WD 40 CO 10-Q

Item 1. Financial Statements WD-40 COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited and in thousands, except share and per share amounts) November 30, August 31, 2021 2021 Assets Current assets: Cash and cash equivalents $ 59,519 $ 85,961 Trade and other accounts receivable, less allowance for doubtful accounts of $ 451 and $ 463 at November 30, 2021 and August 31, 2021, respectively 95,542 89,558 Inventories 67,875 55,752 Other current assets 10,392 9,948 Total current assets 233,328 241,219 Property and equipment, net 68,980 70,145 Goodwill 95,723 95,869 Other intangible assets, net 6,828 7,244 Operating lease right-of-use assets 8,528 8,824 Deferred tax assets, net 840 858 Other assets 7,212 6,044 Total assets $ 421,439 $ 430,203 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 35,303 $ 33,499 Accrued liabilities 26,214 25,658 Accrued payroll and related expenses 18,096 25,662 Short-term borrowings 800 800 Income taxes payable 645 317 Total current liabilities 81,058 85,936 Long-term borrowings 112,729 114,940 Deferred tax liabilities, net 11,066 10,401 Long-term operating lease liabilities 6,722 7,062 Other long-term liabilities 11,466 11,482 Total liabilities 223,041 229,821 Commitments and Contingencies (Note 11) Shareholders' equity: Common stock ― authorized 36,000,000 shares, $ 0.001 par value; 19,886,937 and 19,856,865 shares issued at November 30, 2021 and August 31, 2021, respectively; and 13,707,038 and 13,708,966 shares outstanding at November 30, 2021 and August 31, 2021, respectively 20 20 Additional paid-in capital 162,382 163,737 Retained earnings 439,385 430,735 Accumulated other comprehensive loss ( 27,923 ) ( 26,030 ) Common stock held in treasury, at cost ― 6,179,899 and 6,147,899 shares at November 30, 2021 and August 31, 2021, respectively ( 375,466 ) ( 368,080 ) Total shareholders' equity 198,398 200,382 Total liabilities and shareholders' equity $ 421,439 $ 430,203 See accompanying notes to condensed consolidated financial statements. 3 WD-40 COMPANY CONDENSED CONSOLIDATED S TATEMENTS OF OPERATIONS (Unaudited and in thousands, except per share amounts) Three Months Ended November 30, 2021 2020 Net sales $ 134,746 $ 124,559 Cost of products sold 66,276 54,313 Gross profit 68,470 70,246 Operating expenses: Selling, general and administrative 38,423 35,977 Advertising and sales promotion 5,624 5,519 Amortization of definite-lived intangible assets 363 358 Total operating expenses 44,410 41,854 Income from operations 24,060 28,392 Other income (expense): Interest income 25 19 Interest expense ( 620 ) ( 570 ) Other income (expense), net ( 329 ) 179 Income before income taxes 23,136 28,020 Provision for income taxes 4,581 4,397 Net income $ 18,555 $ 23,623 Earnings per common share: Basic $ 1.35 $ 1.72 Diluted $ 1.34 $ 1.72 Shares used in per share calculations: Basic 13,716 13,675 Diluted 13,752 13,706 See accompanying notes to condensed consolidated financial statements. ‎ 4 WD-40 COMPANY CONDENSED CONSOLIDATED STATE MENTS OF COMPREHENSIVE INCOME (Unaudited and in thousands) Three Months Ended November 30, 2021 2020 Net income $ 18,555 $ 23,623 Other comprehensive income (loss): Foreign currency translation adjustment ( 1,893 ) 588 Total comprehensive income $ 16,662 $ 24,211 See accompanying notes to condensed consolidated financial statements. 5 WD-40 COMPANY CONDENSED CONSOLIDATED STATEM ENTS OF SHAREHOLDERS' EQUITY (Unaudited and in thousands, except share and per share amounts) Accumulated Additional Other Total Common Stock Paid-in Retained Comprehensive Treasury Stock Shareholders' Shares Amount Capital Earnings Income (Loss) Shares Amount Equity Balance at August 31, 2021 19,856,865 $ 20 $ 163,737 $ 430,735 $ ( 26,030 ) 6,147,899 $ ( 368,080 ) $ 200,382 Issuance of common stock under share-based compensation plan, net of shares withheld for taxes 30,072 - ( 4,246 ) ( 4,246 ) Stock-based compensation 2,891 2,891 Cash dividends ($ 0.72 per share) ( 9,905 ) ( 9,905 ) Acquisition of treasury stock 32,000 ( 7,386 ) ( 7,386 ) Foreign currency translation adjustment ( 1,893 ) ( 1,893 ) Cumulative effect of change in accounting principle - Net income 18,555 18,555 Balance at November 30, 2021 19,886,937 $ 20 $ 162,382 $ 439,385 $ ( 27,923 ) 6,179,899 $ ( 375,466 ) $ 198,398 Accumulated Additional Other Total Common Stock Paid-in Retained Comprehensive Treasury Stock Shareholders' Shares Amount Capital Earnings Income (Loss) Shares Amount Equity Balance at August 31, 2020 19,812,685 $ 20 $ 157,850 $ 398,731 $ ( 28,208 ) 6,147,899 $ ( 368,080 ) $ 160,313 Issuance of common stock under share-based compensation plan, net of shares withheld for taxes 23,417 - ( 3,490 ) ( 3,490 ) Stock-based compensation 2,665 2,665 Cash dividends ($ 0.67 per share) ( 9,199 ) ( 9,199 ) Foreign currency translation adjustment 588 588 Net income 23,623 23,623 Balance at November 30, 2020 19,836,102 $ 20 $ 157,025 $ 413,155 $ ( 27,620 ) 6,147,899 $ ( 368,080 ) $ 174,500 See accompanying notes to condensed consolidated financial statements. 6 WD-40 COMPANY CONDENSED CONSOLIDATED STAT EMENTS OF CASH FLOWS (Unaudited and in thousands) Three Months Ended November 30, 2021 2020 Operating activities: Net income $ 18,555 $ 23,623 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,987 1,700 Net losses (gains) on sales and disposals of property and equipment 9 ( 55 ) Deferred income taxes 738 236 Stock-based compensation 2,891 2,665 Unrealized foreign currency exchange losses 541 52 Provision for bad debts 30 124 Changes in assets and liabilities: Trade and other accounts receivable ( 7,980 ) ( 9,936 ) Inventories ( 13,054 ) ( 345 ) Other assets ( 1,793 ) ( 1,304 ) Operating lease assets and liabilities, net 2 6 Accounts payable and accrued liabilities 4,126 4,590 Accrued payroll and related expenses ( 7,324 ) 624 Other long-term liabilities and income taxes payable 325 1,941 Net cash (used in) provided by operating activities ( 947 ) 23,921 Investing activities: Purchases of property and equipment ( 2,434 ) ( 3,812 ) Proceeds from sales of property and equipment 72 142 Net cash used in investing activities ( 2,362 ) ( 3,670 ) Financing activities: Treasury stock purchases ( 7,386 ) - Dividends paid ( 9,905 ) ( 9,199 ) Proceeds from issuance of long-term senior notes - 52,000 Repayments of long-term senior notes ( 400 ) ( 400 ) Net repayments of revolving credit facility - ( 50,000 ) Shares withheld to cover taxes upon conversions of equity awards ( 4,246 ) ( 3,490 ) Net cash used in financing activities ( 21,937 ) ( 11,089 ) Effect of exchange rate changes on cash and cash equivalents ( 1,196 ) 220 Net (decrease) increase in cash and cash equivalents ( 26,442 ) 9,382 Cash and cash equivalents at beginning of period 85,961 56,462 Cash and cash equivalents at end of period $ 59,519 $ 65,844 Supplemental disclosure of noncash investing activities: Accrued capital expenditures $ 294 $ 1,274 See accompanying notes to condensed consolidated financial statements. ‎ 7 WD-40 COMPANY NOTES TO CONDENSED CONSOL IDATED FINANCIAL STATEMENTS (Unaudited) Note 1. The Company WD-40 Company (the “Company”), based in San Diego, California, is a global marketing organization dedicated to creating positive lasting memories by developing and selling products that solve problems in workshops, factories and homes around the world. The Company markets a wide range of maintenance products and 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 products are sold in various locations around the world. Maintenance products are sold worldwide in markets throughout North, Central and South America, Asia, Australia, Europe, the Middle East and Africa. Homecare and cleaning products are sold primarily in North America, the United Kingdom (“U.K.”) and Australia. The Company’s products are sold primarily through warehouse club stores, hardware stores, automotive parts outlets, industrial distributors and suppliers, mass retail and home center stores, value retailers, grocery stores, online retailers, farm supply, sport retailers, and independent bike dealers. Note 2. Basis of Presentation and Summary of Significant Accounting Policies Basis of Consolidation The condensed consolidated financial statements included herein have been prepared by the Company, without audit, according to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The August 31, 2021 year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. In the opinion of management, the unaudited financial information for the interim periods shown reflects all adjustments necessary for a fair statement thereof and such adjustments are of a normal recurring nature. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31 , 2021, which was filed with the SEC on October 22, 2021. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year. COVID-19 Considerations The COVID-19 pandemic has adversely impacted global economic conditions and has contributed to significant volatility in financial markets beginning in early calendar year 2020, as described in the “ Impact of COVID-19 on Our Business ” section included in Part I – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Although the Company’s estimates consider current conditions, the inputs into certain of the Company’s significant and critical accounting estimates include judgments and assumptions about the economic implications of the COVID-19 pandemic and how management expects them to change in the future, as appropriate. It is reasonably possible that actual 8 results experienced may differ materially from the Company’s estimates in future periods, which could materially affect our results of operations and financial condition. Foreign Currency Forward Contracts In the normal course of business, the Company employs established policies and procedures to manage its exposure to fluctuations in foreign currency exchange rates. The Company utilizes foreign currency forward contracts to limit its exposure to net asset balances held in non-functional currencies, primarily at its U.K. subsidiary. The Company regularly monitors its foreign currency exchange rate exposures to ensure the overall effectiveness of its foreign currency hedge positions. While the Company engages in foreign currency hedging activity to reduce its risk, for accounting purposes, none of its foreign currency forward contracts are designated as hedges . Foreign currency forward contracts are carried at fair value, with net realized and unrealized gains and losses recognized in other income (expense), net 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 November 30, 2021, the Company had a notional amount of $ 1.5 million outstanding in foreign currency forward contracts, which will mature on January 28, 2022 . Unrealized net gains and losses related to foreign currency forward contracts were no t significant at November 30, 2021 and August 31, 2021 . Realized net gains and losses related to foreign currency forward contracts were no t significant for both the three months ended November 30, 2021 and 2020. Both unrealized and realized net gains and losses are recorded in other income (expense), net on the Company’s condensed consolidated statements of operations. Fair Value of Financial Instruments Accounting Standards Codification (“ASC”) 820, “ Fair Value Measurements and Disclosures” , defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company categorizes its financial assets and liabilities measured at fair value into a hierarchy that categorizes fair value measurements into the following three levels based on the types of inputs used in measuring their fair value: Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities; Level 2: Observable market-based inputs or observable inputs that are corroborated by market data; and Level 3: Unobservable inputs reflecting the Company’s own assumptions. Under fair value accounting, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. As of November 30, 2021, 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. In addition, the carrying value of borrowings held under the Company’s revolving credit facility approximates fair value, based on Level 2 inputs, due to the variable nature of underlying interest rates, which generally reflect market conditions. The Company’s fixed rate long-term borrowings consist of senior notes and are recorded at carrying value. The Company estimates that the fair value of its senior notes, based on Level 2 inputs, was approximately $ 66.3 million as of November 30, 2021, which was determined based on a discounted cash flow analysis using current market interest rates for instruments with similar terms, compared to their carrying value of $ 68.8 million . During the three months ended November 30, 2021, the Company did no t record any significant nonrecurring fair value measurements for assets or liabilities in periods subsequent to their initial recognition. ‎ 9 Recently Adopted Accounting Standards In December 2019, the FASB issued ASU No. 2019-12, “ Simplifying the Accounting for Income Taxes ” under ASC 740, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and amended existing guidance to improve consistent application. This guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year. The Company adopted this new guidance on September 1, 2021 , and the adoption of this guidance did not have a material impact on its consolidated financial statements and related disclosures. Note 3. Inventories Inventories consist primarily of raw materials and components, finished goods, and product held at third-party contract manufacturers. Inventories are stated at the lower of cost or net realizable value and cost is determined based on a first-in, first-out method or, for a portion of raw materials inventory, the average cost method. Inventories consisted of the following (in thousands): November 30, August 31, 2021 2021 Product held at third-party contract manufacturers $ 9,727 $ 9,036 Raw materials and components 10,195 8,981 Work-in-process 1,778 802 Finished goods 46,175 36,933 Total $ 67,875 $ 55,752 Note 4. Property and Equipment Property and equipment, net, consisted of the following (in thousands): November 30, August 31, 2021 2021 Machinery, equipment and vehicles $ 35,893 $ 22,504 Buildings and improvements 29,560 29,697 Computer and office equipment 6,121 5,742 Software 10,532 10,559 Furniture and fixtures 2,843 2,794 Capital in progress 17,316 31,016 Land 4,371 4,406 Subtotal 106,636 106,718 Less: accumulated depreciation and amortization ( 37,656 ) ( 36,573 ) Total $ 68,980 $ 70,145 At August 31, 2021, capital in progress on the balance sheet included $ 30.3 million associated with capital costs related to proprietary machinery and equipment for the Company’s next generation of delivery systems for its WD-40 Smart Straw ® products. During the three months ended November 30, 2021, $ 13.5 million of this machinery and equipment was placed in service and thus the Company reclassified these amounts from capital in progress to machinery, equipment and vehicles. ‎ 10 Note 5. Goodwill and Other Intangible Assets Goodwill The following table summarizes the changes in the carrying amounts of goodwill by segment (in thousands): Americas EMEA Asia-Pacific Total Balance as of August 31, 2021 $ 85,476 $ 9,184 $ 1,209 $ 95,869 Translation adjustments ( 15 ) ( 131 ) - ( 146 ) Balance as of November 30, 2021 $ 85,461 $ 9,053 $ 1,209 $ 95,723 There were no indicators of impairment identified as a result of the Company’s review of events and circumstances related to its goodwill subsequent to December 1, 2020, the date of its most recent annual goodwill impairment test, which was conducted during the second quarter of fiscal year 2021. 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. The Company’s review of events and circumstances included consideration of the ongoing COVID-19 pandemic. 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 Spot Shot, Carpet Fresh, 1001, EZ REACH and GT85 trade names, are included in other intangible assets, net in the Company’s condensed consolidated balance sheets. The following table summarizes the definite-lived intangible assets and the related accumulated amortization (in thousands): November 30, August 31, 2021 2021 Gross carrying amount $ 36,342 $ 36,657 Accumulated amortization ( 29,514 ) ( 29,413 ) Net carrying amount $ 6,828 $ 7,244 There has been no impairment charge for the three months ended November 30, 2021 and there were no indicators of impairment identified as a result of the Company’s review of events and circumstances related to its existing definite-lived intangible assets. The Company’s review of events and circumstances included consideration of the ongoing COVID-19 pandemic. Changes in the carrying amounts of definite-lived intangible assets by segment for the three months ended November 30, 2021 are summarized below (in thousands): Americas EMEA Asia-Pacific Total Balance as of August 31, 2021 $ 5,495 $ 1,749 $ - $ 7,244 Amortization expense ( 264 ) ( 99 ) - ( 363 ) Translation adjustments - ( 53 ) - ( 53 ) Balance as of November 30, 2021 $ 5,231 $ 1,597 $ - $ 6,828 The estimated amortization expense for the Company’s definite-lived intangible assets is not significant in any future individual fiscal year. ‎ 11 Note 6. Accrued and Other Liabilities Accrued liabilities consisted of the following (in thousands): November 30, August 31, 2021 2021 Accrued advertising and sales promotion expenses $ 11,601 $ 11,796 Accrued professional services fees 2,051 2,122 Accrued sales taxes and other taxes 2,135 1,708 Deferred revenue 5,015 3,696 Short-term operating lease liability 1,929 1,903 Other 3,483 4,433 Total $ 26,214 $ 25,658 Accrued payroll and related expenses consisted of the following (in thousands): November 30, August 31, 2021 2021 Accrued incentive compensation $ 3,777 $ 14,068 Accrued payroll 4,331 4,746 Accrued profit sharing 4,131 3,273 Accrued payroll taxes 5,157 2,952 Other 700 623 Total $ 18,096 $ 25,662 Note 7. Debt As of November 30, 2021, the Company held borrowings under two separate agreements as detailed below. Note Purchase and Private Shelf Agreement The Company holds borrowings under its Note Purchase and Private Shelf Agreement (the “Note Agreement”) by and among the Company, PGIM, Inc. (“Prudential”), and certain affiliates and managed accounts of Prudential (the “Note Purchasers”). As of November 30, 2021, the Company had outstanding balances on its series A, B and C notes issued under this Note Agreement. Credit Agreement The Company’s Amended and Restated Credit Agreement (the “Credit Agreement”) with Bank of America consists of a revolving commitment for borrowing by the Company up to $ 150.0 million with a sublimit of $ 100.0 million for WD-40 Company Limited, a wholly owned operating subsidiary of the Company for Europe, the Middle East, Africa and India. The Credit Agreement currently has a maturity date of September 30, 2025 . On November 29, 2021, the Company entered into its most recent amendment to the Credit Agreement (the “LIBOR Amendment”) with Bank of America. The LIBOR Amendment changed the Company’s index rates under the Credit Agreement for British Pound Sterling and U.S. Dollar borrowings from the London Interbank Offered Rate as administered by ICE Benchmark Administration to the Sterling Overnight Index Average Reference Rate and the Bloomberg Short-term Bank Yield Index rate, respectively, as well as certain definitions and clarifications within the Credit Agreement to accommodate the change in index rates. The impact of the LIBOR amendment was insignificant to the Company’s consolidated financial statements. 12 Short-term and long-term borrowings under the Company’s Credit Agreement and Note Agreement consisted of the following (in thousands): Maturities November 30, August 31, Issuance (calendar year) 2021 2021 Credit Agreement - revolving credit facility (1) Various 9/30/2025 $ 44,729 $ 46,540 Note Agreement Series A Notes - 3.39 % fixed rate (2) 11/15/2017 2021 - 2032 16,800 17,200 Series B Notes - 2.50 % fixed rate (3) 9/30/2020 11/15/2027 26,000 26,000 Series C Notes - 2.69 % fixed rate (3) 9/30/2020 11/15/2030 26,000 26,000 Total borrowings 113,529 115,740 Short-term portion of borrowings ( 800 ) ( 800 ) Total long-term borrowings $ 112,729 $ 114,940 (1) The Company has the ability to refinance any draw under the line of credit with successive short-term borrowings through the maturity date. Outstanding draws for which management has both the ability and intent to refinance with successive short-term borrowings for a period of at least twelve months are classified as long-term. As of November 30, 2021, the entire balance on this facility is classified as long-term and only contains amounts denominated in Euros and Pound Sterling. Euro and Pound Sterling denominated draws will fluctuate in U.S. Dollars from period to period due to changes in foreign currency exchange rates. (2) Principal payments are required semi-annually in May and November of each year in equal installments of $ 0.4 million through May 15, 2032 . The remaining outstanding principal in the amount of $ 8.4 million will become due on November 15, 2032 . (3) Interest on notes is payable semi-annually in May and November of each year with no principal due until the maturity date. Both the Note Agreement and the Credit Agreement contain representations, warranties, events of default and remedies, as well as affirmative, negative and other financial covenants customary for these types of agreements. These covenants include, among other things, certain limitations on the ability of the Company and its subsidiaries to incur indebtedness, create liens, dispose of assets, make investments, declare, make or incur obligations to make certain restricted payments, including the payment of dividends and payments for the repurchase of the Company’s capital stock and enter into certain merger or consolidation transactions. The Credit Agreement includes, among other limitations on indebtedness, a $ 125.0 million limit on other unsecured indebtedness. Each agreement also includes a most favored lender provision which requires that any time any other lender has the benefit of one or more financial or operational covenants that is different than, or similar to, but more restrictive than those contained in its own agreement, those covenants shall be immediately and automatically incorporated by reference to the other lender’s agreement. Both the Note Agreement and the Credit Agreement require the Company to adhere to the same financial covenants. For the financial covenants, the definition of consolidated EBITDA includes the add back of non-cash stock-based compensation to consolidated net income when arriving at consolidated EBITDA. The terms of the financial covenants are as follows:  The consolidated leverage ratio cannot be greater than three and a half to one. The consolidated leverage ratio means, as of any date of determination, the ratio of (a) consolidated funded indebtedness as of such date to (b) consolidated EBITDA for the most recently completed four fiscal quarters.  The consolidated interest coverage ratio cannot be less than 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 As of November 30, 2021, the Company was in compliance with all debt covenants under both the Note Agreement and the Credit Agreement. ‎ 13 Note 8. Share Repurchase Plan On October 12, 2021, the Company’s Board of Directors approved a new share buy-back plan. Under the plan, which became effective on November 1, 2021, the Company is authorized to acquire up to $ 75.0 million of its outstanding shares through August 31, 2023. 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, subject to present loan covenants and in compliance with all laws and regulations applicable thereto. During the period from November 1, 2021 through November 30, 2021, the Company repurchased 32,000 shares at an average price of $ 230.79 per share, for a total cost of $ 7.4 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): Three Months Ended November 30, 2021 2020 Net income $ 18,555 $ 23,623 Less: Net income allocated to participating securities ( 64 ) ( 110 ) Net income available to common shareholders $ 18,491 $ 23,513 The table below summarizes the weighted-average number of common shares outstanding included in the calculation of basic and diluted EPS (in thousands): Three Months Ended November 30, 2021 2020 Weighted-average common shares outstanding, basic 13,716 13,675 Weighted-average dilutive securities 36 31 Weighted-average common shares outstanding, diluted 13,752 13,706 For the three months ended November 30, 2021, weighted-average stock-based equity awards outstanding that are non-participating securities in the amount of 5,145 were excluded from the calculation of diluted EPS under the treasury stock method as they were anti-dilutive . For the three months ended November 30, 2020, there were no anti-dilutive stock-based equity awards outstanding. ‎ 14 Note 10. Revenue Recognition Disaggregation of Revenue The following table presents our revenues by segment and major source (in thousands): : Three Months Ended November 30, 2021: Americas EMEA Asia-Pacific Total Maintenance products $ 51,984 $ 55,443 $ 18,603 $ 126,030 HCCP (1) 4,304 2,112 2,300 8,716 Total net sales $ 56,288 $ 57,555 $ 20,903 $ 134,746 Three Months Ended November 30, 2020: Americas EMEA Asia-Pacific Total Maintenance products $ 48,503 $ 52,376 $ 13,464 $ 114,343 HCCP (1) 5,685 2,373 2,158 10,216 Total net sales $ 54,188 $ 54,749 $ 15,622 $ 124,559 (1) Homecare and cleaning products (“HCCP”) Contract Balances Contract liabilities consist of deferred revenue related to undelivered products. Deferred revenue is recorded when payments have been received from customers for undelivered products. Revenue is subsequently recognized when revenue recognition criteria are met, generally when control of the product transfers to the customer. The Company had contract liabilities of $ 5.0 million and $ 3.7 million as of November 30, 2021 and August 31, 2021, respectively. All of the $ 3.7 million that was included in contract liabilities as of August 31, 2021 was recognized to revenue during the three months ended November 30, 2021. These contract liabilities are recorded in accrued liabilities on the Company ’ s condensed consolidated balance sheets. The Company did no t have any contract assets as of November 30, 2021 and August 31, 2021. Note 11. Commitments and Contingencies Purchase Commitments The Company has ongoing relationships with various suppliers (contract manufacturers) that manufacture the Company’s products and third-party distribution centers that warehouse and ship the Company’s products to customers. The contract manufacturers maintain title and control of certain raw materials and components, materials utilized in finished products, and of the finished products themselves until shipment to the Company’s customers or third-party distribution centers in accordance with agreed upon shipment terms. Although the Company has definitive minimum purchase obligations included in the contract terms with certain of its contract manufacturers, when such obligations have been included, they have either been immaterial or the minimum amounts have been such that they are well below the volume of goods that the Company has historically purchased. In the ordinary course of business, supply needs are communicated by the Company to its contract manufacturers based on orders and short-term projections, ranging from two months to six months . The Company is committed to purchase the products produced by the contract manufacturers based on the projections provided . Upon the termination of contracts with contract manufacturers, the Company obtains certain inventory control rights and is obligated to work with the contract manufacturer to sell through all product held by or manufactured by the contract manufacturer on behalf of the Company during the termination notification period. If any inventory remains at the contract manufacturer at the termination date, the Company is obligated to purchase such inventory which may include raw materials, components and finished goods. The amounts for inventory purchased under termination commitments have been immaterial . 15 In addition to the commitments to purchase products from contract manufacturers described above, the Company may also enter into commitments with other manufacturers to purchase finished goods and components to support innovation and renovation initiatives and/or supply chain initiatives. As of November 30, 2021, 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. Except as disclosed herein, 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 as of November 30, 2021. As to claims that the Company believes may result in a reasonably possible loss, the Company believes that no reasonably possible outcome of any such claim will have a materially adverse impact on the Company’s financial condition, results of operations or cash flows. On or about August 18, 2020, Benny Bong (“Bong”) filed a civil action against the Company and the Company’s wholly-owned subsidiary, WD-40 Manufacturing Company (“WD-40 Manufacturing”), in Indonesia in the Commercial District Court of Central Jakarta, case reference number 41 / Pdt.Sus-Merek / 2020 / PN.Niaga.Jkt.Pst. (the “Jakarta Litigation”). In April 2021, the Company and WD-40 Manufacturing, owner of the WD-40 brand trademarks, were served with Summons and Complaint for the Jakarta Litigation, in which Bong is seeking damages based on the Company’s enforcement actions against Bong following registration of a Get All-40 trademark that includes a yellow shield logo similar to the WD-40 brand shield logo. The complaint asserted claims for damages for more than $ 25.0 million. The dispute underlying the Jakarta Litigation follows 2018 litigation filed by WD-40 Manufacturing, in which the Commercial District Court ordered cancellation of two earlier Get All-40 trademark registrations. In January 2021, WD-40 Manufacturing filed a new cancellation action in a separate proceeding before the Commercial District Court seeking to invalidate the most recent Get All-40 Trademark registration. In August 2021, the Commercial District Court granted WD-40 Manufacturing’s action for cancellation of the Get All-40 Trademark. Bong initiated appeal of the cancellation decision in September 2021. On October 28, 2021, the Commercial District Court in the Jakarta Litigation found in favor of the Company and dismissed Bong’s claim. On November 26, 2021, Bong submitted a memorandum of cassation to appeal the decision in the Jakarta Litigation. The Jakarta Litigation and trademark cancellation are pending appellate proceedings. The Company denies the allegations asserted by Bong and will vigorously defend itself in the Jakarta Litigation. The Company believes that an unfavorable outcome in the Jakarta Litigation is remote. For further information on the risks the Company faces from existing and future claims, suits, investigations and proceedings , see the Company’s risk factors disclosed in Part I―Item 1A, “Risk Factors,” in its Annual Report on Form 10-K for the fiscal year ended August 31, 2021, which was filed with the SEC on October 22, 2021. Indemnifications As permitted under Delaware law, the Company has agreements whereby it indemnifies senior officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company maintains Director and Officer insurance coverage that mitigates the Company’s exposure with respect to such obligations. As a result of the Company’s insurance coverage, management believes that the estimated fair value of these indemnification agreements is minimal . Thus, no liabilities have been recorded for these agreements as of November 30, 2021 . ‎ 16 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 November 30, 2021 . Note 12. Income Taxes The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter. The provision for income taxes was 19.8 % and 15.7 % of income before income taxes for the three months ended November 30, 2021 and 2020, respectively. The increase in the effective income tax rate from period to period was primarily due to an increase in nondeductible performance-based compensation expenses. The Company is subject to taxation in the U.S. and in various state and foreign jurisdictions. Due to expired statutes, the Company’s federal income tax returns for years prior to fiscal year 2018 are not subject to examination by the U.S. Internal Revenue Service. Generally, for the majority of state and foreign jurisdictions where the Company does business, periods prior to fiscal year 2017 are no longer subject to examination . The Company is currently under audit in various state jurisdictions for fiscal years 2017 through 2020. Estimated unrecognized tax benefits related to income tax positions affected by the resolution of tax examinations or expiring statutes of limitation within the next twelve months were not significant. Audit outcomes and the timing of settlements are subject to significant uncertainty . ‎ 17 Note 13. Business Segments and Foreign Operations The Company evaluates the performance of its segments and allocates resources to them based on sales and operating income. The Company is organized on the basis of geographical area into the following 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 business segments and are reported separate from the Company’s identified segments. The corporate overhead costs include expenses for the Company’s accounting and finance, information technology, human resources, research and development, quality control and executive management functions, as well as all direct costs associated with public company compliance matters including legal, audit and other professional services costs. Summary information about reportable segments is as follows (in thousands): Unallocated For the Three Months Ended Americas EMEA Asia-Pacific Corporate (1) Total November 30, 2021: Net sales $ 56,288 $ 57,555 $ 20,903 $ - $ 134,746 Income from operations $ 12,017 $ 14,213 $ 7,302 $ ( 9,472 ) $ 24,060 Depreciation and amortization expense $ 1,043 $ 784 $ 74 $ 86 $ 1,987 Interest income $ - $ - $ 25 $ - $ 25 Interest expense $ 498 $ 121 $ 1 $ - $ 620 November 30, 2020: Net sales $ 54,188 $ 54,749 $ 15,622 $ - $ 124,559 Income from operations $ 14,626 $ 17,743 $ 5,060 $ ( 9,037 ) $ 28,392 Depreciation and amortization expense $ 791 $ 756 $ 75 $ 78 $ 1,700 Interest income $ 1 $ 1 $ 17 $ - $ 19 Interest expense $ 455 $ 114 $ 1 $ - $ 570 (1) Unallocated corporate expenses are general corporate overhead expenses not directly attributable to any one of the business segments. These expenses are reported separate from the Company’s identified segments and are included in Selling, General and Administrative expenses on the Company’s condensed consolidated statements of operations. The Company’s Chief Operating Decision Maker does not review assets by segment as part of the financial information provided, and therefore, no asset information is provided in the above table. Note 14. Subsequent Events On December 13, 2021, the Company’s Board of Directors approved an 8 % increase in the regular quarterly cash dividend, increasing it from $ 0.72 per share to $ 0.78 per share. The $ 0.78 per share dividend declared on December 13, 2021 is payable on January 31, 2022 to shareholders of record on January 14 , 2022 . ‎ 18