What changed in this filing

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Item 1. Financial Statements

2020-07-09 compared with 2020-04-09 · 141 added, 159 removed, 461 unchanged (39% of the section changed)

Financial Statements

WD-40 COMPANY

CONDENSED CONSOLID ATED BALANCE SHEETS

WD-40 C OMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

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

2 unchanged sentences

Trade accounts receivable, less allowance for doubtful

accounts of $ 330 and $ 300 at February 29, 2020

accounts of $ 399 and $ 300 at May 31, 2020

and August 31, 2019, respectively

21 unchanged sentences

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

19,812,685 and 19,773,977 shares issued at February 29, 2020 and

19,812,685 and 19,773,977 shares issued at May 31, 2020 and

August 31, 2019, respectively;

and 13,664,786 and 13,718,661 shares

outstanding at February 29, 2020 and August 31, 2019, respectively

outstanding at May 31, 2020 and August 31, 2019, respectively

Additional paid-in capital

2 unchanged sentences

Common stock held in treasury, at cost ― 6,147,899 and 6,055,316

shares at February 29, 2020 and August 31, 2019, respectively

shares at May 31, 2020 and August 31, 2019, respectively

Total shareholders'

2 unchanged sentences

WD-40 COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

CONDENSED CONSOLIDATED S TATEMENTS OF OPERATIONS

(Unaudited and in thousands, except per share amounts)

Three Months Ended February 29/28,

Six Months Ended February 29/28,

Three Months Ended May 31,

Nine Months Ended May 31,

Cost of products sold

8 unchanged sentences

Interest expense

Other (expense) income, net

Other income (expense), net

Income before income taxes

4 unchanged sentences

WD-40 COMPANY

CONDENSED CONSOLIDATED STAT EMENTS OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEM ENTS OF COMPREHENSIVE INCOME

(Unaudited and in thousands)

Three Months Ended February 29/28,

Six Months Ended February 29/28,

Three Months Ended May 31,

Nine Months Ended May 31,

Other comprehensive (loss) income:

3 unchanged sentences

WD-40 COMPANY

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS'

CONDENSED CONSOLIDATED STA TEMENT OF SHAREHOLDERS'

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

18 unchanged sentences

Balance at February 29, 2020

Stock-based compensation

Cash dividends ($ 0.67 per share)

Acquisition of treasury stock

Foreign currency translation adjustment

Balance at May 31, 2020

See accompanying notes to condensed consolidated financial statements.

22 unchanged sentences

Balance at February 28, 2019

Stock-based compensation

Cash dividends ($ 0.61 per share)

Acquisition of treasury stock

Foreign currency translation adjustment

Cumulative effect of change in accounting principle

Balance at May 31, 2019

See accompanying notes to condensed consolidated financial statements.

WD-40 COMPANY

CONDENSED CONSOLIDATE D STATEMENTS OF CASH FLOWS

CONDENSED CONSOLIDATED S TATEMENTS OF CASH FLOWS

(Unaudited and in thousands)

Six Months Ended February 29/28,

Nine Months Ended May 31,

Operating activities:

5 unchanged sentences

Stock-based compensation

Unrealized foreign currency exchange (gains) losses

Unrealized foreign currency exchange losses (gains)

Provision for bad debts

9 unchanged sentences

Proceeds from sales of property and equipment

Maturities of short-term investments

Net cash used in investing activities

5 unchanged sentences

Shares withheld to cover taxes upon conversions of equity awards

Net cash used in financing activities

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash and cash equivalents

33 unchanged sentences

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.

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.

The Company regularly monitors its foreign currency exchange rate exposures to ensure the overall effectiveness of its foreign currency hedge positions.

3 unchanged sentences

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 29, 2020, the Company had a notional amount of $ 8.0 million outstanding in foreign currency forward contracts, which will mature on March 30, 2020 .

Unrealized net gains and losses related to foreign currency forward contracts were no t significant at February 29, 2020 and February 28, 2019 .

Realized net gains and losses related to foreign currency forward contracts were no t significant for both the three months ended February 29, 2020 and February 28, 2019.

Realized net gains and losses related to foreign currency forward contracts were not significant for both the six months ended February 29, 2020 and February 28, 2019.

Both unrealized and realized net gains and losses are recorded in other income (expense), net on the Company’s consolidated statements of operations.

At May 31, 2020, the Company had a notional amount of $ 8.7 million outstanding in foreign currency forward contracts, which matured on June 29, 2020 .

Unrealized net gains and losses related to foreign currency forward contracts were no t significant at May 31, 2020 and May 31, 2019 .

Realized net gains and losses related to foreign currency forward contracts were no t significant for both the three months ended May 31, 2020 and May 31, 2019.

Realized net gains and losses related to foreign currency forward contracts were no t significant for both the nine months ended May 31, 2020 and May 31, 2019.

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

5 unchanged sentences

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 29, 2020, 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.

As of May 31, 2020, 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 and short-term borrowings are recorded at cost, which approximates their fair values, primarily due to their short-term nature.

1 unchanged sentence

The Company’s fixed rate long-term borrowings consist of senior notes which are recorded at carrying value.

The Company estimates that the fair value of its senior notes, based on Level 2 inputs, was approximately $ 20.5 million as of February 29, 2020, which was determined based on a discounted cash flow analysis using current market interest rates for instruments with similar terms, compared to its carrying value of $ 18.4 million .

During the six months ended February 29, 2020, the Company did no t record any significant nonrecurring fair value measurements for assets or liabilities in periods subsequent to their initial recognition.

The Company estimates that the fair value of its senior notes, based on Level 2 inputs, was approximately $ 20.8 million as of May 31, 2020, which was determined based on a discounted cash flow analysis using current market interest rates for instruments with similar terms, compared to its carrying value of $ 18.0 million .

During the nine months ended May 31, 2020, the Company did no t record any significant nonrecurring fair value measurements for assets or liabilities in periods subsequent to their initial recognition.

Recently Adopted Accounting Standards

10 unchanged sentences

(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 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.

and (ii) exclude leases with an initial term of 12 months or less from the consolidated balance sheets and will recognize related lease payments in the condensed consolidated statements of operations on a straight-line basis over the lease term.

The Company did not elect the hindsight practical expedient and also did not elect the package of practical expedients that would allow the Company to retain its conclusions under prior guidance for lease classification and initial direct costs for leases that commenced before the September 1, 2019 implementation date.

1 unchanged sentence

Additionally, the Company has implemented updates to its accounting policies, business processes, systems and internal controls in support of adopting this new standard.

Upon adoption on September 1, 2019, the Company’s total assets increased by $ 9.0 million and total liabilities increased by $ 9.2 million in the Company’s consolidated balance sheets.

The standard did not have a material impact on the consolidated statements of operations or cash flows.

Upon adoption on September 1, 2019, the Company’s total assets increased by $ 9.0 million and total liabilities increased by $ 9.2 million in the Company’s condensed consolidated balance sheets.

The standard did not have a material impact on the condensed consolidated statements of operations or cash flows.

Upon adoption, the cumulative effect of initially applying the guidance was insignificant and therefore no adjustment to the opening balance of retained earnings was made on September 1, 2019.

See Note 6 – Leases for additional information and incremental disclosures related to the adoption of this standard.

In March 2020, the FASB issued ASU No.

2020-04, “ Reference Rate Reform ” under ASC 848, intended to provide temporary optional expedients and exceptions to U.S.

GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates.

This guidance is effective beginning on March 12, 2020, and the Company may apply the amendments prospectively to contract modifications made or relationships entered into or evaluated through December 31, 2022.

The adoption of this guidance did not have an impact on the Company’s consolidated financial statements in the current period, but we will continue to evaluate the impacts of this guidance on future contract modifications.

Recently Issued Accounting Standards

28 unchanged sentences

Translation adjustments

Balance as of February 29, 2020

During the second quarter of fiscal year 2020, 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, 2019.

In accordance with ASC 350-20, “Goodwill”, the Company performed a quantitative assessment for each of its reporting units to determine whether the fair value of any of the reporting units were less than their carrying amounts.

The Company determined the fair value of its reporting units in the analysis by following the income approach which uses a discounted cash flow methodology.

When using the discounted cash flow methodology, the fair value of each of the reporting units is based on the present value of the estimated future cash flows of each of the respective reporting units.

The discounted cash flow methodology also requires management to make assumptions about certain key inputs in the estimated cash flows, including long-term sales forecasts or growth rates, terminal growth rates and discount rates, all of which are inherently uncertain.

The Company determined that a discount rate of 7 % and a terminal growth rate of 2 % was appropriate to use in the analysis for all of its reporting units.

The forecast of future cash flows was based on historical data and management’s best estimates of sales growth rates and operating margins for each reporting unit for the next five fiscal years.

The discount rate used was based on the current weighted-average cost of capital for the Company.

As these assumptions are largely unobservable, the estimate of fair value analysis falls within Level

3 of the fair value hierarchy.

Based on the results of the quantitative analysis, the Company determined that the estimated fair value of each of its reporting units significantly exceeded their respective carrying values.

As a result, the Company concluded that no impairment of its goodwill existed as of December 1, 2019.

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 December 1, 2019 through February 29, 2020.

Balance as of May 31, 2020

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, 2019, the date of its most recent annual goodwill impairment test, which was conducted during the second quarter of fiscal year 2020.

Based on the results of the annual goodwill impairment test, the estimated fair value of each of the Company’s reporting units exceeded their respective carrying values so significantly that an impairment charge to the Company’s goodwill balances is remote, even in the event that the impacts of the novel coronavirus (“COVID-19”) pandemic significantly lower results in future periods.

To date, there have been no impairment losses identified and recorded related to the Company’s goodwill.

While the Company believes that the estimates and assumptions used in its goodwill impairment test and analyses are reasonable, actual events and results could differ substantially from those included in the calculation.

In the event that business conditions change in the future, the Company may be required to reassess and update its forecasts and estimates used in subsequent goodwill impairment analyses.

Based on the Company’s most recent annual goodwill impairment test, the estimated fair value of each of its reporting units exceeded their respective carrying values so significantly that an impairment charge to the Company’s goodwill balances is remote, even in the event that the results used within any future analyses are significantly lower than current estimates.

Definite-lived Intangible Assets

4 unchanged sentences

Net carrying amount

There has been no impairment charge for the six months ended February 29, 2020 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.

Changes in the carrying amounts of definite-lived intangible assets by segment for the six months ended February 29, 2020 are summarized below (in thousands):

There has been no impairment charge for the nine months ended May 31, 2020 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.

Changes in the carrying amounts of definite-lived intangible assets by segment for the nine months ended May 31, 2020 are summarized below (in thousands):

Balance as of August 31, 2019

1 unchanged sentence

Translation adjustments

Balance as of February 29, 2020

Balance as of May 31, 2020

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

16 unchanged sentences

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 29, 2020, finance leases were not significant and all leases recorded on the Company’s consolidated balances sheets were operating leases.

As of May 31, 2020, 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.

2 unchanged sentences

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 no significant short-term leases as of February 29, 2020.

However, the Company had no significant short-term leases as of May 31, 2020.

Upon adoption of ASC 842 on September 1, 2019, the Company’s total assets increased by $ 9.0 million and total liabilities increased $ 9.2 million in the Company’s consolidated balance sheets.

The adoption of this standard did not have a material impact on retained earnings, the consolidated statements of operations or cash flows.

The Company obtained no significant additional right-of-use assets in exchange for lease obligations during the six months ended February 29, 2020.

The Company recorded $ 0.5 million and $ 1.0 million in lease expense during the three and six months ended February 29, 2020, respectively.

The Company obtained no significant additional right-of-use assets in exchange for lease obligations during the nine months ended May 31, 2020.

The Company recorded $ 0.5 million and $ 1.5 million in lease expense during the three and nine months ended May 31, 2020, respectively.

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 29, 2020.

During the three and six months ended February 29, 2020, the Company paid cash of $ 0.5 million and $ 1.0 million related to lease liabilities, respectively.

Variable lease expense under the Company’s lease agreements were not significant for both the

three and six months ended February 29, 2020.

As of February 29, 2020, the weighted-average remaining lease term was 7.3 years and the weighted-average discount rate was 3.2 % for the Company’s operating leases.

There were no leases that had not yet commenced as of February 29, 2020 that will create additional significant rights and obligations for the Company.

An insignificant amount of lease expense was classified within cost of products sold for both the three and nine months ended May 31, 2020.

During the three and nine months ended May 31, 2020, the Company paid cash of $ 0.5 million and $ 1.5 million related to lease liabilities, respectively.

Variable lease expense under the Company’s lease agreements were not significant for both the three and nine months ended May 31, 2020.

As of May 31, 2020, the weighted-average remaining lease term was 7.2 years and the weighted-average discount rate was 3.1 % for the Company’s operating leases.

There were no leases that had not yet commenced as of May 31, 2020 that will create additional significant rights and obligations for the Company.

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

3 unchanged sentences

Total operating lease liabilities

(1) Current operating lease liabilities are classified in accrued liabilities on the Company’s 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:

(Dollars in thousands)

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

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

Remainder of fiscal year 2020

5 unchanged sentences

Present value of lease liabilities

Future fiscal year minimum payments under non-cancelable operating leases in accordance with ASC 840 as of August 31, 2019 were as follows:

(Dollars in thousands)

Future fiscal year minimum payments under non-cancelable operating leases in accordance with ASC 840 as of August 31, 2019 were as follows (in thousands):

Fiscal year 2020

15 unchanged sentences

Accrued payroll taxes

As of February 29, 2020, the Company held borrowings under two separate agreements as detailed below.

As of May 31, 2020, the Company held borrowings under two separate agreements as detailed below.

Note Purchase and Private Shelf Agreement

1 unchanged sentence

(“Prudential”), and certain affiliates and managed accounts of Prudential (the “Note Purchasers”), pursuant to which the Company agreed to sell $ 20.0 million aggregate principal amount of senior notes (the “Series A Notes”) to certain of the Note Purchasers.

Since November 15, 2017, this note agreement has been amended once on February 23, 2018.

Since November 15, 2017, this note agreement has been amended two times, most recently on March 16, 2020 (the “Second Amendment”).

The Second Amendment amended the Note Agreement to permit the Company (inclusive of its subsidiaries) to enter into an amended and restated credit agreement with Bank of America N.A.

(“Bank of America”) .

In addition, the Second Amendment includes certain conforming amendments to the Note Agreement consistent with the Company’s credit agreement with Bank of America, including a schedule of permitted consolidated capital expenditures and related carryforward provisions for unused portions each fiscal year.

The Series A Notes bear interest at 3.39 % per annum and will mature on November 15, 2032 , unless earlier paid by the Company.

1 unchanged sentence

Interest is also payable semi-annually in May and November of each year.

During the six months ended February 29, 2020, the Company repaid $ 0.4 million in principal on the Series A Notes pursuant to its semi-annual principal payment requirements.

During the nine months ended May 31, 2020, the Company repaid $ 0.8 million in principal on the Series A Notes pursuant to its semi-annual principal payment requirements.

Pursuant to the Note Agreement, the Company may from time to time offer for sale, in one or a series of transactions, additional senior notes of the Company (the “Shelf Notes”) in an aggregate principal amount of up to $ 105.0 million.

4 unchanged sentences

Credit Agreement

On June 17, 2011, the Company entered into an unsecured Credit Agreement (the “Credit Agreement”) with Bank of America, N.A.

(“Bank of America”).

Since June 17, 2011, this unsecured credit agreement has been amended seven times, most recently on January 22, 2019, (the “Seventh Amendment”) which extended the maturity date of the revolving credit facility from May 13, 2020 to January 22, 2024 and amended the Credit Agreement to add the Company’s U.K.

subsidiary as a designated borrower and permit borrowings in both Euros and Pound Sterling.

The Seventh Amendment also reduced the revolving commitment from $ 175.0 million to $ 125.0 million until March 22, 2019 and to $ 100.0 million thereafter, as well as established a sublimit for the revolving commitment for borrowing by the Company’s U.K.

operating subsidiary in the amount of $ 50.0 million.

Per the terms of the amended agreement, the aggregate amount of the Company’s capital stock that it may repurchase may not exceed $ 150.0 million during the period from January 22, 2019 to the maturity date of the agreement so long as no default exists immediately prior and after giving effect thereto.

On March 16, 2020, the Company entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with Bank of America.

The Credit Agreement modified the Company’s previously existing agreement dated June 17, 2011 (as amended on January 7, 2013, May 13, 2015, November 16, 2015, September 1, 2016, November 15, 2017, February 23, 2018 and January 22, 2019).

The Credit Agreement increased the revolving commitment from $ 100.0 million to $ 150.0 million and increased the sublimit for the revolving commitment for borrowing by WD-40 Company Limited, a wholly owned operating subsidiary of the Company for Europe, the Middle East, Africa and India, from $ 50.0 million to $ 100.0 million.

In addition to other non-material and technical amendments, the Credit Agreement also modified certain restrictive covenants.

The Credit Agreement also includes a new schedule of permitted consolidated capital expenditures to permit the Company to make contemplated capital investments in the current and future fiscal years of up to $ 30.5 million in fiscal year 2020, $ 19.0 million in fiscal year 2021, and $ 15.0 million for fiscal years 2022, 2023, 2024 and 2025.

The Credit Agreement also increased the carryforward from one fiscal year to the next fiscal year of unused Permitted Consolidated Capital Expenditures from $ 2.5 million to $ 5.0 million.

The new maturity date for the revolving credit facility per the Credit Agreement is March 16, 2025 .

Per the terms of the Credit Agreement, the aggregate amount of the Company’s capital stock that it may repurchase may not exceed $ 150.0 million during the period from January 22, 2019 to the maturity date of the agreement so long as no default exists immediately prior and after giving effect thereto.

In addition, the Company may not declare or pay cash dividends in the current fiscal quarter that, when added to dividends paid in the prior three fiscal quarters, will exceed 75 % of the Company’s consolidated net income for the then most recently ended four quarters for which financial statements are delivered to Bank of America as required by the Credit Agreement (the “Dividend Covenant”).

The Company’s Note Agreement with Prudential also has a conforming dividend covenant with identical terms.

On April 8, 2020, the Company signed letters from Bank and America and Prudential acknowledging an agreement between the Company and both lenders to permit the Company to add back to its net income for the quarter ended August 31, 2019 a one-time, non-cash charge for an uncertain tax position associated with the Tax Cuts and Jobs Act “toll tax” in the amount of $ 8.7 million solely for the purpose of the Dividend Covenant.

The Credit Agreement also features an autoborrow agreement providing for the automatic advance of revolving loans in U.S.

Dollars to the Company’s designated account at Bank of America.

Per the terms of the amended agreement, the Company’s outstanding balance on the autoborrow agreement cannot exceed an aggregate amount of $ 30.0 million.

Per the terms of the Credit Agreement, the Company’s outstanding balance on the autoborrow agreement cannot exceed an aggregate amount of $ 30.0 million.

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 $ 15.9 million in net borrowings outstanding under the autoborrow agreement as of February 29, 2020.

The Company had no outstanding balance under the autoborrow agreement as of May 31, 2020.

The Company assesses its ability and intent to refinance the outstanding draws on the line of credit at the end of each reporting period in order to determine the proper balance sheet classification for amounts outstanding on the line of credit.

Outstanding draws on the line of credit which the Company intends to repay in less than twelve months are classified as short-term.

Outstanding draws for which management has the ability and intent to refinance with successive short-term borrowings for a period of at least twelve months are classified as long-term.

During the six months ended February 29, 2020, the Company repaid $ 5.0 million in short-term borrowings outstanding under the line of credit and drew an additional $ 10.0 million in short-term borrowings in U.S.

The Company has the ability to refinance any draw under the line of credit with successive short-term borrowings through the March 16, 2025 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.

During the nine months ended May 31, 2020, the Company repaid $ 5.0 million in short-term borrowings outstanding under the line of credit and drew an additional $ 90.0 million in U.S.

Dollars, which included an $ 80.0 million draw in U.S.

Dollars in March 2020 in response to the COVID-19 pandemic.

Although the Company does not have any presently anticipated need for this additional liquidity, the Company decided to draw this additional amount to ensure future liquidity given the recent significant impact on global financial markets and the economy as a result of the COVID-19 pandemic.

The Company maintains a balance of outstanding draws in U.S.

2 unchanged sentences

Dollars from period to period due to changes in foreign currency exchange rates.

As of February 29, 2020, the Company had a balance of $ 68.5 million of outstanding draws on the line of credit.

Based on the Company’s ability and intent assessment, $ 43.5 million of this $ 68.5 million was classified as long-term and the remaining $ 25.0 million as short-term as of February 29, 2020.

As of May 31, 2020, the Company had a balance of $ 147.4 million of outstanding draws on the line of credit.

Based on the Company’s ability and intent assessment, $ 77.4 million of this $ 147.4 million was classified as long-term and the remaining $ 70.0 million as short-term as of May 31, 2020.

Short-term and long-term borrowings consisted of the following (in thousands):

19 unchanged sentences

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 29, 2020, the Company was in compliance with all debt covenants under both the Note Agreement and the Credit Agreement.

On March 16, 2020, the Company amended and restated the existing Credit Agreement and entered into a second amendment to the Note Agreement.

See Note 16 – Subsequent Events for additional information on these agreements.

As of May 31, 2020, the Company was in compliance with all debt covenants under both the Note Agreement and the Credit Agreement.

Share Repurchase Plan

2 unchanged sentences

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, 2018 through February 29, 2020, the Company repurchased 227,529 shares at a total cost of $ 39.3 million under this $ 75.0 million plan.

During the six months ended February 29, 2020, the Company repurchased 51,574 shares at an average price of $ 187.24 per share, for a total cost of $ 9.7 million under this $ 75.0 million plan.

During the period from September 1, 2018 through May 31, 2020, the Company repurchased 268,538 shares at a total cost of $ 46.4 million under this $ 75.0 million plan.

During the nine months ended May 31, 2020, the Company repurchased 92,583 shares at an average price of $ 181.71 per share, for a total cost of $ 16.8 million under this $ 75.0 million plan.

On April 8, 2020, the Company elected to temporarily suspend repurchases under its current share buy-back plan.

The Company has elected this suspension in order to preserve cash while it monitors the impacts of the COVID-19 pandemic as it continues to unfold.

Earnings per Common Share

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

Three Months Ended February 29/28,

Six Months Ended February 29/28,

Three Months Ended May 31,

Nine Months Ended May 31,

Net income allocated to

2 unchanged sentences

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 29/28,

Six Months Ended February 29/28,

Three Months Ended May 31,

Nine Months Ended May 31,

Weighted-average common

3 unchanged sentences

shares outstanding, diluted

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

There were no anti-dilutive stock-based equity awards outstanding for the three months ended February 28, 2019.

For the six months ended February 29, 2020 and February 28, 2019, weighted-average stock-based equity awards outstanding that are non-participating securities in the amount of 7,604 and 2,164 , respectively, were excluded from the calculation of diluted EPS under the treasury stock method as they were anti-dilutive.

For the three months ended May 31, 2020, weighted-average stock-based equity awards outstanding that are non-participating securities in the amount of 9,479 were excluded from the calculation of diluted EPS under the treasury stock method as they were anti-dilutive.

There were no anti-dilutive stock-based equity awards outstanding for the three months ended May 31, 2019.

For the nine months ended May 31, 2020 and May 31, 2019, weighted-average stock-based equity awards outstanding that are non-participating securities in the amount of 8,229 and 1,443 , respectively, were excluded from the calculation of diluted EPS under the treasury stock method as they were anti-dilutive.

Revenue Recognition

18 unchanged sentences

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’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.

4 unchanged sentences

The Company reviews its assumptions and adjusts these estimates accordingly on a quarterly basis.

Rebates — The Company offers various on-going trade promotion programs with customers that require management to estimate and accrue for the expected costs of such programs.

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.

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.

As of February 29, 2020 and August 31, 2019, the Company had a $ 6.9 million and $ 7.5 million balance in rebate liabilities, respectively, included in accrued liabilities on the Company ’ s condensed consolidated balance sheets.

The Company recorded approximately $ 4.4 million and $ 9.4 million in rebates as a reduction to sales during the three and six months ended February 29, 2020, respectively.

Rebates as a reduction to sales during the three and six months ended February 28, 2019 were approximately $ 4.5 million and $ 8.8 million, respectively.

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.

As of May 31, 2020 and August 31, 2019, the Company had a $ 6.6 million and $ 7.5 million balance in rebate/other discounts liabilities, respectively, included in accrued liabilities on the Company ’ s condensed consolidated balance sheets.

The Company recorded approximately $ 5.2 million and $ 14.6 million in rebates/other discounts as a reduction to sales during the three and nine months ended May 31, 2020, respectively.

Rebates/other discounts as a reduction to sales during the three and nine months ended May 31, 2019 were approximately $ 4.6 million and $ 13.4 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 29, 2020 and August 31, 2019.

Coupons recorded as a reduction to sales during the three and six months ended February 29, 2020 and February 28, 2019, respectively, were also not significant.

Coupon redemption liabilities, which are included in accrued liabilities on the Company ’ s condensed consolidated balance sheets, were not significant at May 31, 2020 and August 31, 2019.

Coupons recorded as a reduction to sales during the three and nine months ended May 31, 2020 and May 31, 2019, respectively, were also not significant.

Cash discounts — The Company offers certain of its customers a cash discount program to incentivize them to pay the invoice earlier than the normal payment date on the invoice.

Although payment terms vary, most customers typically pay within 30 to 90 days of invoicing.

As of February 29, 2020, the Company did not have a significant balance in the allowance for cash discounts.

As of August 31, 2019, the Company had a $ 0.5 million balance in the allowance for cash discounts.

The Company recorded approximately $ 1.0 million and $ 2.0 million in cash discounts as a reduction to sales during the three and six months ended February 29, 2020, respectively.

Cash discounts as a reduction to sales during the three and six months ended February 28, 2019 were approximately $ 1.0 million and $ 2.0 million, respectively.

The Company had a $ 0.5 million balance in the allowance for cash discounts at both May 31, 2020 and August 31, 2019.

The Company recorded approximately $ 1.1 million and $ 3.1 million in cash discounts as a reduction to sales during the three and nine months ended May 31, 2020, respectively.

Cash discounts as a reduction to sales during the three and nine months ended May 31, 2019 were approximately $ 1.2 million and $ 3.2 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.

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Under the current revenue accounting standard, ASC 606, the Company is required to present its provision for sales returns on a gross basis as a liability.

The Company ’ s refund liability for sales returns, which is included in accrued liabilities and represents the amount expected to be owed to the customers for product returns, was not significant at both February 29, 2020 and August 31, 2019.

The Company now 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 29, 2020.

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 May 31, 2020.

Disaggregation of Revenue

The Company's revenue is presented on a disaggregated basis in Note 15 – 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.

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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 $ 1.8 million as of February 29, 2020.

The Company had contract liabilities of $ 0.7 million as of May 31, 2020.

Contract liabilities were not significant as of August 31, 2019.

Contract liabilities are recorded in accrued liabilities on the Company ’ s condensed consolidated balance sheets.

The Company did no t have any contract assets as of February 29, 2020 and August 31, 2019.

Related Parties

On October 11, 2011, the Company’s Board of Directors elected Mr.

Sandfort as a director of WD-40 Company.

Sandfort was 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, until January 13, 2020 when he retired as Chief Executive Officer .

Sandfort served as an executive officer of Tractor Supply during the Company’s second quarter of fiscal year 2020, Tractor Supply is treated as a related party to the Company through January 13, 2020.

The condensed consolidated financial statements include sales to Tractor Supply of $ 0.4 million and $ 0.3 million for the three months ended February 29, 2020 and February 28, 2019, respectively, and $ 0.9 million and $ 0.7 million for the six months ended February 29, 2020 and February 28, 2019, respectively.

Accounts receivable from Tractor Supply were not significant at both February 29, 2020 and August 31, 2019.

The Company did no t have any contract assets as of May 31, 2020 and August 31, 2019.

Commitments and Contingencies

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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 29, 2020, no such commitments were outstanding.

As of May 31, 2020, no such commitments were outstanding.

From time to time, the Company is subject to various claims, law suits, 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 29, 2020, there were

no unasserted claims or pending proceedings for claims against the Company that the Company believes will result in a probable loss for the Company and, as to claims that the Company believes may result in a reasonably possible loss, the Company believes that no reasonably possible outcome of any such claim will have a materially adverse impact on the Company’s financial condition , results of operations or cash flows.

As of May 31, 2020, there were no unasserted claims or pending proceedings for claims against the Company that the Company believes will result in a probable loss for the Company and, as to claims that the Company believes may result in a reasonably possible loss, the Company believes that no reasonably possible outcome of any such claim will have a materially adverse impact on the Company’s financial condition , results of operations or cash flows.

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, 2019, which was filed with the SEC on October 22, 2019.

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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 February 29, 2020 .

Thus, no liabilities have been recorded for these agreements as of May 31, 2020 .

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 February 29, 2020 .

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 May 31, 2020 .

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 17.6 % and 18.7 % of income before income taxes for the three months ended February 29, 2020 and February 28, 2019, respectively.

The decrease in the effective income tax rate from period to period was primarily due to an increase in excess tax benefits from settlements of stock-based equity awards during the quarter that are recognized in the provision for income tax, as well as an increase of taxable earnings from foreign operations which are taxed at lower tax rates.

The provision for income taxes was 16.3 % and 18.2 % of income before income taxes for the six months ended February 29, 2020 and February 28, 2019, respectively.

The decrease in the effective income tax rate from period to period was primarily due to an increase in excess tax benefits from settlements of stock-based equity awards during the second quarter that are recognized in the provision for income tax, an increase of taxable earnings from foreign operations which are taxed at lower tax rates, and a benefit from the release of liabilities associated with unrecognized tax benefits that resulted from the expiration of statutes.

The provision for income taxes was 23.9 % and 19.8 % of income before income taxes for the three months ended May 31, 2020 and May 31, 2019, respectively.

The increase in the effective income tax rate from period to period was primarily due to a decrease in earnings from foreign operations resulting in a decrease in the net benefit received from the application of the GILTI / FDII calculation.

The provision for income taxes was 19.1 % and 18.8 % of income before income taxes for the nine months ended May 31, 2020 and May 31, 2019, respectively.

The increase in the effective income tax rate from period to period was primarily due to a decrease in the net benefit received from the application of GILTI / FDII calculation, partially offset by an increase in excess tax benefits from settlements of stock-based equity awards during the first six months of fiscal year 2020 that are recognized in the provision for income tax.

The Company is subject to taxation in the U.S.

and in various state and foreign jurisdictions.

The Company is currently under examination by various state taxing authorities.

Due to expired statutes, the Company’s federal income tax returns for years prior to fiscal year 2017 are not subject to examination by the U.S.

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Corporate (1)

February 29, 2020:

May 31, 2020:

Income from operations

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Interest expense

February 28, 2019:

May 31, 2019:

Income from operations

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Interest expense

Six Months Ended:

February 29, 2020:

Nine Months Ended:

May 31, 2020:

Income from operations

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Interest expense

February 28, 2019:

May 31, 2019:

Income from operations

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

Three Months Ended February 29/28,

Six Months Ended February 29/28,

Three Months Ended May 31,

Nine Months Ended May 31,

Maintenance products

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Subsequent Events

On March 17, 2020 , the Company’s Board of Directors declared a cash dividend of $ 0.67 per share payable on April 30, 2020 to shareholders of record on April 17 , 2020 .

On March 16, 2020, the Company entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) with Bank of America.

The Amended and Restated Credit Agreement modifies the Company’s existing Credit Agreement dated June 17, 2011 with Bank of America.

The Amended and Restated Credit Agreement increased the revolving commitment from $ 100.0 million to $ 150.0 million and increased the sublimit for the revolving commitment for borrowing by WD-40 Company Limited, a wholly owned operating subsidiary of the Company for Europe, the Middle East, Africa and India, from $ 50.0 million to $ 100.0 million.

In addition to other non-material and technical amendments to the Credit Agreement, the Amended and Restated Credit Agreement modified certain restrictive covenants.

An exception to a prohibition on Investments has been added to allow for intercompany loans or advances from any Loan Party to Subsidiaries which are not Loan Parties in an aggregate amount of up to $ 5.0 million outstanding at any time.

In addition, an exception for other investments not otherwise covered by an exception has been increased from $ 2.5 to $ 5.0 million.

The Amended and Restated Credit Agreement also includes a new schedule of permitted consolidated capital expenditures to permit the Company to make contemplated capital investments in the current and future fiscal years of up to $ 30.5 million in fiscal year 2020, $ 19.0 million in fiscal year 2021, and $ 15.0 million for fiscal years 2022, 2023, 2024 and 2025.

The Amended and Restated Credit Agreement increases the carryforward from one fiscal year to the next fiscal year of unused Permitted Consolidated Capital Expenditures from $ 2.5 million to $ 5.0 million.

The new maturity date for the revolving credit facility per the Amended and Restated Credit Agreement is March 16, 2025.

On March 16, 2020, the Company also entered into a second amendment (the “Second Amendment”) to its existing Note Agreement dated November 15, 2017 by and among the Company, Prudential and Note Purchasers.

The Second Amendment amended the Note Agreement to permit the Company (inclusive of its subsidiaries) to enter into the Amended and Restated Credit Agreement with Bank of America and the Second Amendment includes certain conforming amendments to the Note Agreement consistent with the Amended and Restated Credit Agreement, including a schedule of permitted consolidated capital expenditures and related carryforward provisions for unused portions each fiscal year.

The material terms of the Amended and Restated Credit Agreement and the Second Amendment discussed above do not purport to be complete and are qualified in their entirety by reference to Exhibit 10(b) and Exhibit 10(c), respectively, included in Part II—Item 6, “Exhibits” and incorporated by reference in this report, and by reference to Exhibits 10(d) and 10(e), respectively included in Part II – Item 6.

See Note 8 – Debt for additional information on the Company’s existing debt agreements and related financial covenants as of February 29, 2020.

During the week of March 23, 2020, the Company drew an additional $ 80.0 million in U.S.

Dollars under its line of credit with Bank of America bringing the balance on the line of credit to approximately $ 149.0 million.

As a result of this additional borrowing, the Company has now drawn almost the entirety of the $ 150.0 million available under the Credit Agreement.

Due to the speed with which the COVID-19 situation

is developing, the Company is not able at this time to estimate the impact of COVID-19 on its consolidated financial statements and related disclosures, but the impact could be material for the remainder of fiscal year 2020 in all business segments and could be material during any future period affected either directly or indirectly by this pandemic.

On June 16, 2020 , the Company’s Board of Directors declared a cash dividend of $ 0.67 per share payable on July 31, 2020 to shareholders of record on July 17 , 2020 .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements