NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 1. The Company
WD-40 Company (“the Company”), based in San Diego, California, is a global marketing organization dedicated to creating positive lasting memories by developing and selling products that solve problems in workshops, factories and homes around the world. The Company markets its maintenance products and its homecare and cleaning products under the following well-known brands: WD-40®, 3-IN-ONE®, GT85®, X-14®, 2000 Flushes®, Carpet Fresh®, no vac®, Spot Shot®, 1001®, Lava® and Solvol®. Currently included in the WD-40 brand are the WD-40 Multi-Use Product and the WD-40 Specialist® and
WD-40 BIKE® product lines
.
The Company’s brands are sold in various locations around the world. Maintenance products are sold worldwide in markets throughout North, Central and South America, Asia, Australia, Europe, the Middle East and Africa. Homecare and cleaning products are sold primarily in North America, the United Kingdom (“U.K.”) and Australia. The Company’s products are sold primarily through mass retail and home center stores, warehouse club stores, grocery stores, hardware stores, automotive parts outlets, sport retailers, independent bike dealers, online retailers and industrial distributors and suppliers
.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Supplier Risk
The Company relies on a limited number of suppliers, including single or sole source suppliers for certain of its raw materials, packaging, product components and other necessary supplies. Where possible and where it makes business sense, the Company works with secondary or multiple suppliers to qualify additional supply sources. To date, the Company has been able to obtain adequate supplies of these materials which are used in the production of its maintenance products and homecare and cleaning products in a timely manner from existing sources.
Cash and Cash Equivalents
Cash equivalents are highly liquid investments purchased with an original maturity of three months or less.
Short-term Investments
The Company's short-term investments consist of term deposits and callable time deposits
. These short-term investments had
a carrying value
of $80.2 million
and
$
57
.
6
million at August 31, 201
7
and 201
6
, respectively. The term deposits are subject to penalty for early redemption before their maturity
, and the callable time deposits require a notice before redemption
.
Trade Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in existing accounts receivable. The Company determines the allowance for doubtful accounts based on historical write-off experience and the identification of specific balances deemed uncollectible. Trade accounts receivable are charged against the allowance when the Company believes it is probable that the trade accounts receivable will not be recovered. The Company does not have any off-balance sheet credit
exposure
related to its customers.
Allowance for doubtful accounts related to the Company’s trade accounts
receivable were not significant at August
31, 201
7
and 201
6
.
Inventories
Inventories are stated at the lower of cost or market and cost is determined based on a first-in, first-out method or, for a portion of raw materials inventory, the average cost method. When necessary, the Company adjusts the carrying value of its inventory to the lower of cost or market, including any costs to sell or dispose of such inventory. Appropriate consideration is given by the Company to obsolescence, excessive inventory levels, product deterioration and other factors when evaluating net realizable value for the purposes of determining the lower of cost or market.
Included in inventories are amounts for certain raw materials and components that the Company has provided to its third-party contract manufacturers but that remain unpaid to the Company as of the balance sheet date. The Company’s contract manufacturers package products to the Company’s specifications and, upon order from the Company, ship ready-to-sell inventory to either the Company’s third-party distribution centers or directly to its customers. The Company transfers certain raw materials and components to these contract manufacturers for use in the manufacturing process. Contract manufacturers are obligated to pay the Company for these raw materials and components upon receipt. Amounts receivable from the contract manufacturers as of the balance sheet date related to transfers of these raw materials and components by the Company to its contract manufacturers are considered product held at third-party contract manufacturers and are included in inventories in the accompanying consolidated balance sheets.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the straight-line method based upon estimated useful lives of
ten
to
forty
years for buildings and improvements,
three
to
fifteen
years for machinery and equipment,
three
to
five
years for vehicles
,
three
to
ten
years for furniture and fixtures and
three
to
five
years for software and computer equipment. Depreciation expense totaled
$3.9
million,
$3.5
million
and
$3.4
million for fiscal years 201
7
,
2016 and 2015, respectively. These amounts include factory depreciation expense which is recognized as cost of products sold and totaled
$1.1
million for
fiscal year
201
7
and
$0.8
million for
each of the fiscal
years ended August 31
, 2016 and 2015
.
Software
The Company capitalizes costs related to computer software obtained or developed for internal use. Software obtained for internal use has generally been enterprise-level business and finance software that the Company customizes to meet its specific operational needs. Costs incurred in the application development phase are capitalized and amortized over their useful lives, which are generally
three
to
five
years.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of tangible and intangible assets acquired. The carrying value of goodwill is reviewed for possible impairment in accordance with the authoritative guidance on goodwill, intangibles and other.
The Company assesses possible impairments to goodwill at least annually during its second fiscal quarter and otherwise when events or changes in circumstances indicate that an impairment condition may exist. In performing the annual impairment test of its goodwill, the Company considers the fair value concepts of a market participant and the highest and best use for its intangible assets. In addition to the annual impairment test, goodwill is evaluated each reporting period to determine whether events and circumstances would more likely than not reduce the fair value of a reporting unit below its carrying value.
When testing goodwill for impairment, the Company
first assess
es
qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. If, after assessing qualitative factors,
the Company
determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing
additional quantitative tests
is unnecessary.
Otherwise
, a two-step quantitative test is performed to identify the potential impairment and to measure the amount of goodwill impairment, if any. Any required impairment losses are recorded as a reduction in the carrying amount of the related asset and charged to results of operations.
No
goodwill
impairments
were ident
ified by the Company during fiscal years 201
7
, 201
6
and 201
5.
Long-lived Assets
The Company’s long-lived assets consist of property and equipment and definite-lived intangible assets. Long-lived assets are depreciated or amortized, as applicable, on a straight-line basis over their estimated useful lives. The Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and/or its remaining useful life may no longer be appropriate. Any required impairment loss would be measured as the amount by which the asset’s carrying amount exceeds its fair value, which is the amount at which the asset could be bought or sold in a current transaction between willing market participants and would be recorded as a reduction in the carrying amount of the related asset and a charge to results of operations. An impairment loss would be recognized when
the sum of the expected future undiscounted net cash flows is less than the carrying amount of the asset.
No
impairments to its long-lived assets were identified by the Company during fiscal years 201
7, 2016 and
201
5
.
Fair Value of Financial Instruments
Accounting Standards Codification (“ASC”) 820, “
Fair Value Measurements and Disclosures”
, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company categorizes its financial assets and liabilities measured at fair value into a hierarchy that categorizes fair value measurements into the following three levels based on the types of inputs used in measuring their fair value:
Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities;
Level 2: Observable market-based inputs or observable inputs that are corroborated by market data; and
Level 3: Unobservable inputs reflecting the Company’s own assumptions.
Under fair value accounting, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. As of August 31, 201
7
, the Company had no assets or liabilities that are measured at fair value in the financial statements on a recurring basis, with the exception of the foreign currency forward contracts, which are classified as Level 2 within the fair value hierarchy. The carrying values of cash equivalents, short-term investments and short-term borrowings are recorded at cost, which approximates their fair values
primarily due to their short-term maturities and are classified as Level 2 within the fair value hierarchy.
In addition, the carrying value of long-term borrowings
on the Company’s consolidated balance sheets approximate fair value and
is
also
classified as Level 2 within the fair value hierarchy.
During the fiscal years ended August 31, 2017, 2016 and 2015, the Company did not record any significant nonrecurring fair value measurements for assets or
liabilities in periods subsequent to their initial recognition.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents, short-term investments and trade accounts receivable. The Company’s policy is to place its cash in high credit quality financial institutions, in investments that include demand deposits, term deposits and callable time deposits. The Company’s trade accounts receivable are derived from customers located in North America, South America, Asia-Pacific, Europe, the Middle East, Africa and India. The Company limits its credit exposure from trade accounts receivable by performing on-going credit evaluations of customers, as well as insuring its trade accounts receivable in selected markets
.
Insurance Coverage
The Company carries insurance policies to cover insurable risks such as property damage, business interruption, product liability, workers’ compensation and other risks, with coverage and other terms that it believes to be adequate and appropriate. These policies may be subject to applicable deductible or retention amounts, coverage limitations and exclusions. The Company does not maintain self-insurance with respect to its material risks; therefore, the Company has not provided for self-insurance reserves as of August 31, 201
7
and 201
6
.
Revenue Recognition and Sales Incentives
Sales are recognized as revenue at the time of delivery to the customer when risks of loss and title have passed. Sales are recorded net of allowances for damaged goods and other sales returns, sales incentives, trade promotions and cash discounts.
The Company records the
costs of promotional activities such as sales incentives, trade promotions, coupon offers and cash discounts that are given to its customers
as a reduction of sales in its consolidated statements of operations. The Company offers on-going trade promotion programs with customers and consumer coupon programs that require the Company to estimate and accrue the expected costs for such programs. Programs include cooperative marketing programs, shelf price reductions, coupons, rebates, consideration and allowances given to retailers for shelf space and/or favorable display positions in their stores and other promotional activities. Costs related to rebates, cooperative advertising and other promotional activities are recorded as a reduction to sales upon delivery of the Company’s products to its customers. Coupon costs are based upon historical redemption rates and are recorded as a reduction to sales as incurred, which is when the coupons are circulated.
Cost of Products Sold
Cost of products sold primarily includes the cost of products manufactured on the Company’s behalf by its third-party contract manufacturers, net of volume and other rebates. Cost of products sold also includes the costs to manufacture WD-40 concentrate, which is done at the Company’s own facilities or at third-party contract manufacturers. When the concentrate is manufactured by the Company, cost of products sold includes direct labor, direct materials and supplies; in-bound freight costs related to purchased raw materials and finished product; and depreciation of machinery and equipment used in the manufacturing process.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include costs related to selling the Company’s products, such as the cost of the sales force and related sales and broker commissions; shipping and handling costs paid to third-party companies to distribute finished goods from the Company’s third-party contract manufacturers and distribution centers to its customers; other general and administrative costs related to the Company’s business such as general overhead, legal and accounting fees, insurance, and depreciation; and other employee-related costs to support marketing, human resources, finance, supply chain, information technology and research and development activities.
Shipping and Handling Costs
Shipping and handling costs associated with in-bound freight and movement of product from third-party contract manufacturers to the Company’s third-party warehouses are
capitalized in the cost of inventory and subsequently
included in cost of sales
when recognized in the statement of operations.
S
hipping and handling costs associated with out-bound transportation are included in selling, general and administrative
expenses and are recorded at the time of shipment of product to the Company’s customers. Out-bound shipping and handling costs were
$16.4
million,
$16.
1
million
and
$15.8
million for fiscal years 201
7
, 201
6
and 201
5
, respectively.
Advertising and Sales Promotion Expenses
Advertising and sales promotion expenses are expensed as incurred. Advertising and sales promotion expenses include costs
associated with promotional activities that the Company pays to third parties, which include costs
for advertising (television, print media and internet), administration of coupon programs, consumer promotions, product demonstrations, public relations, agency costs, package design expenses and market research costs.
Total advertising and sales promotion expenses were $20.5 million, $22.3 million and $22.9 million for fiscal years 2017, 2016 and 2015, respectively.
Research and Development
The Company is involved in research and development efforts that include the ongoing development or innovation of new products
and the improvement, extension or renovation of existing products or product lines. All research and development costs are expensed as incurred and are included in selling, general and administrative expenses. Research and development expenses
were
$8.4
million,
$7.7
million
and
$9.0
million in fiscal years 2017
, 201
6
and 201
5
, respectively. These expenses include costs associated with general research and development activities, as well as those associated with internal staff, overhead, design testing, market research and consultants.
Income Taxes
Current income tax expense is the amount of income taxes expected to be payable for the current year. A deferred income tax liability or asset is established for the expected future tax consequences resulting from the differences in financial reporting and tax bases of assets and liabilities. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be realized. In addition to valuation allowances, the Company provides for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement standards prescribed by the authoritative guidance on income taxes. Amounts for uncertain tax positions are adjusted in periods when new information becomes available or when positions are effectively settled. The Company recognizes accrued interest and penalties related to uncertain tax positions as a component of income tax expense.
U.S. federal income tax expense is provided on remittances of foreign earnings and on unremitted foreign earnings that are not indefinitely reinvested. U.S. federal income taxes and foreign withholding taxes are not provided when foreign earnings are indefinitely reinvested. The Company determines whether its foreign subsidiaries will invest their undistributed earnings indefinitely based on the capital needs of the foreign subsidiaries and reassesses this determination each reporting period. Changes to the Company’s determination may be warranted based on the Company’s experience as well as its plans regarding future international operations and expected remittances.
Foreign Currency
The Company translates the assets and liabilities of its foreign subsidiaries into U.S. dollars at current rates of exchange in effect at the end of the reporting period. Income and expense items are translated at rates that approximate the rates in effect at the transaction date. Gains and losses from translation are included in accumulated other comprehensive income or loss. Gains or losses resulting from foreign currency transactions (transactions denominated in a currency other than the entity’s functional currency) are included as other income (expense) in the Company’s consolidated statements of operations. The Company had
$
0
.
4
million and
$
2.4
million of net gains in foreign currency transactions in fiscal years 2017 and 2016, respectively, and
$1.7
million of net losses in fiscal year 2015.
In the normal course of business, the Company employs established policies and procedures to manage its exposure to fluctuations in foreign currency exchange rates. The Company’s U.K. subsidiary, whose functional currency is Pound Sterling, utilizes foreign currency forward contracts to limit its exposure to net asset balances held in non-functional currencies, specifically the Euro. The Company regularly monitors its foreign currency exchange rate exposures to ensure the overall effectiveness of its foreign currency hedge positions. While the Company engages in foreign currency hedging activity to reduce its risk, for accounting purposes, none of its foreign currency forward contracts are designated as hedges.
Foreign currency forward contracts are carried at fair value, with net realized and unrealized gains and losses recognized currently in other income (expense) in the Company’s consolidated statements of operations. Cash flows from settlements of foreign currency forward contracts are included in operating activities in the consolidated statements of cash flows. Foreign currency forward contracts in an asset position at the end of the reporting period are included in other current assets, while foreign currency forward contracts in a liability position at the end of the reporting period are included in accrued liabilities in the Company’s consolidated balance sheets. At August 31, 2017, the Company had a notional amount of
$
23
.
4
million outstanding in foreign currency forward contracts, which mature
d
in
September
2017
.
Unrealized
net
losses
related to foreign currency forward contracts were
$0.6
million
at August 31, 2017
, while unrealized net gains and losses
were
not
significant at August 31,
2016. Realized net losses related to foreign currency forward contracts were
$0.5
million
for the
fiscal year
ended August 31, 2017
, while realized net gains and losses were
not
significant for the fiscal year ended August 31, 2016.
Earnings per Common Share
Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities that are required to be included in the computation of earnings per common share pursuant to the two-class method. Accordingly, the Company’s outstanding unvested, if any, and outstanding vested
stock-based equity awards
that provide such nonforfeitable rights to dividend equivalents are included as participating securities in the calculation of earnings per common share (“EPS”) pursuant to the two-class method.
The Company calculates EPS using the two-class method, which provides for an allocation of net income between common stock and other participating securities based on their respective participation rights to share in dividends. Basic EPS is calculated by dividing net income available to common shareholders for the period by the weighted-average number of common shares outstanding during the period. Net income available to common shareholders for the period includes dividends paid to common shareholders during the period plus a proportionate share of undistributed net income allocable to common shareholders for the period; the proportionate share of undistributed net income allocable to common shareholders for the period is based on the proportionate share of total weighted-average common shares and participating securities outstanding during the period.
Diluted EPS is calculated by dividing net income available to common shareholders for the period by the weighted-average number of common shares outstanding during the period increased by the weighted-average number of potentially dilutive common shares (dilutive securities) that were outstanding during the period if the effect is dilutive. Dilutive securities are comprised of stock options, restricted stock units
,
market share units
and deferred performance units
granted under the Company’s prior and current equity incentive plan
s
.
Stock-based Compensation
The Company accounts for stock-based equity awards exchanged for employee and non-employee director services in accordance with the authoritative guidance for share-based payments. Under such guidance, stock-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense, net of estimated forfeitures, over the requisite service period. Compensation expense is amortized on a straight-line basis over the requisite service period for the entire award, which is generally the maximum vesting period of the award.
The fair value of stock options is determined using a Black-Scholes option pricing model. The fair values of restricted stock unit awards and
deferred performance
unit awards are based on the fair value of the Company’s common stock on the date that such awards are granted. The fair value of market share unit awards is determined using a Monte Carlo simulation model. For the
deferred performance
unit awards, the Company adjusts the compensation expense over the service period based upon the expected achievement level of the applicable performance condition. As the grant date fair value of market share unit awards reflects the probabilities of the actual number of such awards expected to vest, compensation expense for such awards is not adjusted based on the expected achievement level of the applicable performance condition. An estimated forfeiture rate is applied and included in the calculation of stock-based compensation expense at the time that the stock-based equity awards are granted and revised, if necessary, in subsequent periods if actual forfeiture rates differ from those estimates. Compensation expense related to the Company’s stock-based equity awards is recorded as selling, general and administrative expenses in the Company’s consolidated statements of operations.
The Company calculates its windfall tax benefits additional paid-in capital pool that is
available to absorb tax deficiencies in accordance with the short-cut method provided for by the authoritative guidance for share-based payments. As of
August 31, 2017, the Company determined that it has a remaining pool of windfall tax benefits.
Segment Information
The Company discloses certain information about its business segments, which are determined consistent with the way the Company’s Chief Operating Decision Maker organizes and evaluates financial information internally for making operating decisions and assessing performance. In addition, the Chief Operating Decision Maker assesses and measures revenue based on product groups.
Recently Adopted Accounting Standards
In August 2014, the
FASB issued ASU No. 2014-15, “
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
”.
This updated guidance requires management to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern within one year of the date that the financial statements are issued and provide related disclosures if necessary
. This guidance is effective for the first annual fiscal period ending after December 15, 2016, and for all interim and annual periods thereafter. The Company adopted this guidance in the fourth quarter of fiscal year 2017 on a prospective basis and there was no impact on its consolidated financial statements and related disclosures.
Recently Issued Accounting Standards
In May 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-09, “
Scope of Modification Accounting
”, to reduce diversity in practice and provide clarity regarding existing guidance in ASC 718, “
Stock Compensation
”. The amendments in this updated guidance
clarify that an entity should apply modification accounting in response to a change in the terms and conditions of an entity’s share-based payment awards unless three newly specified criteria are met
. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period.
Early
adoption is permitted
. The Company has evaluated the potential impacts of this updated guidance, and it does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.
In January 2017, the
FASB
issued ASU No. 2017-04,
“Simplifying the Test for Goodwill Impairment”.
This updated guidance
eliminates Step 2 from the current two-step quantitative model for goodwill impairment tests. Step 2 required an entity to calculate an implied fair value, which included a hypothetical purchase price allocation requirement, for reporting units that failed Step 1.
Per this updated guidance, a goodwill impairment will instead be measured as the amount by which a reporting unit’s carrying value exceeds its fair value as identified in Step 1. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within that reporting period.
Early
adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017
. The Company has evaluated the potential impacts of this updated guidance, and it does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.
In October 2016, the
FASB
issued ASU No. 2016-16,
“Intra-Entity Transfers of Assets Other Than Inventory”,
which
requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs
. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted
in the first interim period of an entity's annual financial statements
. The Company has evaluated the potential impacts of this updated guidance, and it does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.
In August 2016, the
FASB
issued ASU No. 2016-15, “
Classification of Certain Cash Receipts and Cash Payments
”.
The amendments in this updated guidance address eight specific cash flow issues to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. Early
adoption is
permitted and should be applied using a retrospective approach. The
Company is in the process of evaluating the potential impacts of this new guidance on its consolidated financial statements.
In June 2016, the
FASB issued ASU No. 2016-13, “
Measurement of Credit Losses on Financial Instruments
”, which requires
entities to estimate all expected credit losses for certain types of financial instruments, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts
.
The updated guidance also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within that reporting period. Early
adoption is permitted. The
Company is in the process of evaluating the potential impacts of this new guidance on its consolidated financial statements.
In March 2016, the
FASB issued ASU No. 2016-09, “
Improvements to Employee Share-Based Payment Accounting”.
The amendments in this updated
guidance
include
changes
to simplify the Codification for several aspects of the accounting for share-based payment transactions, including those related to the income tax consequences, classification of awards as either equity or liabilities, accounting for forfeitures, minimum statutory withholding requirements and classification of certain items on the statement of cash flows. Certain of these changes are required to be applied retrospectively while other changes are required to be applied prospectively. This guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period. Early
adoption was permitted. The Company did not adopt this updated guidance early and
therefore this guidance will
become effective
for the Company
during the first quarter of fiscal year 2018
. The Company expects that the adoption of this new guidance will have a more than inconsequential impact on the Company’s consolidated financial statements. For example, if the Company had adopted this updated guidance in fiscal year 2017, its income tax expense for the year would have been reduced by approximately
$1
.
5
million due to the recognition of excess tax benefits in the provision for income taxes rather than through additional paid-in-capital. The Company also expects to change its policy related to forfeitures upon adoption of this new guidance such that it will recognize the impacts of forfeitures as they occur rather than recognizing them based on an estimated forfeiture rate. Although the Company is still assessing the impacts of this change in policy for forfeitures on its consolidated financial statements, it does not expect that the impact will be material. In addition, the Company’s presentation of employee taxes paid on shares of certain equity awards withheld by the Company for tax-withholding purposes will be reported as a financing activity instead of an operating activity in the
Consolidated
Statement of Cash Flows, while the excess tax benefits from settlements of stock-based equity awards will be reported as an operating activity under this new guidance.
In February 2016, the
FASB issued ASU No. 2016-02, “
Leases”.
The new standard establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance
or operating, with classification affecting the pattern of expense recognition in the income statement.
This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that reporting period. Early
adoption is permitted and should be applied using a modified retrospective approach. The
Company is in the process of evaluating the impacts of this new guidance on its consolidated financial statements and related disclosures.
In May 2014, the
FASB
issued ASU No. 2014-09, “
Revenue from Contracts with Customers
”, which supersedes the revenue recognition requirements in ASC 605, “
Revenue Recognition
”. The core principle of this updated guidance and related amendments
is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This new guidance requires an entity to recognize revenue for product sales at the point in time in which control of goods transfers to the Company’s customers which, as defined, could be different than the point in time in which revenue had been recognized by the Company under existing U.S. GAAP, which was based on when title and the risks and rewards of ownership were transferred to the customer. The new guidance also requires additional disclosure
about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. Although early adoption is permitted, the Company has concluded that it will not adopt this guidance early and it will become effective for the Company on September 1, 2018. The Company will adopt this new guidance following the modified retrospective approach and will recognize the cumulative effect of initially applying the guidance as an adjustment to the opening balance of retained earnings on September 1, 2018. Management is in the process of a detailed review of the Company’s customer contracts which is focused principally on, but not limited to, identifying the point in time at which the control of goods transfers to customers. Management is nearing the completion of this review and is still in the process of determining the impacts that this new guidance will have on the Company's consolidated financial statements and related disclosures.
Note 3. Inventories
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
August 31,
|
|
2017
|
|
2016
|
Product held at third-party contract manufacturers
|
$
|
3,021
|
|
$
|
3,521
|
Raw materials and components
|
|
3,021
|
|
|
2,996
|
Work-in-process
|
|
215
|
|
|
163
|
Finished goods
|
|
29,083
|
|
|
25,113
|
Total
|
$
|
35,340
|
|
$
|
31,793
|
|
|
|
|
|
|
Note 4. Property and Equipment
Property and equipment, net, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
August 31,
|
|
2017
|
|
2016
|
Machinery, equipment and vehicles
|
$
|
17,491
|
|
$
|
14,892
|
Buildings and improvements
|
|
16,953
|
|
|
4,223
|
Computer and office equipment
|
|
4,552
|
|
|
3,605
|
Software
|
|
7,947
|
|
|
7,392
|
Furniture and fixtures
|
|
1,608
|
|
|
1,286
|
Capital in progress
|
|
861
|
|
|
2,200
|
Land
|
|
3,453
|
|
|
254
|
Subtotal
|
|
52,865
|
|
|
33,852
|
Less: accumulated depreciation and amortization
|
|
(23,426)
|
|
|
(22,307)
|
Total
|
$
|
29,439
|
|
$
|
11,545
|
|
|
|
|
|
|
Note 5. Goodwill and Other Intangible Assets
Acquisitions
During
the first quarter of fiscal year 2015, the Company entered into an agreement by and between GT 85 Limited (“GT85”) and WD-40 Company Limited, which is the Company’s U.K. subsidiary, to acquire the GT85 business and certain of its assets for a purchase consideration of
$4.1
million. Of this purchase consideration,
$3.7
million
was paid in cash upon completion of the acquisition (“completion”) and the remaining balance was paid in June 2015. Located in the U.K., the GT85 business was engaged in the marketing and sale of the GT85® and SG85 brands of maintenance products. This acquisition complements the Company’s maintenance products and will help to build upon its strategy to develop new product categories for WD-40 Specialist and WD-40 BIKE.
The purchase price was allocated to certain customer-related, trade name-related, and technology-based intangible assets in the amount of
$1.7
million,
$0.9
million, and
$0.2
million, respectively. The Company began to amortize these definite-lived intangible assets on a straight-line basis over their estimated useful lives of
eight
,
ten
, and
four
years, respectively, in the first quarter of fiscal year 2015. The purchase price exceeded the fair value of the intangible assets acquired and, as a result, the Company recorded goodwill of
$1.3
million in connection with this transaction. This acquisition did not have a material impact on the Company’s condensed consolidated financial statements, and as a result no pro forma disclosures have been presented.
Goodwill
The following table summarizes the
changes in the carrying amounts of goodwill by segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
EMEA
|
|
Asia-Pacific
|
|
Total
|
Balance as of August 31, 2015
|
$
|
85,532
|
|
$
|
9,667
|
|
$
|
1,210
|
|
$
|
96,409
|
Translation adjustments
|
|
(80)
|
|
|
(680)
|
|
|
-
|
|
|
(760)
|
Balance as of August 31, 2016
|
|
85,452
|
|
|
8,987
|
|
|
1,210
|
|
|
95,649
|
Translation adjustments
|
|
(4)
|
|
|
(48)
|
|
|
-
|
|
|
(52)
|
Balance as of August 31, 2017
|
$
|
85,448
|
|
$
|
8,939
|
|
$
|
1,210
|
|
$
|
95,597
|
|
|
|
|
|
|
|
|
|
|
|
|
During the second quarter of fiscal year 2017, the Company performed its annual goodwill impairment test. The annual goodwill impairment test was performed at the reporting unit
level
, which resides at a component level below the Company’s operating segment level and for which discrete financial information is available,
as required by the authoritative guidance. The Company performed a qualitative assessment of each reporting unit to determine whether
it was more likely than not that the fair value of a reporting unit was less than its carrying amount. In performing this qualitative assessment, the Company assessed relevant events and circumstances that may impact the fair value and the carrying amount of each of its reporting units. Factors that were considered included, but were not limited to, the following: (1) macroeconomic conditions; (2) industry and market conditions; (3) historical financial performance and expected financial performance; (4) other entity specific events, such as changes in management or key employees; and (5) events affecting the Company’s reporting units, such as a change in the composition of net assets or any expected dispositions. Based on the results of this qualitative assessment, the Company determined that it is more likely than not that the carrying value of each of its reporting units is less than its fair value and, thus, the two-step quantitative analysis was not required. As a result, the Company concluded that
no
impairment of its goodwill existed as of February 28, 2017
.
In addition, there were no indicators of impairment identified as a result of the Company’s review of events and circumstances related to its goodwill subsequent to February 2
8
, 201
7, t
he date of its most recent annual goodwill impairment test.
To date, there have been
no
impairment losses identified and recorded related to the Company’s goodwill.
Definite-lived Intangible Assets
The Company’s definite-lived intangible assets, which include the 2000 Flushes, Spot Shot, Carpet Fresh, 1001 and GT85 trade names, the Belgium customer list, the GT85 customer relationships and the GT85 technology are included in other intangible assets, net in the Company’s condensed consolidated balance sheets. The following table summarizes the definite-lived intangible assets and the related accumulated amortization (in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
August 31,
|
|
2017
|
|
2016
|
Gross carrying amount
|
$
|
35,891
|
|
$
|
36,009
|
Accumulated amortization
|
|
(19,647)
|
|
|
(16,818)
|
Net carrying amount
|
$
|
16,244
|
|
$
|
19,191
|
|
|
|
|
|
|
There has been no impairment charge for the period ended August 31, 2017
as a result of the Company’s review of events and circumstances related to its existing definite-lived intangible assets.
Changes in the carrying amounts of definite-lived intangible assets by segment are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
EMEA
|
|
Asia-Pacific
|
|
Total
|
Balance as of August 31, 2015
|
$
|
17,121
|
|
$
|
5,840
|
|
$
|
-
|
|
$
|
22,961
|
Amortization expense
|
|
(2,208)
|
|
|
(768)
|
|
|
-
|
|
|
(2,976)
|
Translation adjustments
|
|
-
|
|
|
(794)
|
|
|
-
|
|
|
(794)
|
Balance as of August 31, 2016
|
|
14,913
|
|
|
4,278
|
|
|
-
|
|
|
19,191
|
Amortization expense
|
|
(2,207)
|
|
|
(672)
|
|
|
-
|
|
|
(2,879)
|
Translation adjustments
|
|
-
|
|
|
(68)
|
|
|
-
|
|
|
(68)
|
Balance as of August 31, 2017
|
$
|
12,706
|
|
$
|
3,538
|
|
$
|
-
|
|
$
|
16,244
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated amortization expense for the Company’s definite-lived intangible assets in future fiscal years is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Names
|
|
Customer-Based
|
|
Technology
|
Fiscal year 2018
|
$
|
2,419
|
|
$
|
446
|
|
$
|
33
|
Fiscal year 2019
|
|
2,414
|
|
|
259
|
|
|
-
|
Fiscal year 2020
|
|
2,019
|
|
|
165
|
|
|
-
|
Fiscal year 2021
|
|
1,230
|
|
|
165
|
|
|
-
|
Fiscal year 2022
|
|
1,229
|
|
|
165
|
|
|
-
|
Thereafter
|
|
5,700
|
|
|
-
|
|
|
-
|
Total
|
$
|
15,011
|
|
$
|
1,200
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
Included in the total estimated future amortization expense is the amortization expense for the 1001 trade name and the GT85 intangible assets, which are based on current foreign currency exchange rates, and as a result amounts in future periods may differ from those presented due to fluctuations in those rates.
Note 6. Accrued and Other Liabilities
Accrued liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
August 31,
|
|
2017
|
|
2016
|
Accrued advertising and sales promotion expenses
|
$
|
10,889
|
|
$
|
9,763
|
Accrued professional services fees
|
|
1,456
|
|
|
1,262
|
Accrued sales taxes and other taxes
|
|
1,701
|
|
|
954
|
Other
|
|
4,951
|
|
|
3,778
|
Total
|
$
|
18,997
|
|
$
|
15,757
|
|
|
|
|
|
|
Accrued payroll and related expenses consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
August 31,
|
|
2017
|
|
2016
|
Accrued incentive compensation
|
$
|
6,554
|
|
$
|
12,203
|
Accrued payroll
|
|
3,338
|
|
|
3,559
|
Accrued profit sharing
|
|
2,257
|
|
|
2,716
|
Accrued payroll taxes
|
|
1,503
|
|
|
1,744
|
Other
|
|
570
|
|
|
644
|
Total
|
$
|
14,222
|
|
$
|
20,866
|
|
|
|
|
|
|
Note 7. Debt
Revolving Credit Facility
On June 17, 2011,
the Company entered into an unsecured credit agreement with Bank of America, N.A. (“Bank of America”). Since June 17, 2011, this unsecured credit agreement has been amended four times, most recently
on September 1, 2016, (the “Fourth Amendment”).
This Fourth Amendment amended the credit agreement
in connection with the purchase of the Company’s new office building and related land located at 9715 Businesspark Avenue, San Diego, California (the “Property”). The Fourth Amendment permits the Company to spend
$18.0
million in aggregate for the acquisition and improvement costs for the Property, with any excess applied against the
$7.5
million permitted annually by the amended agreement for other capital expenditures. In addition, the Fourth Amendment also includes changes to the agreement that will allow, as a permitted lien, any agreement with Bank of America for secured debt.
Per the terms
of the amended agreement, the revolving commitment may not exceed
$175.0
million and the aggregate amount of the Company’s capital stock that it may repurchase may not exceed
$150.0
million during the period from November 16, 2015 to the maturity date of the agreement so long as no default exists immediately prior and after giving effect thereto.
This revolving credit facility
matures on
May 13, 2020
, and includes
representations, warranties and covenants customary for credit facilities of
this type, as well as customary events of default and remedies. In addition,
per the terms of the amended agreement, the Company and Bank of America may enter into an autoborrow agreement in form and substance satisfactory to Bank of America, providing for the automatic advance of revolving loans in U.S. Dollars to the Company’s designated account at Bank of America. In the second quarter of fiscal year 2016, the Company entered into an autoborrow agreement with Bank of America and this agreement has been in effect since that time
For
the financial covenants, the definition of consolidated EBITDA includes the add back of non-cash stock-based compensation to consolidated net income when arriving at consolidated EBITDA. The terms of the financial covenants are as follows
:
|
·
|
|
The consolidated leverage ratio cannot be greater than
three
to one.
The consolidated leverage ratio means, as of any date of determination, the ratio of (a) consolidated funded indebtedness as of such date to (b) consolidated EBITDA for the most recently completed four fiscal quarters.
|
|
·
|
|
The consolidated interest coverage ratio cannot be less than
three
to one. The consolidated interest coverage ratio means, as of any date of determination, the ratio of (a) consolidated EBITDA for the most recently completed four fiscal quarters to (b) consolidated interest charges for the most recently completed four fiscal quarters
|
Since the
autoborrow feature provides for borrowings to be made and repaid by the Company on a daily basis, any such borrowings made under an active autoborrow agreement are classified as short-term on the Company’s consolidated balance sheets. The
Company had
no
balance under the autoborrow agreement as of August 31, 2017.
In addition
,
the Company assesses its ability and intent to refinance the outstanding draws on the line of credit at the end of each reporting period in order to determine the proper balance sheet classification for amounts outstanding on the
line of credit
. During the fiscal year ended August 31, 2017, the Company
borrowed
$20.0
million on the line of credit which it intends to repay in less than twelve months
.
As a result, the Company has classified $20.0 million borrowed
under the revolving credit facility during the fiscal year ended August 31, 2017 as short-term on its consolidated balance sheets
.
In addition to the $20.0 million in borrowings classified as short-term, the Company borrowed an additional
$12.0
million U.S. Dollars under
the revolving credit facility during the fiscal year ended August 31, 2017. Based
on management’s ability and intent to refinance these new draws and remainder of the Company’s short-term borrowings under the facility with successive short-term borrowings for a period of at least twelve months, the Company has classified
$134.0 million outstanding under the revolving credit facility as a long-term liability at August 31, 2017
. The Company regularly converts existing draws on its line of credit to new draws with new maturity dates and interest rates. As of
August 31, 2017
, the Company had a
$154.0
million
outstanding balance on the revolving credit facility and was in compliance with all debt covenants under this credit facility.
Note 8
. Share Repurchase Plans
On June 21, 2016, the Company’s Board of Directors approved a share buy-back plan. Under the plan, which became effective on September 1, 2016, the Company is authorized to acquire up to $75.0 million of its outstanding shares through August 31, 2018. The timing and amount of repurchases are based on terms and conditions as may be acceptable to the Company’s Chief Executive Officer and Chief Financial Officer and in compliance with all laws and regulations applicable thereto
. During the period from September 1, 2016 through August 31, 2017, the Company repurchased
2
90
,
5
73
shares at a total cost of
$
31
.
1
million under this
$75.0
million plan
.
Note 9. Earnings per Common Share
The table below reconciles net income to net income available to common shareholders (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended August 31,
|
|
2017
|
|
2016
|
|
2015
|
Net income
|
$
|
52,930
|
|
$
|
52,628
|
|
$
|
44,807
|
Less: Net income allocated to participating securities
|
|
(323)
|
|
|
(334)
|
|
|
(271)
|
Net income available to common shareholders
|
$
|
52,607
|
|
$
|
52,294
|
|
$
|
44,536
|
|
|
|
|
|
|
|
|
|
The table below summarizes the weighted-average number of common shares outstanding included in the calculation of basic and diluted EPS (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended August 31,
|
|
2017
|
|
2016
|
|
2015
|
Weighted-average common shares outstanding, basic
|
|
14,089
|
|
|
14,332
|
|
|
14,582
|
Weighted-average dilutive securities
|
|
34
|
|
|
47
|
|
|
67
|
Weighted-average common shares outstanding, diluted
|
|
14,123
|
|
|
14,379
|
|
|
14,649
|
|
|
|
|
|
|
|
|
|
There were
no
anti-dilutive stock-based equity awards outstanding for the fiscal year ended August 31, 2017.
For the fiscal year
s
ended
August 31,
2016
and 201
5
, weighted-average stock-based equity awards outstanding that are non-participating securities in the
amounts of
4,501
and
1,337
, respectively
, were excluded from the calculation of diluted EPS under the treasury stock method as they were anti
-dilutive
.
Note 10. Related Parties
On October 11, 2011, the Company’s Board of Directors elected Mr. Gregory A. Sandfort as a director of WD-40 Company. Mr. Sandfort is
the
Chief Executive Officer of
Tractor Supply Company (“Tractor Supply”), which is a WD-40 Company customer that acquires products from the Company in the ordinary course of business.
The consolidated financial statements include sales to Tractor
Supply of
$1.2
million for
each of the
fiscal years 201
7
and 201
6
, respectively
, and
$1.1
million for fiscal year 2015
.
Accounts receivable from Tractor
Supply
were
not
significant
as of August 31, 2017 and 2016.
Note 11. Commitments and Contingencies
Leases
The Company was committed under certain non-cancelable operating leases at
August 31, 2017
which provide for the following future fiscal year minimum payments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
Thereafter
|
Operating leases
|
$
|
1,856
|
|
$
|
1,223
|
|
$
|
893
|
|
$
|
739
|
|
$
|
479
|
|
$
|
470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent
expense
was
$
2
.
1
million,
$1.9
million, and
$2.1
million
for
the
fiscal years ended August 31,
201
7, 2016 and 2015, respectively
.
Purchase Commitments
The Company has ongoing relationships with various suppliers (contract manufacturers) who manufacture the Company’s products. The contract manufacturers maintain title and control of certain raw materials and components, materials utilized in finished products, and of the finished products themselves until shipment to the Company’s customers or third-party distribution centers in accordance with agreed upon shipment terms. Although the Company typically does not have definitive minimum purchase obligations included in the contract terms with its contract manufacturers, when such obligations have been included, they have been immaterial. In the ordinary course of business, supply needs are communicated by the Company to its contract manufacturers based on orders and short-term projections, ranging from two to five months. The Company is committed to purchase the products produced by the contract manufacturers based on the projections provided.
Upon the termination of contracts with contract manufacturers, the Company obtains certain inventory control rights and is obligated to work with the contract manufacturer to sell through all product held by or manufactured by the contract manufacturer on behalf of the Company during the termination notification period. If any inventory remains at the contract manufacturer at the termination date, the Company is obligated to purchase such inventory which may include raw materials, components and finished
goods
.
The
amounts for inventory purchased under termination commitments have been immateria
l.
In addition to the commitments to purchase products from contract manufacturers described above, the Company may also enter into commitments with other manufacturers to purchase finished goods and components to support innovation
and renovation
initiatives and/or supply chain initiatives. As of
August 31, 2017
,
no
such commitments were outstanding.
Litigation
From time to time, the Company is subject to various claims, lawsuits, investigations and proceedings arising in the ordinary course of business, including but not limited to, product liability litigation and other claims and proceedings with respect to intellectual property, breach of contract, labor and employment, tax and other matters.
On February 24, 2017, a legal action was filed against the Company in a United States District Court in Ohio (FirstPower Group, LLC v. WD-40 Company, WD-40 Manufacturing Company, Wal-Mart Stores East, LP, Lowe’s Home Centers, LLC, and Home Depot U.S.A., Inc.). The complaint alleged claims of trademark infringement, unfair competition, counterfeiting, and deceptive trade practices arising out of the Company’s marketing and sale of the WD
‑40 EZ-REACH Flexible Straw product. FirstPower Group, LLC (“FirstPower”) claimed exclusive ownership and the right to use the words “EZ REACH” for lubricating oil products based on certain registered trademarks covering such words. On February 24, 2017, FirstPower also filed a motion for
preliminary injunction seeking an interim order prohibiting the alleged infringement of FirstPower’s asserted trademark rights. On July 18, 2017 the District Court issued a Memorandum Opinion denying FirstPower’s motion for preliminary injunction. On
October 13
, 2017 the
case was dismissed as to all of the defendants pursuant to a confidential settlement agreement between the Company and FirstPower
, which did not have a material impact on the Company’s business, financial condition or results of operations
.
Indemnifications
As permitted under Delaware law, the Company has agreements whereby it indemnifies senior officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company maintains Director and Officer insurance coverage that mitigates the Company’s exposure with respect to such obligations. As a result of the Company’s insurance coverage, management believes that the estimated fair value of these indemnification agreements is minimal. Thus,
no
liabilities have been recorded for these agreements as of
August 31, 2017
.
From time to time, the Company enters into indemnification agreements with certain contractual parties in the ordinary course of business, including agreements with lenders, lessors, contract manufacturers, marketing distributors, customers and certain vendors. All such indemnification agreements are entered into in the context of the particular agreements and are provided in an attempt to properly allocate risk of loss in connection with the consummation of the underlying contractual arrangements. Although the maximum amount of future payments that the Company could be required to make under these indemnification agreements is unlimited, management believes that the Company maintains adequate levels of insurance coverage to protect the Company with respect to most potential claims arising from such agreements and that such agreements do not otherwise have value separate and apart from the liabilities incurred in the ordinary course of the Company’s business. Thus,
no
liabilities have been recorded with respect to such indemnification agreements as of
August 31, 2017
.
Note 12. Income Taxes
Income before income taxes consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended August 31,
|
|
2017
|
|
2016
|
|
2015
|
United States
|
$
|
42,060
|
|
$
|
41,128
|
|
$
|
38,044
|
Foreign
(1)
|
|
32,562
|
|
|
31,661
|
|
|
25,066
|
Income before income taxes
|
$
|
74,622
|
|
$
|
72,789
|
|
$
|
63,110
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Included in these amounts are income before income taxes for the EMEA segment of
$28.
1
million,
$28.3
million and
$21.9
million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively.
|
The provision for income taxes consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended August 31,
|
|
2017
|
|
2016
|
|
2015
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
$
|
10,813
|
|
$
|
13,269
|
|
$
|
12,302
|
State
|
|
744
|
|
|
894
|
|
|
966
|
Foreign
|
|
7,465
|
|
|
7,593
|
|
|
5,886
|
Total current
|
|
19,022
|
|
|
21,756
|
|
|
19,154
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
United States
|
|
2,627
|
|
|
(1,100)
|
|
|
(870)
|
Foreign
|
|
43
|
|
|
(495)
|
|
|
19
|
Total deferred
|
|
2,670
|
|
|
(1,595)
|
|
|
(851)
|
Provision for income taxes
|
$
|
21,692
|
|
$
|
20,161
|
|
$
|
18,303
|
|
|
|
|
|
|
|
|
|
Deferred tax assets and deferred tax liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
August 31,
|
|
2017
|
|
2016
|
Deferred tax assets:
|
|
|
|
|
|
Accrued payroll and related expenses
|
$
|
1,252
|
|
$
|
1,621
|
Accounts receivable
|
|
644
|
|
|
498
|
Reserves and accruals
|
|
2,393
|
|
|
2,292
|
Unrealized exchange loss
|
|
25
|
|
|
992
|
Stock-based compensation expense
|
|
3,213
|
|
|
2,976
|
Uniform capitalization
|
|
1,598
|
|
|
1,473
|
Tax credit carryforwards
|
|
2,309
|
|
|
2,038
|
Other
|
|
1,264
|
|
|
2,043
|
Total gross deferred tax assets
|
|
12,698
|
|
|
13,933
|
Valuation allowance
|
|
(2,328)
|
|
|
(2,054)
|
Total net deferred tax assets
|
|
10,370
|
|
|
11,879
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Property and equipment, net
|
|
(2,109)
|
|
|
(558)
|
Amortization of tax goodwill and intangible assets
|
|
(26,036)
|
|
|
(26,321)
|
Investments in partnerships
|
|
(679)
|
|
|
(744)
|
Total deferred tax liabilities
|
|
(28,824)
|
|
|
(27,623)
|
Net deferred tax liabilities
|
$
|
(18,454)
|
|
$
|
(15,744)
|
|
|
|
|
|
|
The Company had state net operating loss (“NOL”)
carryforwards of
$
2
.
6
million and
$2.4
million as of August 31, 2017 and 2016,
respectively,
which generated a net deferred tax asset of
$0.2
million for
each of the
fiscal years 2017 and 2016
.
The state NOL carryforwards, if unused, will expire between fiscal year 201
8
and 203
7
. The Company also had cumulative tax credit carryforwards of $2.
3
million
and $2.0 million
as of August 31, 2017 and 2016,
respectively,
of which
$2.1
million and
$1.9
million
, respectively
, is attributable to a U.K. tax credit carryforward, which does not expire. Future utilization of the tax credit carryforwards and certain state NOL carryovers is uncertain and
is dependent upon several factors that may not occur, including the generation of future taxable income in certain jurisdictions. At this time, management cannot conclude that it is “more likely than not” that the related deferred tax assets will be realized. Accordingly, a full valuation allowance has been recorded against the related deferred tax asset associated with cumulative tax credit carryforwards.
A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended August 31,
|
|
2017
|
|
2016
|
|
2015
|
Amount computed at U.S. statutory federal tax rate
|
$
|
26,118
|
|
$
|
25,476
|
|
$
|
22,088
|
State income taxes, net of federal tax benefits
|
|
327
|
|
|
397
|
|
|
578
|
Effect of foreign operations
|
|
(4,277)
|
|
|
(4,382)
|
|
|
(3,221)
|
Benefit from qualified domestic production deduction
|
|
(1,295)
|
|
|
(1,190)
|
|
|
(1,131)
|
Other
|
|
819
|
|
|
(140)
|
|
|
(11)
|
Provision for income taxes
|
$
|
21,692
|
|
$
|
20,161
|
|
$
|
18,303
|
|
|
|
|
|
|
|
|
|
The provision for income taxes was
29.1%
and
27.7%
of income before income taxes for the fiscal years ended August 31, 2017 and 2016, respectively. The increase in the effective income tax rate from period to period was primarily driven by an immaterial out-of-period correction that the Company recorded in the second quarter of fiscal year 2017 associated with the tax impacts from certain unrealized foreign currency exchange losses in periods prior to fiscal year 2017.
As of August 31,
2017, the Company has not provided for U.S. federal and state income taxes and foreign withholding taxes on
$
137
.
5
million of the undistributed earnings of certain foreign subsidiaries, mostly attributable to the U.K., since these earnings are considered indefinitely reinvested outside of the United States. The amount of unrecognized deferred U.S. federal and state income tax liability, net of unrecognized foreign tax credits, is estimated to be approximately
$
12
.
9
million as of August 31, 2017. This net liability is impacted by changes in foreign currency exchange rates and, as a result, will
fluctuate with any changes in such rates. If management decides to repatriate foreign earnings in future periods, the Company would be required to provide for the incremental U.S. federal and state income taxes as well as foreign withholding taxes on such amounts in the period in which the decision is made.
In the fourth quarter of fiscal year 2016, the Company approved a one-time repatriation of
$8.2
million of historical foreign earnings
from its Australia and China subsidiaries
due to favorable tax consequences stemming principally from the strengthening of the U.S. dollar against various currencies in which the Company conducts business. This action resulted in the recognition of an incremental immaterial tax benefit in fiscal year 2016.
The Company continues to consider the remaining amount of unremitted foreign earnings in Australia and China, in addition to the U.K, to be indefinitely reinvested outside of the United States
.
The Company continues to provide for U.S. income taxes and foreign withholding taxes on the undistributed earnings of its Canada and Malaysia subsidiaries, whose earnings are not considered indefinitely reinvested.
Reconciliations of the beginning and ending amounts of the Company’s gross unrecognized tax benefits, excluding interest and penalties, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended August 31,
|
|
2017
|
|
2016
|
Unrecognized tax benefits - beginning of fiscal year
|
$
|
1,239
|
|
$
|
1,279
|
Net decreases - prior period tax positions
|
|
(68)
|
|
|
-
|
Net increases - current period tax positions
|
|
228
|
|
|
211
|
Expirations of statute of limitations for assessment
|
|
(382)
|
|
|
(251)
|
Settlements
|
|
(36)
|
|
|
-
|
Unrecognized tax benefits - end of fiscal year
|
$
|
981
|
|
$
|
1,239
|
|
|
|
|
|
|
Gross unrecognized tax benefits totaled $1.0 million and $1.2 million as of August 31, 2017 and 2016,
of which
$0.6
million and
$0.9
million, respectively, would affect the Company’s effective income tax rate if recognized.
There
were
no
material interest or penalties included
in income tax expense for the fiscal years ended August 31, 201
7
and 201
6
. The total balance of accrued interest and penalties related to uncertain tax positions was also immaterial at August
31, 201
7
and 201
6
.
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 201
4
are not subject to examination by the U.S. Internal Revenue Service.
The Company was notified in September 2016 by the U.S. Internal Revenue Service of its plans to perform an income tax audit for the tax period ended August 31, 2015. The income tax examination was concluded in the third quarter of fiscal year 2017 with no changes to the original return as filed. The Company is also currently under audit in various state and international jurisdictions for fiscal years 2013 through 2016.
Generally, for the majority of state and foreign jurisdictions where the Company does business, periods prior to fiscal year 201
3
are no longer subject to examination. The Company has estimated that up to
$0.4
million of unrecognized tax benefits related to income tax positions may be affected by the resolution of tax examinations or expiring statutes
of limitation within the next twelve months. Audit outcomes and the timing of settlements are subject to significant uncertainty.
Note 13. Stock-based Compensation
As of August 31, 2017, the Company had one stock incentive plan, the WD-40 Company 2016 Stock Incentive Plan (“2016 Plan”),
which
was approved by the Company’s shareholders effective as of December 13, 2016. The 2016 Plan
permits
the granting of various stock-based equity awards, including non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock,
restricted stock units, performance shares, performance units and other stock-based awards to employees, directors and consultants. To date through August 31, 2017, the Company had granted awards of restricted stock units (“RSUs”)
under the 2016
Plan. Additionally, as of August 31, 201
7
, there were still outstanding stock options
, RSUs, market share units (“MSUs”) and deferred performance units (“DPUs”)
which had been granted under the Company’s prior
equity incentive plans
.
The 2016
Plan is administered by the Board of Directors (the “Board”) or the Compensation Committee or other designated committee of the Board (the “Committee”). All stock-based equity awards granted under the 20
16
Plan are subject to the specific terms and conditions as determined by the Committee at the time of grant of such awards in accordance with the various terms and conditions specified for each award type per the 20
16
Plan. The total number of shares of common stock authorized for issuance pursuant to grants of awards under the 20
16
Plan is
1
,
000
,
000
. As of August 31, 201
7
,
979
,
546
shares of common stock remained available for future issuance pursuant to grants of awards under the 20
16
Plan. The shares of common stock to be issued pursuant to awards under the 20
16
Plan may be authorized but unissued shares or treasury shares. The Company has historically issued new authorized but unissued shares upon the settlement of the various stock-based equity awards under
its equity incentive plans
.
Vesting of the RSUs granted to directors is immediate, with shares to be issued pursuant to the vested RSUs upon
termination of each director’s service as a director of the Company. Vesting of the one-time grant of RSUs granted to certain key executives of the Company in March 2008 in settlement of these key executives’ benefits under the Company’s supplemental employee retirement plan agreements was over a period
of
three
years
from the date of grant, with shares to be issued pursuant to the vested RSUs six months following the day after each executive officer’s termination of employment with the Company. Vesting of the RSUs granted to certain high level employees is over a period of three years from the date of grant,
subject to potential earlier vesting in the event of retirement of the holder of the award in accordance with the award agreement,
with shares to be issued pursuant to the vested RSUs at the time of vest. The director RSU holders and the executive officer March 2008 grant date RSU holders are entitled to receive dividend equivalents with respect to their RSUs, payable in cash as and when dividends are declared by the Company’s Board of Directors.
Vesting of the MSUs granted to certain high level employees follows a performance measurement period of
three
fiscal years commencing with the Company’s fiscal year in which the MSU awards are granted (the “Measurement Period”). Shares will be issued pursuant to the vested MSUs following the conclusion of the applicable MSU Measurement Period after the Committee’s certification of achievement of the applicable performance measure for such awards and the vesting of the MSU awards and the applicable percentage of the target number of MSU shares to be issued. The recipient must remain employed with the Company for vesting purposes until the date on which the Committee certifies achievement of the applicable performance measure for the MSU awards
, subject to potential pro-rata vesting in the event of earlier retirement of the holder of the award in accordance with the award agreement
.
Vesting of the DPUs granted to certain high level employees follows a performance measurement period of
one
fiscal year that is the same fiscal year in which the DPU awards are granted (the “Measurement Year”). A number of DPUs equal to the applicable percentage of the maximum number of DPUs awarded will be confirmed as vested following the conclusion of the applicable DPU Measurement Year after the Committee’s certification of achievement of the applicable performance measure for such awards (the “Vested DPUs”). The recipient must remain employed with the Company for vesting purposes until August 31 of the Measurement Year
, subject to potential pro-rata vesting in the event of earlier retirement of the holder of the award in accordance with the award agreement
. For recipients who are residents of the United States, the Vested DPUs must be held until termination of employment, with shares to be issued pursuant to the Vested DPUs six months following the day after each such recipient’s termination of employment with the Company. For recipients who are not residents of the United States, the Committee has discretion to either defer settlement of each such recipient’s Vested DPUs by issuance of shares following termination of employment or settle each Vested DPU in cash by payment of an amount equal to the closing price of one share
of the Company’s common stock as of the date of the Committee’s certification of the relative achievement of the applicable performance measure for the DPU awards. Until issuance of shares in settlement of the Vested DPUs, the holders of each Vested DPU that is not settled in cash are entitled to receive dividend equivalents with respect to their Vested DPUs, payable in cash as and when dividends are declared by the Company’s Board of Directors.
Stock-based compensation expen
se is amortized on a straight-line basis
over the requisite service period for the entire award. Stock-based compensation expense related to the Company’s stock-based equity awards totaled
$
4
.
1
million,
$3.7
million
and
$2.8
million for the fiscal years ended August 31, 201
7
, 201
6
and 201
5
, respectively. The Company recognized income tax benefits related to such stock-based
compensation of
$1.
4
million,
$1.2
million and
$0.9
million for the fiscal years ended August 31, 201
7
, 201
6
and 201
5
, respectively. As of August 31, 201
7
, the total unamortized compensation cost related to non-vested stock-based equity awards
was
$0
.
8
million and
$1.
6
million for
RSUs and MSUs, respectively, which the Company expects to recognize over remaining weighted-average vesting
periods of
1.
5
and
1.
7
years
for RSUs and MSUs, respectively.
No
unamortized compensation cost for DPUs remained as of August 31, 201
7
.
Stock Options
Fiscal year 2008 was the last fiscal period in which the Company granted stock options. The estimated fair value of each of the Company’s stock option awards granted in and prior to fiscal year 2008 was determined on the date of grant using the Black-Scholes option pricing model.
A summary of the Company’s stock option award activity is as follows (in thousands, except share and per share amounts and contractual term in years data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
Weighted-Average
|
|
Contractual Term
|
|
|
|
Number of
|
|
Exercise Price
|
|
Per Share
|
|
Aggregate
|
Stock Options
|
Shares
|
|
Per Share
|
|
(in years)
|
|
Intrinsic Value
|
Outstanding at August 31, 2016
|
|
27,820
|
|
$
|
35.59
|
|
|
|
|
|
|
Granted
|
|
-
|
|
$
|
-
|
|
|
|
|
|
|
Exercised
|
|
(21,860)
|
|
$
|
35.47
|
|
|
|
|
|
|
Forfeited or expired
|
|
-
|
|
$
|
-
|
|
|
|
|
|
|
Outstanding at August 31, 2017
|
|
5,960
|
|
$
|
36.03
|
|
|
0.1
|
|
$
|
435
|
Exercisable at August 31, 2017
|
|
5,960
|
|
$
|
36.03
|
|
|
0.1
|
|
$
|
435
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of stock options
exercised was
$1
.
6
million,
$2.5
million and
$3.3
million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively.
The income tax benefits from stock options exercised
totaled
$0
.
4
million,
$0.7
million and
$1.1
million for the fiscal years ended August 31, 201
7
, 201
6
and 201
5
, respectively.
Restricted Stock Units
The estimated fair value of each of the Company’s RSU awards was determined on the date of grant based on the closing market price of the Company’s common stock on the date of grant for those RSUs which are entitled to receive dividend equivalents with respect to the RSUs, or based on the closing market price of the Company’s common stock on the date of grant less the grant date present value of expected dividends during the vesting period for those RSUs which are not entitled to receive dividend equivalents with respect to the RSUs.
A summary of the Company’s restricted stock unit activity is as follows (in thousands, except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Grant Date
|
|
|
|
Number of
|
|
Fair Value
|
|
Aggregate
|
Restricted Stock Units
|
Shares
|
|
Per Share
|
|
Intrinsic Value
|
Outstanding at August 31, 2016
|
|
130,035
|
|
$
|
54.80
|
|
|
|
Granted
|
|
21,501
|
|
$
|
109.23
|
|
|
|
Converted to common shares
|
|
(34,479)
|
|
$
|
58.71
|
|
|
|
Forfeited
|
|
(287)
|
|
$
|
81.44
|
|
|
|
Outstanding at August 31, 2017
|
|
116,770
|
|
$
|
63.61
|
|
$
|
12,722
|
Vested at August 31, 2017
|
|
87,258
|
|
$
|
52.78
|
|
$
|
9,507
|
|
|
|
|
|
|
|
|
|
The
weighted-average grant date fair value of all RSUs granted during the fiscal years ended August 31, 2017, 2016 and 2015 was
$109
.
23
, $
95.89
and
$69.35
, respectively. The total intrinsic value of all RSUs converted to common shares was
$3
.
6
million,
$2.8
million and
$1.8
million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively.
The income tax benefits from RSUs converted to common
shares totaled
$1.
3
million,
$1.0
million
and
$0.6
m
illion for the fiscal years ended August 31,
201
7
, 201
6
and 201
5
, respectively.
Market Share Units
The MSUs are market performance-based awards that shall vest with respect to the applicable percentage of the target number of MSU shares based on relative total stockholder return (“TSR”) for the Company as compared to the total return for the
Russell 2000 Index (“Index”) over the performance Measurement Period. The ultimate number of MSUs that vest may range from
0%
to
200%
of
the original target number of shares depending on the relative achievement of the TSR performance measure at the end of the Measurement Period. The probabilities of the actual number of MSUs expected to vest and resultant actual number of shares of common stock expected to be awarded are reflected in the grant date fair values of the various MSU awards; therefore, the compensation expense for the MSU awards will be recognized assuming the requisite service period is rendered and will not be adjusted based on the actual number of such MSU awards to ultimately vest.
The estimated fair value of each of the Company’s MSU awards, which are not entitled to receive dividend equivalents with respect to the MSUs, was determined on the date of grant using the Monte Carlo simulation model, which utilizes multiple input variables to simulate a range of possible future stock prices for both the Company and the Index and estimates the probabilities of the potential payouts. The determination of the estimated grant date fair value of the MSUs is affected by the Company’s stock price and a number of assumptions including the expected volatilities of the Company’s stock and the Index, the Company’s risk-free interest rate and expected dividends.
The following weighted-average assumptions for MSU grants for the last three fiscal years were used in the Monte Carlo simulation model:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended August 31,
|
|
2017
|
|
2016
|
|
2015
|
Expected volatility
|
|
21.1%
|
|
|
22.2%
|
|
|
22.0%
|
Risk-free interest rate
|
|
1.0%
|
|
|
0.9%
|
|
|
0.8%
|
Expected dividend yield
|
|
0.0%
|
|
|
0.0%
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
The expected volatility utilized was based on the historical volatilities of the Company’s common stock and the Index in order to model the stock
price movements. The volatility used was calculated over the most
recent
2.89
-year period
s
for MSUs granted during each of the fiscal years ended August 31, 2017 and 2016
,
and
over the most recent
2.88
-year period for MSUs granted during the fiscal year ended August 31, 2015, which were the remaining terms of the performance Measurement Period at the dates of grant.
The risk-free interest rates used were based on the implied yield
available on a U.S. Treasury zero-coupon bill with a remaining term equivalent to the remaining performance Measurement Period. The MSU awards stipulate that, for purposes of computing the relative TSR for the Company as compared to the return for the Index, dividends paid with respect to both the Company’s stock and the Index are to be treated as being reinvested into the stock of each entity as of the ex-dividend date. Accordingly, an expected dividend yield of zero was used in the Monte Carlo simulation model, which is the mathematical equivalent to reinvesting dividends in the issuing entity over the performance Measurement Period.
A summary of the Company’s market share unit activity is as follows
(in thousands, except share and per share amounts)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Grant Date
|
|
|
|
Number of
|
|
Fair Value
|
|
Aggregate
|
Market Share Units
|
Shares
|
|
Per Share
|
|
Intrinsic Value
|
Outstanding at August 31, 2016
|
|
45,700
|
|
$
|
87.82
|
|
|
|
Granted
|
|
14,683
|
|
$
|
90.91
|
|
|
|
Performance factor adjustments
|
|
10,974
|
|
$
|
73.44
|
|
|
|
Converted to common shares
|
|
(25,825)
|
|
$
|
71.20
|
|
|
|
Forfeited
|
|
(613)
|
|
$
|
82.51
|
|
|
|
Outstanding at August 31, 2017
(1)
|
|
44,919
|
|
$
|
94.95
|
|
$
|
4,894
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
This figure represents the total number of shares underlying MSU grants assuming achievement of the target number of shares at 100%. As the ultimate number of shares that vest could be as high as 200% of the target, the Company may be required to issue additional shares to satisfy outstanding MSU award grants.
|
The weighted-average grant date fair value of all MSUs granted
during the fiscal years
ended August 31, 2017, 2016 and 2015
was
$90
.
91
,
$120.99
and
$71.66
respectively.
The total intrinsic value of all MSUs converted to common shares
w
as
$2
.
8
million
and
$3.7
million
for the fiscal year
s
ended August 31, 201
7 and 2016, respectively
.
No
MSUs
were converted to common shares during the fiscal year ended August 31, 2015.
The income tax benefits from MSUs converted to common shares totaled
$0.9
million and
$1.2
million
for the fiscal year
s
ended August 31, 2017
and 2016, respectively
.
Deferred Performance Units
The DPU awards
provide for performance-based vesting over a performance measurement period of the fiscal year in which the DPU awards are granted.
The performance vesting provisions of the DPUs are based on relative achievement within an established performance measure range of the Company’s reported earnings before interest, income taxes, depreciation
in operating depart
ments,
and amortization computed on a consolidated basis
for the Measurement Year,
before deduction of the stock-based compensation expense for the Vested DPUs
and excluding other non-operating income and expense amounts
(“Adjusted Global EBITDA”).
The ultimate number of DPUs that vest may range from
0%
to
100%
of the original maximum number of DPUs awarded depending on the relative achievement of the Adjusted Global EBITDA performance measure at the end of the Measurement Year.
The estimated fair value of each of the Company’s DPU awards was determined on the date of grant based on the closing market price of the Company’s common stock on the date of grant less the grant date present value of expected dividends during the vesting period for the DPUs, which are not entitled to receive dividend equivalents with respect to the unvested DPUs.
A summary of the Company’s deferred performance unit activity is as follows (in thousands, except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Number of
|
|
Fair Value
|
|
Aggregate
|
Deferred Performance Units
|
Shares
|
|
Per Share
|
|
Intrinsic Value
|
Outstanding at August 31, 2016
|
|
26,323
|
|
$
|
94.54
|
|
|
|
Granted
|
|
25,882
|
|
$
|
110.19
|
|
|
|
Performance factor adjustments
|
|
(21,240)
|
|
$
|
94.54
|
|
|
|
Converted to common shares
|
|
(89)
|
|
$
|
94.54
|
|
|
|
Forfeited
|
|
-
|
|
$
|
-
|
|
|
|
Outstanding at August 31, 2017
|
|
30,876
|
|
$
|
107.66
|
|
$
|
3,364
|
Vested at August 31, 2017
|
|
4,994
|
|
$
|
94.54
|
|
$
|
544
|
|
|
|
|
|
|
|
|
|
The
weighted-average grant date fair value of all DPUs granted during the fiscal years ended August 31, 2017, 2016 and 2015 was
$110
.
19
,
$94.54
and
$75.14
, respectively.
The total intrinsic value of all DPUs converted to common shares was not significant for the fiscal year ended August 31, 2017.
No
DPUs were converted to common shares during the fiscal years ended August 31, 2016, or 2015.
The income tax benefits from DPUs converted to common shares were not significant for the fiscal year ended August 31, 2017.
Note 14. Other Benefit Plans
The Company has a WD-40 Company Profit Sharing/401(k) Plan and Trust (the “Profit Sharing/401(k) Plan”) whereby regular U.S. employees who have completed certain minimum service requirements can defer a portion of their income through contributions to a trust. The Profit Sharing/401(k) Plan provides for Company contributions to the trust, as approved by the Board of Directors, as follows: 1) matching contributions to each participant up to
50%
of the first
6.6%
of compensation contributed by the participant; 2) fixed non-elective contributions in the amount equal to
10%
of eligible compensation; and 3) a discretionary non-elective contribution in an amount to be determined by the Board of Directors up to
5%
of eligible compensation. The Company’s contributions are subject to overall employer contribution limits and may not exceed the amount deductible for income tax purposes. The Profit Sharing/401(k) Plan may be
amended or discontinued at any time by the Company.
The Company’s contribution expense for the Profit Sharing/401(k) Plan was
$3.
3
million,
$3.2
million and
$3.1
million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively.
The Company’s international subsidiaries have similar benefit plan arrangements, dependent upon the local applicable laws and regulations. The plans provide for Company contributions to an appropriate third-party plan, as approved by the subsidiary’s Board of Directors. The Company’s contribution expense related to the international plans was
$1.
4
million,
$1.5
million and
$1.4
million for the fiscal years ended August 31, 2017, 2016 and 2015, respectively
.
Note 15. Business Segments and Foreign Operations
The Company evaluates the performance of its segments and allocates resources to them based on sales and operating income. The Company is organized on the basis of geographical area into the following
three
segments: the Americas; EMEA; and Asia-Pacific. Segment data does not include inter-segment revenues. Unallocated corporate expenses are general corporate overhead expenses not directly attributable to the operating segments and are reported separate from the Company’s identified segments. The corporate overhead costs include expenses for the Company’s accounting and finance, information technology, human resources, research and development, quality control and executive management functions, as well as all direct costs associated with public company compliance matters including legal, audit and other professional services costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
Americas
|
|
EMEA
|
|
Asia-Pacific
|
|
Corporate
(1)
|
|
Total
|
Fiscal Year Ended August 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
184,929
|
|
$
|
136,771
|
|
$
|
58,806
|
|
$
|
-
|
|
$
|
380,506
|
Income from operations
|
$
|
48,303
|
|
$
|
35,389
|
|
$
|
16,765
|
|
$
|
(24,548)
|
|
$
|
75,909
|
Depreciation and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization expense
|
$
|
4,270
|
|
$
|
2,090
|
|
$
|
254
|
|
$
|
155
|
|
$
|
6,769
|
Interest income
|
$
|
8
|
|
$
|
389
|
|
$
|
111
|
|
$
|
-
|
|
$
|
508
|
Interest expense
|
$
|
2,570
|
|
$
|
-
|
|
$
|
12
|
|
$
|
-
|
|
$
|
2,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended August 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
191,397
|
|
$
|
135,235
|
|
$
|
54,038
|
|
$
|
-
|
|
$
|
380,670
|
Income from operations
|
$
|
48,404
|
|
$
|
31,702
|
|
$
|
15,162
|
|
$
|
(23,920)
|
|
$
|
71,348
|
Depreciation and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization expense
|
$
|
4,071
|
|
$
|
2,084
|
|
$
|
280
|
|
$
|
30
|
|
$
|
6,465
|
Interest income
|
$
|
5
|
|
$
|
485
|
|
$
|
193
|
|
$
|
-
|
|
$
|
683
|
Interest expense
|
$
|
1,689
|
|
$
|
-
|
|
$
|
14
|
|
$
|
-
|
|
$
|
1,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended August 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
187,344
|
|
$
|
136,847
|
|
$
|
53,959
|
|
$
|
-
|
|
$
|
378,150
|
Income from operations
|
$
|
46,674
|
|
$
|
30,173
|
|
$
|
12,602
|
|
$
|
(24,059)
|
|
$
|
65,390
|
Depreciation and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization expense
|
$
|
4,078
|
|
$
|
2,102
|
|
$
|
253
|
|
$
|
31
|
|
$
|
6,464
|
Interest income
|
$
|
9
|
|
$
|
417
|
|
$
|
158
|
|
$
|
-
|
|
$
|
584
|
Interest expense
|
$
|
1,197
|
|
$
|
-
|
|
$
|
8
|
|
$
|
-
|
|
$
|
1,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Unallocated corporate expenses are general corporate overhead expenses not directly attributable to any one of the operating segments. These expenses are reported separate from the Company’s identified segments and are included in Selling, General and Administrative expenses on the Company’s consolidated statements of operations.
|
The Company’s Chief Operating Decision Maker does not review assets by segment as part of the financial information provided and therefore, no asset information is provided in the above table.
Net sales by product group are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended August 31,
|
|
2017
|
|
2016
|
|
2015
|
Maintenance products
|
$
|
342,295
|
|
$
|
339,974
|
|
$
|
333,306
|
Homecare and cleaning products
|
|
38,211
|
|
|
40,696
|
|
|
44,844
|
Total
|
$
|
380,506
|
|
$
|
380,670
|
|
$
|
378,150
|
|
|
|
|
|
|
|
|
|
Net sales and long-lived assets by geographic area are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended August 31,
|
|
2017
|
|
2016
|
|
2015
|
Net Sales by Geography:
|
|
|
|
|
|
|
|
|
United States
|
$
|
150,086
|
|
$
|
158,139
|
|
$
|
153,116
|
International
|
|
230,420
|
|
|
222,531
|
|
|
225,034
|
Total
|
$
|
380,506
|
|
$
|
380,670
|
|
$
|
378,150
|
|
|
|
|
|
|
|
|
|
Long-lived Assets by Geography
(2)
:
|
|
|
|
|
|
|
|
|
United States
|
$
|
23,346
|
|
$
|
6,419
|
|
$
|
5,955
|
International
|
|
6,093
|
|
|
5,126
|
|
|
5,421
|
Total
|
$
|
29,439
|
|
$
|
11,545
|
|
$
|
11,376
|
|
|
|
|
|
|
|
|
|
(2)
Includes tangible assets and property and equipment, net, attributed to the geographic location in which such assets are located.
Note 16. Subsequent Events
On
October 10, 2017
, the Company’s Board of Directors declared a cash dividend
of
$0.49
per share
payable on
October 31, 2017
to shareholders of record on
October 20, 201
7
.