What changed in this filing

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Item 1. Financial Statements

2023-01-09 compared with 2022-07-07 · 88 added, 158 removed, 303 unchanged (45% of the section changed)

5 unchanged sentences

Cash and cash equivalents

Trade and other accounts receivable, less allowance for doubtful

accounts of $ 329 and $ 463 at May 31, 2022

and August 31, 2021, respectively

Trade and other accounts receivable, net

Other current assets

4 unchanged sentences

Deferred tax assets, net

Liabilities and Shareholders'

Liabilities and Stockholders’ Equity

Current liabilities:

11 unchanged sentences

Commitments and Contingencies (Note 11)

Shareholders'

Stockholders’ equity:

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

19,887,577 and 19,856,865 shares issued at May 31, 2022 and

19,896,477 and 19,888,807 shares issued at November 30, 2022 and

August 31, 2022, respectively;

and 13,587,596 and 13,602,346 shares

outstanding at May 31, 2022 and August 31, 2021, respectively

outstanding at November 30, 2022 and August 31, 2022, respectively

Additional paid-in capital

2 unchanged sentences

Common stock held in treasury, at cost ― 6,308,881 and 6,286,461

shares at May 31, 2022 and August 31, 2021, respectively

Total shareholders'

Total liabilities and shareholders'

shares at November 30, 2022 and August 31, 2022, respectively

Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying notes to condensed consolidated financial statements.

WD-40 COMPANY

WD-40 COM PANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except per share amounts)

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

Cost of products sold

8 unchanged sentences

Interest expense

Other (expense) income, net

Other income (expense), net

Income before income taxes

3 unchanged sentences

See accompanying notes to condensed consolidated financial statements.

WD-40 COMPANY

WD-40 COM PANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited and in thousands)

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

Other comprehensive income (loss):

2 unchanged sentences

See accompanying notes to condensed consolidated financial statements.

WD-40 COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS'

WD-40 CO MPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

1 unchanged sentence

Treasury Stock

Shareholders'

Stockholders’

Income (Loss)

7 unchanged sentences

Balance at November 30, 2022

Issuance of common stock under share-based

compensation plan, net of shares withheld for taxes

Stock-based compensation

Cash dividends ($ 0.78 per share)

Acquisition of treasury stock

Foreign currency translation adjustment

Balance at February 28, 2022

Issuance of common stock under share-based

compensation plan, net of shares withheld for taxes

Stock-based compensation

Cash dividends ($ 0.78 per share)

Acquisition of treasury stock

Foreign currency translation adjustment

Balance at May 31, 2022

See accompanying notes to condensed consolidated financial statements.

WD-40 COMPANY

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS'

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

Comprehensive

Treasury Stock

Shareholders'

Stockholders’

Income (Loss)

4 unchanged sentences

Cash dividends ($ 0.72 per share)

Acquisition of treasury stock

Foreign currency translation adjustment

Balance at November 30, 2021

Issuance of common stock under share-based

compensation plan, net of shares withheld for taxes

Stock-based compensation

Cash dividends ($ 0.67 per share)

Foreign currency translation adjustment

Balance at February 28, 2021

Stock-based compensation

Cash dividends ($ 0.72 per share)

Foreign currency translation adjustment

Balance at May 31, 2021

See accompanying notes to condensed consolidated financial statements.

WD-40 COMPANY

WD-40 CO MPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)

Nine Months Ended May 31,

Three Months Ended November 30,

Operating activities:

6 unchanged sentences

Unrealized foreign currency exchange losses (gains)

Provision for bad debts

Provision for credit losses

Changes in assets and liabilities:

4 unchanged sentences

Other long-term liabilities and income taxes payable

Net cash provided by operating activities

Net cash provided by (used in) operating activities

Investing activities:

5 unchanged sentences

Dividends paid

Proceeds from issuance of long-term senior notes

Repayments of long-term senior notes

Net proceeds (repayments) of revolving credit facility

Net proceeds from revolving credit facility

Shares withheld to cover taxes upon conversions of equity awards

1 unchanged sentence

Effect of exchange rate changes on cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

5 unchanged sentences

NOTES TO CONDENSED CONSOL IDATED FINANCIAL STATEMENTS (Unaudited)

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 owns a wide range of well-known brands that include maintenance products and homecare and cleaning products:

WD-40® Multi-Use Product, WD-40 Specialist®, 3-IN-ONE®, GT85®, 2000 Flushes®, no vac®, 1001®, Spot Shot®, Lava®, Solvol®, X-14®, and Carpet Fresh®.

WD-40 Company (the “Company”), incorporated in Delaware and 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 owns a wide range of brands that include maintenance products and homecare and cleaning products:

WD-40® Multi-Use Product, WD-40 Specialist®, 3-IN-ONE®, GT85®, X-14®, 2000 Flushes®, Carpet Fresh®, no vac®, Spot Shot®, 1001®, Lava® and Solvol®.

The Company’s products are sold in various locations around the world.

15 unchanged sentences

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.

Actual results could materially 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.

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.

It is reasonably possible that actual results experienced may differ materially from the Company’s estimates in future periods, which could materially affect our results of operations and financial condition.

7 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 May 31, 2022, the Company had no outstanding foreign currency forward contracts.

Unrealized net gains and losses related to foreign currency forward contracts were no t significant at May 31, 2022 and August 31, 2021 .

Realized net gains and losses related to foreign currency forward contracts were no t significant for both the three and nine months ended May 31, 2022 and 2021.

At November 30, 2022, the Company had no outstanding foreign currency forward contracts.

Unrealized net gains and losses related to foreign currency forward contracts were no t significant at November 30, 2022 and August 31, 2022 .

Realized net gains and losses related to foreign currency forward contracts were no t significant for the three months ended November 30, 2022 and 2021.

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

6 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 May 31, 2022, 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 Company has no assets or liabilities that are measured at fair value in the financial statements on a recurring basis, except for foreign currency forward contracts, into which the Company enters from time to time, and 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 and are recorded at carrying value.

The Company estimates that the fair value of its senior notes, based on Level 2 inputs, was approximately $ 59.8 million as of May 31, 2022, 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 $ 68.4 million .

During the nine months ended May 31, 2022, the Company did no t record any significant nonrecurring fair value measurements for assets or liabilities in periods subsequent to their initial recognition.

Internal-Use Software and Cloud Computing Arrangements

The Company capitalizes costs related to computer software obtained or developed for internal use.

Software obtained for internal use has generally been enterprise-level business and finance software that the Company customizes to meet its specific operational needs.

Costs incurred in the application development phase are capitalized as property and equipment in the Company’s consolidated balance sheets and are depreciated using the straight-line method over their estimated useful lives.

The Company also enters into certain cloud-based software hosting arrangements.

In evaluating whether cloud computing arrangements include an embedded internal-use software license, management considers whether the Company has the contractual right to take possession of the software during the hosting period without significant penalty and whether it is

feasible to either i) run the software on the Company’s hardware, or ii) contract with another party unrelated to the vendor to host the software.

If management determines a cloud computing arrangement includes an embedded software license, the Company accounts for the software license element of the arrangement consistent with the acquisition of other internal-use software licenses.

If a cloud computing arrangement does not include a software license, the Company accounts for the arrangement as a service contract.

For such cloud computing service contracts, the Company capitalizes certain implementation costs such as the configuration, coding and customization of the software.

Capitalizable cloud computing arrangement costs are generally consistent with those incurred during the application development stage for internal-use software, however, these costs are capitalized as “other assets” in the Company’s consolidated balance sheets.

The Company amortizes these capitalized cloud computing implementation costs into selling, general and administrative expenses using the straight-line method over the fixed, non-cancellable term of the associated hosting arrangement, plus any reasonably certain renewal periods.

The useful lives of the Company’s internal-use software and capitalized cloud computing implementation costs are generally three to five years .

However, the useful lives of major information system installations such as implementations of enterprise resource planning (“ERP”) systems are determined on an individual basis and may exceed five years depending on the estimated period of use.

The Company applies the same impairment model to both internal-use software and capitalized cloud computing implementation costs.

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.

The Company estimates that the fair value of its senior notes, based on Level 2 inputs, was approximately $ 60.8 million as of November 30, 2022, 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 $ 68.0 million .

During the three months ended November 30, 2022, the Company did no t record any significant nonrecurring fair value measurements for assets or liabilities in periods subsequent to their initial recognition.

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.

13 unchanged sentences

accumulated depreciation and amortization

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 nine months ended May 31, 2022, $ 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.

As of May 31, 2022 and August 31, 2021, the Company’s balance sheet included $ 5.4 million and $ 2.6 million, respectively, of capitalized cloud-based implementation costs recorded as other assets within the Company’s condensed consolidated balance sheets.

Accumulated amortization associated with these assets were no t significant as of May 31, 2022 and August 31, 2021.

Amortization expense associated with these assets were no t significant for the three or nine months ended May 31, 2022 or 2021.

As of November 30, 2022 and August 31, 2022, the Company’s condensed consolidated balance sheets included $ 7.6 million and $ 6.5 million, respectively, of capitalized cloud-based implementation costs recorded as other assets within the Company’s condensed consolidated balance sheets.

These balances primarily consist of capitalized costs related to the new cloud-based enterprise resource planning system which we are in the process of implementing.

Accumulated amortization associated with cloud-based implementation costs were $ 0.5 million as of both November 30, 2022 and August 31, 2022.

Amortization expense associated with these assets were no t significant during the three months ended November 30, 2022 or 2021.

Goodwill and Other Intangible Assets

2 unchanged sentences

Translation adjustments

Balance as of May 31, 2022

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, 2021, the date of its most recent annual goodwill impairment test, which was conducted during the second quarter of fiscal year 2022.

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.

Balance as of November 30, 2022

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, 2021, the date of its most recent annual goodwill impairment test, which was a qualitative assessment conducted during the second quarter of fiscal year 2022.

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

5 unchanged sentences

Net carrying amount

There has been no impairment charge for the nine months ended May 31, 2022 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, 2022 are summarized below (in thousands):

There has been no impairment charge for the three months ended November 30, 2022 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 three months ended November 30, 2022 are summarized below (in thousands):

Balance as of August 31, 2022

1 unchanged sentence

Translation adjustments

Balance as of May 31, 2022

Balance as of November 30, 2022

The estimated amortization expense for the Company’s definite-lived intangible assets is not significant in any future individual fiscal year.

11 unchanged sentences

Accrued payroll taxes

As of May 31, 2022, the Company held borrowings under two separate agreements as detailed below.

As of November 30, 2022, 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”).

As of May 31, 2022, the Company had outstanding balances on its series A, B and C notes issued under this Note Agreement.

As of November 30, 2022, the Company had outstanding balances on its series A, B and C notes issued under this Note Agreement.

Credit Agreement

1 unchanged sentence

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, N.A.

The LIBOR Amendment changed the Company’s index rates under the Credit Agreement for British Pound Sterling and U.S.

The LIBOR Amendment changed the Company’s index rates under the Credit Agreement for 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.

9 unchanged sentences

Total long-term borrowings

(1) The Company has the ability to refinance any draw under the line of credit with successive short-term borrowings through the maturity date.

(1) The Company can refinance any draw under the line of credit with successive short-term borrowings through the maturity date.

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.

As of May 31, 2022, $ 42.6 million on this facility is classified as long-term and is denominated in Euros and Pound Sterling, whereas $ 15.6 million is classified as short-term and is denominated in U.S.

As of November 30, 2022, $ 40.7 million on this facility is classified as long-term and is denominated in Euros and Pound Sterling, whereas $ 41.7 million is classified as short-term and is denominated entirely in U.S.

Euro and Pound Sterling denominated draws will fluctuate in U.S.

4 unchanged sentences

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.

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 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.

7 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 May 31, 2022, the Company was in compliance with all debt covenants under both the Note Agreement and the Credit Agreement.

As of November 30, 2022, 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, subject to present loan covenants and in compliance with all laws and regulations applicable thereto.

During the period from November 1, 2021 through May 31, 2022, the Company repurchased 101,837 shares at an average price of $ 219.84 per share, for a total cost of $ 22.4 million under this $ 75.0 million plan.

During the period from November 1, 2021 through November 30, 2022, the Company repurchased 160,982 shares at an average price of $ 206.38 per share, for a total cost of $ 33.2 million under this $ 75.0 million plan.

During the three months ended November 30, 2022, the Company repurchased 22,420 shares at an average price of $ 181.60 per share, for a total cost of $ 4.1 million under this $ 75.0 million plan.

Earnings per Common Share

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

Three Months Ended May 31,

Nine Months Ended May 31,

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

Three Months Ended November 30,

Net income allocated to

participating securities

Net income available to common shareholders

Net income available to common stockholders

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 May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

Weighted-average common

3 unchanged sentences

shares outstanding, diluted

For the three and nine months ended May 31, 2022, weighted-average stock-based equity awards outstanding that are non-participating securities in the amount of 11,607 and 8,677 , respectively, were excluded from the calculation of diluted EPS under the treasury stock method as they were anti-dilutive .

For the three and nine months ended May 31, 2021, there were no anti-dilutive stock-based equity awards outstanding.

For the three months ended November 30, 2022 and 2021, weighted-average stock-based equity awards outstanding that are non-participating securities in the amount of 7,471 and 5,145 , respectively, were excluded from the calculation of diluted EPS under the treasury stock method as they were anti-dilutive .

Revenue Recognition

1 unchanged sentence

The following table presents our revenues by segment and major source (in thousands):

Three Months Ended May 31, 2022:

Nine Months Ended May 31, 2022:

Three Months Ended November 30, 2022:

Maintenance products

Total net sales

Three Months Ended May 31, 2021:

Nine Months Ended May 31, 2021:

Three Months Ended November 30, 2021:

Maintenance products

5 unchanged sentences

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 $ 3.7 million as of both May 31, 2022 and August 31, 2021.

All of the $ 3.7 million that was included in contract liabilities as of August 31, 2021 was recognized to revenue during the nine months ended May 31, 2022.

The Company had contract liabilities of $ 2.4 million and $ 5.0 million as of November 30, 2022 and August 31, 2022, respectively.

All of the $ 5.0 million that was included in contract liabilities as of August 31, 2022 was recognized to revenue during the three months ended November 30, 2022.

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 May 31, 2022 and August 31, 2021.

Contract assets are recorded if the Company has satisfied a performance obligation but does not yet have an unconditional right to consideration.

The Company did no t have any contract assets as of November 30, 2022 and August 31, 2022.

The Company has an unconditional right to payment for its trade and other accounts receivable on the Company’s condensed consolidated balance sheets.

These receivables are presented net of an allowance for doubtful accounts, which were insignificant at both November 30, 2022 and August 31, 2022.

Commitments and Contingencies

1 unchanged sentence

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.

The contract manufacturers maintain title and control of certain raw materials and components, materials utilized in finished products, and the finished products themselves until shipment to the Company’s third-party distribution centers or customers 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.

2 unchanged sentences

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.

If any inventory remains at the contract manufacturer at the termination date, the Company is obligated to purchase such inventory, which may include raw materials,

components and finished goods.

The amounts for inventory purchased under termination commitments have been immaterial .

In addition to the commitments to purchase products from contract manufacturers described above, the Company may also enter into commitments with other manufacturers to purchase finished goods and components to support innovation and renovation initiatives and/or supply chain initiatives.

As of May 31, 2022, no such commitments were outstanding.

As of November 30, 2022, no such commitments were outstanding.

From time to time, the Company is subject to various claims, lawsuits, investigations and proceedings arising in the ordinary course of business, including but not limited to, product liability litigation and other claims and proceedings with respect to intellectual property, breach of contract, labor and employment, tax and other matters.

As of May 31, 2022, there were no unasserted claims or pending proceedings for claims against the Company that the Company believes will result in a probable loss.

As of November 30, 2022, there were no unasserted claims or pending proceedings for claims against the Company that the Company believes will result in a probable loss.

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, lawsuits, 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 future payments the Company could be required to make under these indemnification agreements is unlimited;

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 May 31, 2022 .

Thus, no liabilities have been recorded for these agreements as of November 30, 2022 .

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 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 May 31, 2022 .

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, 2022 .

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 20.9 % and 21.9 % of income before income taxes for the three months ended May 31, 2022 and 2021, respectively.

The decrease in the effective income tax rate from period to period was primarily due to changes in the expected timing and amounts of executive compensation in future periods which impacts deductible expenses.

The provision for income taxes was 20.2 % and 17.7 % of income before income taxes for the nine months ended May 31, 2022 and 2021, respectively.

The increase in the effective income tax rate from period to period was primarily due to an increase in non-deductible performance-based compensation expense.

The provision for income taxes was 20.9 % and 19.8 % of income before income taxes for the three months ended November 30, 2022 and 2021, respectively.

The increase in the effective income tax rate from period to period was primarily due to tax shortfalls from the settlements of stock-based equity awards, partially offset by a one-time tax-deductible charitable donation.

The Company recorded tax shortfalls related to settlements of stock-based equity awards of $ 0.7 million during the first quarter of fiscal year 2023 compared to insignificant tax benefits related to these types of settlements in the first quarter of fiscal year 2022, resulting in a 5.1 % unfavorable impact on the Company’s effective tax rate from period to period.

Partially offsetting this unfavorable impact was a one-time tax benefit associated with the Company’s donation of its former corporate headquarters building to a local San Diego community foundation that occurred in the first quarter of fiscal year 2023, resulting in a 4.2 % favorable impact on the Company’s effective tax rate.

The building, net of its tax basis, is estimated to result in a charitable donation of $ 3.5 million and an approximate tax benefit of $ 0.7 million.

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

7 unchanged sentences

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 evaluates the performance of its segments and allocates resources to them based on sales and income from operations.

The Company is organized on the basis of geographical area into the following three segments:

1 unchanged sentence

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.

3 unchanged sentences

Corporate (1)

May 31, 2022:

Income from operations

Depreciation and

amortization expense

Interest income

Interest expense

May 31, 2021:

Income from operations

Depreciation and

amortization expense

Interest income

Interest expense

Nine Months Ended:

May 31, 2022:

November 30, 2022:

Income from operations

3 unchanged sentences

Interest expense

May 31, 2021:

November 30, 2021:

Income from operations

4 unchanged sentences

(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.

These expenses are reported separately 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.

Subsequent Events

Subsequent Event

Dividend Declaration

On June 21, 2022, the Company’s Board declared a cash dividend of $ 0.78 per share payable on July 29, 2022 to shareholders of record on July 15 , 2022 .

On December 13, 2022, the Company’s Board approved a 6 % increase in the regular quarterly cash dividend, increasing it from $ 0.78 per share to $ 0.83 per share.

The $ 0.83 per share dividend declared on December 13, 2022 is payable on January 31, 2023 to stockholders of record on January 13 , 2023 .

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