our customers from our distribution centers and contract manufacturers and include these costs in selling, general and administrative expenses. These costs totaled $7.7 million and $6.1 million for the six months ended February 28, 2021 and February 29, 2020, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses for the six months ended February 28, 2021 increased $9.0 million to $71.5 million from $62.5 million for the corresponding period of the prior fiscal year. As a percentage of net sales, SG&A expenses decreased to 30.2% for the six months ended February 28, 2021 compared to 31.5% 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 $8.9 million due to increased incentive compensation accruals, 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 $1.4 million. Changes in foreign currency exchange rates from period to period increased SG&A expenses by $1.2 million. In addition, professional services fees increased $0.9 million due to increased cloud-based software usage and license fees, and other miscellaneous expenses increased $0.5 million from period to period. These increases to SG&A expenses were offset by a decrease in travel and meeting expenses of $3.9 million from period to period. Travel and meeting expenses decreased primarily due to continued initiatives to reduce the transmission of COVID-19, including the imposition of business travel restrictions for all employees and the cancellation of all large meetings, such as regional sales meetings and global leadership meetings, in support of social distancing requirements.

We continued our research and development investment, the majority of which is associated with our maintenance products, in support of our focus on innovation and renovation of our products. Research and development costs were $2.9 million and $3.2 million for the six months ended February 28, 2021 and February 29, 2020, respectively.

Advertising and Sales Promotion Expenses

Advertising and sales promotion expenses for the six months ended February 28, 2021 increased $0.6 million, or 6%, to $11.0 million from $10.4 million for the corresponding period of the prior fiscal year. As a percentage of net sales, these expenses decreased to 4.7% for the six months ended February 28, 2021 from 5.3% for the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates did not have a significant impact on advertising and sales promotion expenses for the six months ended February 28, 2021. The increase in advertising and sales promotion expenses was primarily

40


due to a higher level of promotional programs and marketing support in all three segments as a result of increased consumer demand and higher sales from period to period. These increases were partially offset by the decrease of physical marketing and sampling activities from period to period, such as the cancellations of trade shows, due to the continued indirect effects of the COVID-19 pandemic during the first half of fiscal year 2021 and this resulted in a decreased in advertising and sales promotion expenses as a percentage of net sales from period to period.

As a percentage of net sales, advertising and sales promotion expenses may fluctuate period to period based upon the type of marketing activities we employ and the period in which the costs are incurred. Total promotional costs recorded as a reduction to sales for the six months ended February 28, 2021 were $11.7 million compared to $9.5 million for the corresponding period of the prior fiscal year. Therefore, our total investment in advertising and sales promotion activities totaled $22.7 million and $19.9 million for the six months ended February 28, 2021 and February 29, 2020, respectively.

Amortization of Definite-lived Intangible Assets Expense

Amortization of our definite-lived intangible assets decreased to $0.7 million for the six months ended February 28, 2021 compared to $1.3 million for the six months ended February 29, 2020 due to decreased amortization associated with the 2000 Flushes trade name, which became fully amortized during the third quarter of fiscal year 2020.

Income from Operations by Segment

The following table summarizes income from operations by segment (in thousands, except percentages):

Six Months Ended February 28/29,

Change from
Prior Year

2021

2020

Dollars

Percent

Americas

$

24,982

$

21,980

$

3,002

14%

EMEA

31,919

19,174

12,745

66%

Asia-Pacific

10,247

6,308

3,939

62%

Unallocated corporate

(18,101)

(14,573)

(3,528)

(24)%

Total

$

49,047

$

32,889

$

16,158

49%

Americas

Income from operations for the Americas increased to $25.0 million, up $3.0 million, or 14%, for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year, primarily due to a $6.8 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 Americas segment increased from 52.8% to 53.9% 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. These favorable impacts to gross margin were partially offset by increases in warehousing, distribution and freight costs as well as unfavorable changes in sales mix and higher miscellaneous costs from period to period. The increased sales were accompanied by a $1.7 million increase in total operating expenses period over period, primarily due to higher accruals for incentive compensation and other employee-related costs, as well as higher outbound freight costs due to the increase in sales and higher freight costs in the market 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. In addition, operating expenses were favorably impacted by decreased amortization associated with the 2000 Flushes trade name, which became fully amortized during the third quarter of fiscal year 2020. Operating income as a percentage of net sales increased from 23.5% to 24.9% period over period.

EMEA

Income from operations for the EMEA segment increased to $31.9 million, up $12.7 million, or 66%, for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year, primarily due to a $23.6 million

41


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 55.4% to 57.6% 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 increases to advertising, promotional, and other discounts that we give to our customers from period to period. The increased sales were accompanied by a $2.6 million increase in total operating expenses period over period, primarily due to higher accruals for incentive compensation and other employee-related costs, as well as increased outbound freight costs due to the higher sales. 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 23.7% to 30.5% period over period.

Asia-Pacific

Income from operations for the Asia-Pacific segment increased to $10.2 million, up $3.9 million, or 62%, for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year, primarily due to a $7.5 million increase in sales and a higher gross margin, which were partially offset by higher operating expenses. As a percentage of net sales, gross profit for the Asia-Pacific segment increased from 53.6% to 56.8% period over period primarily due to decreases to the cost of petroleum-based specialty chemicals and favorable changes in both sales product mix and market mix, as well as sales price increases from period to period. These favorable impacts to gross margin were slightly offset by the unfavorable impact of increased costs of aerosol cans from period to period. The increased sales were accompanied by a $1.1 million increase in total operating expenses period over period, primarily due to higher accruals for incentive compensation and other employee costs, as well as increased outbound freight costs and other miscellaneous costs from period to period. Operating income as a percentage of net sales increased from 26.2% to 32.5% period over period.

Non-Operating Items

The following table summarizes non-operating income and expenses for our consolidated operations (in thousands):

Six Months Ended February 28/29,

2021

2020

Change

Interest income

$

38

$

53

$

(15)

Interest expense

$

1,180

$

1,035

$

145

Other income (expense), net

$

330

$

(224)

$

554

Provision for income taxes

$

7,421

$

5,162

$

2,259

Interest Income

Interest income was insignificant for both the six months ended February 28, 2021 and February 29, 2020.

Interest Expense

Interest expense increased $0.1 million for the six months ended February 28, 2021 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 changed by $0.6 million for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year primarily due to foreign currency exchange gains of $0.2 million in the current year compared to $0.4 million of foreign currency losses during the corresponding period of the prior fiscal year as a result of fluctuations in the foreign currency exchange rates for both the U.S. Dollar and the Euro against the Pound Sterling.


42


Provision for Income Taxes

The provision for income taxes was 15.4% and 16.3% of income before income taxes for the six months ended February 28, 2021 and February 29, 2020, respectively. The decrease in the effective income tax rate from period to period was primarily due to a benefit from the High Tax Exemption associated with Global Intangible Low Taxed Income during the first half of fiscal year 2021, as well as an increase in excess tax benefits from settlements of stock-based equity awards. The impact of these items on income tax expense percentages was partially offset by the effect of significantly higher pre-tax income for the six months ended February 28, 2021 when compared to the corresponding period in the prior fiscal year.

Net Income

Net income was $40.8 million, or $2.96 per common share on a fully diluted basis, for the six months ended February 28, 2021 compared to $26.5 million, or $1.92 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 $1.5 million on net income for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year. On a constant currency basis, net income would have increased by $12.8 million from period to period.

Performance Measures and Non-GAAP Reconciliations

In managing our business operations and assessing our financial performance, we supplement the information provided by our financial statements with certain non-GAAP performance measures. These performance measures are part of our current 55/30/25 business model, which includes gross margin, cost of doing business, and earnings before interest, income taxes, depreciation and amortization (“EBITDA”), the latter two of which are non-GAAP performance measures. Cost of doing business is defined as total operating expenses less amortization of definite-lived intangible assets, impairment charges related to intangible assets and depreciation in operating departments, and EBITDA is defined as net income (loss) before interest, income taxes, depreciation and amortization. We target our gross margin to be at or above 55% of net sales, our cost of doing business to be at 30% of net sales, and our EBITDA to be above 25% of net sales. Results for these performance measures may vary from period to period depending on various factors, including economic conditions and our level of investment in activities for the future such as those related to quality assurance, regulatory compliance, and intellectual property protection in order to safeguard our WD-40 brand. The targets for these performance measures are long-term in nature, particularly those for cost of doing business and EBITDA, and we expect to make progress towards achieving them over time as our revenues increase.

The following table summarizes the results of these performance measures for the periods presented:

Three Months Ended February 28/29,

Six Months Ended February 28/29,

2021

2020

2021

2020

Gross margin - GAAP

55%

54%

56%

54%

Cost of doing business as a percentage

of net sales - non-GAAP

36%

34%

34%

36%

EBITDA as a percentage of net sales - non-GAAP (1)

20%

20%

22%

18%

(1)Percentages may not aggregate to EBITDA percentage due to rounding and because amounts recorded in other income (expense), net on the Company’s consolidated statement of operations are not included as an adjustment to earnings in the EBITDA calculation.

We use the performance measures above to establish financial goals and to gain an understanding of the comparative performance of the Company from period to period. We believe that these measures provide our shareholders with additional insights into the Company’s results of operations and how we run our business. The non-GAAP financial measures are supplemental in nature and should not be considered in isolation or as alternatives to net income, income from operations or other financial information prepared in accordance with GAAP as indicators of the Company’s performance or operations. The use of any non-GAAP measure may produce results that vary from the GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies. Reconciliations of these non-GAAP financial measures to our financial statements as prepared in accordance with GAAP are as follows:

43


Cost of Doing Business (in thousands, except percentages)

Three Months Ended February 28/29,

Six Months Ended February 28/29,

2021

2020

2021

2020

Total operating expenses - GAAP

$

41,352

$

35,417

$

83,206

$

74,256

Amortization of definite-lived intangible assets

(362)

(654)

(720)

(1,304)

Depreciation (in operating departments)

(1,077)

(1,049)

(2,119)

(1,996)

Cost of doing business

$

39,913

$

33,714

$

80,367

$

70,956

Net sales

$

111,905

$

100,049

$

236,464

$

198,605

Cost of doing business as a percentage

of net sales - non-GAAP

36%

34%

34%

36%

EBITDA (in thousands, except percentages)

Three Months Ended February 28/29,

Six Months Ended February 28/29,

2021

2020

2021

2020

Net income - GAAP

$

17,191

$

14,327

$

40,814

$

26,521

Provision for income taxes

3,024

3,064

7,421

5,162

Interest income

(19)

(28)

(38)

(53)

Interest expense

610

593

1,180

1,035

Amortization of definite-lived intangible assets

362

654

720

1,304

Depreciation

1,396

1,432

2,738

2,739

EBITDA

$

22,564

$

20,042

$

52,835

$

36,708

Net sales

$

111,905

$

100,049

$

236,464

$

198,605

EBITDA as a percentage of net sales - non-GAAP

20%

20%

22%

18%

Liquidity and Capital Resources

Overview

The Company’s financial condition and liquidity remain strong. Net cash provided by operations was $42.5 million for the six months ended February 28, 2021 compared to $23.4 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’s 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 Company also holds borrowings under a Note Purchase and Private Shelf Agreement. See Note 8 – 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 maintained a balance of outstanding draws on our line of credit in U.S. Dollars in the Americas segment, as well as in Euros and Pound Sterling in the EMEA segment. Euro and Pound Sterling denominated draws will fluctuate in U.S. Dollars from period to period due to changes in foreign currency exchange rates. During the 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

44


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 is denominated completely in Euros and Pound Sterling as of February 28, 2021. We regularly convert many of our draws on our line of credit to new draws with new maturity dates and interest rates. We have the ability to refinance any draws under the line of credit with successive short-term borrowings through the September 30, 2025 maturity date of the Credit Agreement. Outstanding draws for which we have both the ability and intent to refinance with successive short-term borrowings for a period of at least twelve months are classified as long-term. As of February 28, 2021, we had a $47.9 million balance of outstanding draws on the revolving credit facility, all of which was classified as long-term. In addition, we paid $0.4 million in principal payments on our Series A Notes during the first six months of fiscal year 2021, which had an outstanding balance of $17.6 million as of February 28, 2021. 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 8 – Debt for additional information on these financial covenants. At February 28, 2021, we were in compliance with all debt covenants. We continue to monitor our compliance with all debt covenants. At the present time, we believe that the likelihood of being unable to satisfy these covenants is remote.

We believe that our future cash from domestic and international operations, together with our access to funds available under our unsecured revolving credit facility, will provide adequate resources to fund both short-term and long-term operating requirements, capital expenditures, dividend payments, acquisitions, new business development activities and share repurchases. On April 8, 2020, we suspended repurchases under our most recent share buy-back plan, which subsequently expired on August 31, 2020, in order to preserve cash while we monitor the long-term impacts of the COVID-19 pandemic. Management will continue to evaluate future authorizations under its share buy-back program and the Board will consider approval based on management’s recommendations. At February 28, 2021, we had a total of $72.4 million in cash and cash equivalents. We do not foresee any ongoing issues with repaying our borrowings and we closely monitor the use of this credit facility.

Cash Flows

The following table summarizes our cash flows by category for the periods presented (in thousands):

Six Months Ended February 28/29,

2021

2020

Change

Net cash provided by operating activities

$

42,510

$

23,382

$

19,128

Net cash used in investing activities

(7,366)

(10,483)

3,117

Net cash provided by (used in) financing activities

(20,311)

(9,816)

(10,495)

Effect of exchange rate changes on cash and cash equivalents

1,086

187

899

Net increase in cash and cash equivalents

$

15,919

$

3,270

$

12,649

Operating Activities

Net cash provided by operating activities increased $19.1 million to $42.5 million for the six months ended February 28, 2021 from $23.4 million for the corresponding period of the prior fiscal year. Cash flows from operating activities depend heavily on operating performance and changes in working capital. Our primary source of operating cash flows for the six months ended February 28, 2021 was net income of $40.8 million, which increased $14.3 million from period to period. The changes in our working capital which decreased net cash provided by operating activities were primarily attributable to increases in trade accounts receivable balances during the six months ended February 28, 2021 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 accrued payroll and related expenses during the first six months of fiscal year 2021 primarily due to increased accruals of incentive compensation from period to period. In addition, accounts payable in the EMEA segment increased due to higher levels of production and the timing of payments to vendors from period to period. In addition, the change in working capital was also impacted by increases to income tax accruals related to the higher pre-tax income during the first six months of fiscal year 2021 compared to the corresponding period of the prior fiscal year.

45


Investing Activities

Net cash used in investing activities decreased $3.1 million to $7.4 million for the six months ended February 28, 2021 from $10.5 million for the corresponding period of the prior fiscal year, primarily due to decreased capital expenditures. Capital expenditures decreased by $3.1 million primarily due to the renovations and equipping of the Company’s office building in Milton Keynes, England that were completed in the first quarter of fiscal year 2020 and a lower level of manufacturing-related capital expenditures within the U.K. and the United States from period to period. Capital expenditures during the first half of fiscal year 2021 were primarily related to manufacturing equipment which is currently under construction and will be located at our third-party manufacturers in the United States and the United Kingdom once completed.

Financing Activities

Net cash used by financing activities increased $10.5 million to $20.3 million for the six months ended February 28, 2021 from $9.8 million for the corresponding period of the prior fiscal year. This change was primarily due to a decrease in net proceeds from our debt instruments of $18.5 million. 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 resulted in a $2.0 million cash inflow during the period compared to $20.5 million in net proceeds on our line of credit in the corresponding period of the prior fiscal year. In addition, increases in shares withheld to cover taxes on conversion of equity rewards of $0.9 million and increases in dividends paid to our shareholders of $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 $9.7 million from period to period.

Effect of Exchange Rate Changes

All of our foreign subsidiaries currently operate in currencies other than the U.S. Dollar and a significant portion of our consolidated cash balance is denominated in these foreign functional currencies, particularly at our U.K. subsidiary which operates in Pound Sterling. As a result, our cash and cash equivalents balances are subject to the effects of the fluctuations in these functional currencies against the U.S. Dollar at the end of each reporting period. The net effect of exchange rate changes on cash and cash equivalents, when expressed in U.S. Dollar terms, was an increase in cash of $1.1 million and $0.2 million for six months ended February 28, 2021 and February 29, 2020, respectively. These changes were primarily due to fluctuations in various foreign currency exchange rates from period to period, but the majority is related to the fluctuations in the Pound Sterling against the U.S. Dollar.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements as defined by Item 303(a)(4)(ii) of Regulation S-K.

Commercial Commitments

We have ongoing relationships with various suppliers (contract manufacturers) that manufacture our products and third-party distribution centers who warehouse and ship our products to customers. The contract manufacturers maintain title and control of certain raw materials and components, materials utilized in finished products, and of the finished products themselves until shipment to our customers or third-party distribution centers in accordance with agreed upon shipment terms. Although we have definitive minimum purchase obligations included in the contract terms with certain of our contract manufacturers, when such obligations have been included, they have either been immaterial or the minimum amounts have been such that they are well below the volume of goods that the Company has historically purchased. In the ordinary course of business, we communicate supply needs to our contract manufacturers based on orders and short-term projections, ranging from two 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 products 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. 

46


In addition to the commitments to purchase products from contract manufacturers described above, we may also enter into commitments with other manufacturers to purchase finished goods and components to support innovation initiatives and/or supply chain initiatives. As of February 28, 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 9 — Share Repurchase Plan, included in this report.

Dividends

On March 16, 2021, the Company’s Board approved a 7% increase in the regular quarterly cash dividend, increasing it from $0.67 per share to $0.72 per share. The $0.72 per share dividend declared on March 16, 2021 is payable on April 30, 2021 to shareholders of record on April 16, 2021. Our ability to pay dividends could be affected by future business performance, liquidity, capital needs, alternative investment opportunities and loan covenants.

Critical Accounting Policies

Our discussion and analysis of our operating results and financial condition is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

Critical accounting policies are those that involve subjective or complex judgments, often as a result of the need to make estimates. The following areas all require the use of judgments and estimates: revenue recognition, accounting for income taxes 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, which was filed with the SEC on October 21, 2020.

Recently Issued Accounting Standards

Information on Recently Issued Accounting Standards that could potentially impact the Company’s consolidated financial statements and related disclosures is incorporated by reference to Part I—Item 1, “Notes to Condensed Consolidated Financial Statements” Note 2 — Basis of Presentation and Summary of Significant Accounting Policies, included in this report

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information required by this item is incorporated by reference to Part II―Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2020, which was filed with the SEC on October 21, 2020.

Item 4. Controls and Procedures

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (“Exchange Act”). The term disclosure controls and procedures means controls and other procedures of a Company that are designed to ensure the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures. The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures as of February 28, 2021, the end of the period covered by this report

47


(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 February 28, 2021 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

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 12 — 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, which was filed with the SEC on October 21, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On April 8, 2020, the Company elected to suspend repurchases under its previously 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 will continue to evaluate future authorizations under its share buy-back program and the Board will consider approval based on management’s recommendations. Therefore, no repurchase transactions were made during the first six months of fiscal year 2021.

a


48


Item 6. Exhibits

 

 

 

Exhibit No.

 

Description

 

 

3(a)

 

Certificate of Incorporation, incorporated by reference from the Registrant’s Form 10-K filed October 21, 2020, Exhibit 3(a) thereto.

3(b)

 

Amended and Restated Bylaws of WD-40 Company, incorporated by reference from the Registrant’s Form 8-K filed August 16, 2018, Exhibit 3.1 thereto.

10(a)

First Amendment to Credit Agreement dated September 30, 2020 among Company and Bank of America, N.A., incorporated by reference from the Registrant's Form 8-K filed October 6, 2020, Exhibit 10(a) thereto.

10(b)

Third Amendment to Note Purchase and Private Shelf Agreement dated September 30, 2020 among WD-40 Company and Prudential and the Note Purchasers, incorporated by reference from the Registrant's Form 8-K filed October 6, 2020, Exhibit 10(e) thereto..

10(c)

Series B Senior Notes dated September 30, 2020, incorporated by reference from the Registrant’s Form 8-K filed October 6, 2020, Exhibit 10(f) thereto.

10(d)

Series C Senior Notes dated September 30, 2020, incorporated by reference from the Registrant’s Form 8-K filed October 6, 2020, Exhibit 10(g) thereto.

10(e)

Change of Control Severance Agreement between WD-40 Company and Jeffrey G. Lindeman dated December 8, 2020.

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 February 28, 2021, formatted in iXBRL (inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Comprehensive Income; (iv) the Condensed Consolidated Statements of Shareholders’ Equity; (v) the Condensed Consolidated Statements of Cash Flows; and (vi) Notes to the Condensed Consolidated Financial Statements.

104

The cover page from this Quarterly Report on Form 10-Q, formatted in Inline XBRL and contained in Exhibit 101.


49


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.

 

 

 

 

 

 

 

 

 

 

 

 

 

WD-40 COMPANY

Registrant

 

 

 

 

Date: April 8, 2021

 

 

 

By:  

 

/s/ GARRY O. RIDGE

 

 

 

 

 

 

 

 

Garry O. Ridge

Chief Executive Officer

(Principal Executive Officer)

 

 

 

 

 

 

 

 

By:  

 

/s/ JAY W. REMBOLT

 

 

 

 

 

 

 

 

Jay W. Rembolt

Vice President, Finance

Treasurer and Chief Financial Officer

 

 

 

 

By:  

 

/s/ RAE ANN PARTLO

 

 

 

 

 

 

 

 

Rae Ann Partlo

Vice President, Corporate Controller and

Principal Accounting Officer

 

 

 

 

50