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) May 31, 2023 August 31, 2022 Assets Current assets: Cash and cash equivalents $ 38,403 $ 37,843 Trade and other accounts receivable, net 100,556 89,930 Inventories 95,326 104,101 Other current assets 15,575 17,766 Total current assets 249,860 249,640 Property and equipment, net 66,636 65,977 Goodwill 95,410 95,180 Other intangible assets, net 4,898 5,588 Operating lease right-of-use assets 7,981 7,559 Deferred tax assets, net 647 679 Other assets 12,618 9,672 Total assets $ 438,050 $ 434,295 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 26,780 $ 32,852 Accrued liabilities 27,142 27,161 Accrued payroll and related expenses 13,217 11,583 Short-term borrowings 27,256 39,173 Income taxes payable 914 51 Total current liabilities 95,309 110,820 Long-term borrowings 108,893 107,139 Deferred tax liabilities, net 10,531 10,528 Long-term operating lease liabilities 6,200 5,999 Other long-term liabilities 11,290 11,185 Total liabilities 232,223 245,671 Commitments and Contingencies (Note 11) Stockholders’ equity: Common stock — authorized 36,000,000 shares, $ 0.001 par value; 19,896,477 and 19,888,807 shares issued at May 31, 2023 and August 31, 2022, respectively; and 13,568,346 and 13,602,346 shares outstanding at May 31, 2023 and August 31, 2022, respectively 20 20 Additional paid-in capital 171,166 165,973 Retained earnings 472,221 456,076 Accumulated other comprehensive loss ( 32,910 ) ( 36,209 ) Common stock held in treasury, at cost — 6,328,131 and 6,286,461 shares at May 31, 2023 and August 31, 2022, respectively ( 404,670 ) ( 397,236 ) Total stockholders’ equity 205,827 188,624 Total liabilities and stockholders’ equity $ 438,050 $ 434,295 See accompanying notes to condensed consolidated financial statements. 3 Table of Contents WD-40 COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited and in thousands, except per share amounts) Three Months Ended May 31, Nine Months Ended May 31, 2023 2022 2023 2022 Net sales $ 141,717 $ 123,667 $ 396,803 $ 388,399 Cost of products sold 69,955 64,682 194,708 195,426 Gross profit 71,762 58,985 202,095 192,973 Operating expenses: Selling, general and administrative 38,195 33,621 115,869 106,863 Advertising and sales promotion 7,660 6,022 18,984 17,242 Amortization of definite-lived intangible assets 250 358 753 1,081 Total operating expenses 46,105 40,001 135,606 125,186 Income from operations 25,657 18,984 66,489 67,787 Other income (expense): Interest income 69 27 164 73 Interest expense ( 1,597 ) ( 669 ) ( 4,268 ) ( 1,902 ) Other income (expense), net 243 ( 42 ) 558 ( 119 ) Income before income taxes 24,372 18,300 62,943 65,839 Provision for income taxes 5,477 3,820 13,525 13,296 Net income $ 18,895 $ 14,480 $ 49,418 $ 52,543 Earnings per common share: Basic $ 1.39 $ 1.07 $ 3.62 $ 3.83 Diluted $ 1.38 $ 1.07 $ 3.62 $ 3.82 Shares used in per share calculations: Basic 13,573 13,656 13,582 13,683 Diluted 13,600 13,680 13,606 13,712 See accompanying notes to condensed consolidated financial statements. 4 Table of Contents WD-40 COMPANY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited and in thousands) Three Months Ended May 31, Nine Months Ended May 31, 2023 2022 2023 2022 Net income $ 18,895 $ 14,480 $ 49,418 $ 52,543 Other comprehensive income (loss): Foreign currency translation adjustment 1,955 ( 4,146 ) 3,299 ( 5,412 ) Total comprehensive income $ 20,850 $ 10,334 $ 52,717 $ 47,131 See accompanying notes to condensed consolidated financial statements. 5 Table of Contents WD-40 COMPANY CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited and in thousands, except share and per share amounts) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Stockholders’ Equity Shares Amount Shares Amount Balance at August 31, 2022 19,888,807 $ 20 $ 165,973 $ 456,076 $ ( 36,209 ) 6,286,461 $ ( 397,236 ) $ 188,624 Issuance of common stock under share-based compensation plan, net of shares withheld for taxes 7,670 - ( 600 ) ( 600 ) Stock-based compensation 2,719 2,719 Cash dividends ($ 0.78 per share) ( 10,634 ) ( 10,634 ) Repurchases of common stock 22,420 ( 4,072 ) ( 4,072 ) Foreign currency translation adjustment 1,336 1,336 Net income 13,997 13,997 Balance at November 30, 2022 19,896,477 $ 20 $ 168,092 $ 459,439 $ ( 34,873 ) 6,308,881 $ ( 401,308 ) $ 191,370 Stock-based compensation 2,261 2,261 Cash dividends ($ 0.83 per share) ( 11,324 ) ( 11,324 ) Repurchases of common stock 9,250 ( 1,569 ) ( 1,569 ) Foreign currency translation adjustment 8 8 Net income 16,526 16,526 Balance at February 28, 2023 19,896,477 $ 20 $ 170,353 $ 464,641 $ ( 34,865 ) 6,318,131 $ ( 402,877 ) $ 197,272 Stock-based compensation 813 813 Cash dividends ($ 0.83 per share) ( 11,315 ) ( 11,315 ) Repurchases of common stock 10,000 ( 1,793 ) ( 1,793 ) Foreign currency translation adjustment 1,955 1,955 Net income 18,895 18,895 Balance at May 31, 2023 19,896,477 $ 20 $ 171,166 $ 472,221 $ ( 32,910 ) 6,328,131 $ ( 404,670 ) $ 205,827 See accompanying notes to condensed consolidated financial statements. 6 Table of Contents WD-40 COMPANY CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited and in thousands, except share and per share amounts) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Stockholders’ Equity Shares Amount Shares Amount 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 ) Repurchases of common stock 32,000 ( 7,386 ) ( 7,386 ) Foreign currency translation adjustment ( 1,893 ) ( 1,893 ) 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 Issuance of common stock under share-based compensation plan, net of shares withheld for taxes 579 - ( 75 ) ( 75 ) Stock-based compensation 1,885 1,885 Cash dividends ($ 0.78 per share) ( 10,714 ) ( 10,714 ) Repurchases of common stock 46,637 ( 10,779 ) ( 10,779 ) Foreign currency translation adjustment 627 627 Net income 19,508 19,508 Balance at February 28, 2022 19,887,516 $ 20 $ 164,192 $ 448,179 $ ( 27,296 ) 6,226,536 $ ( 386,245 ) $ 198,850 Issuance of common stock under share-based compensation plan, net of shares withheld for taxes 61 - ( 8 ) ( 8 ) Stock-based compensation 975 975 Cash dividends ($ 0.78 per share) ( 10,697 ) ( 10,697 ) Repurchases of common stock 23,200 ( 4,225 ) ( 4,225 ) Foreign currency translation adjustment ( 4,146 ) ( 4,146 ) Net income 14,480 14,480 Balance at May 31, 2022 19,887,577 $ 20 $ 165,159 $ 451,962 $ ( 31,442 ) 6,249,736 $ ( 390,470 ) $ 195,229 See accompanying notes to condensed consolidated financial statements. 7 Table of Contents WD-40 COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited and in thousands) Nine Months Ended May 31, 2023 2022 Operating activities: Net income $ 49,418 $ 52,543 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,939 6,140 Net losses (gains) on sales and disposals of property and equipment 20 ( 162 ) Deferred income taxes ( 376 ) 165 Stock-based compensation 5,793 5,751 Unrealized foreign currency exchange (gains) losses ( 1,780 ) 261 Provision for credit losses 18 115 Write-off of inventories 693 456 Changes in assets and liabilities: Trade and other accounts receivable ( 9,015 ) ( 6,932 ) Inventories 9,826 ( 42,767 ) Other assets ( 326 ) ( 5,213 ) Operating lease assets and liabilities, net 55 ( 2 ) Accounts payable and accrued liabilities ( 7,086 ) 9,899 Accrued payroll and related expenses 1,470 ( 12,085 ) Other long-term liabilities and income taxes payable 944 ( 513 ) Net cash provided by operating activities 55,593 7,656 Investing activities: Purchases of property and equipment ( 4,650 ) ( 7,115 ) Proceeds from sales of property and equipment 437 377 Net cash used in investing activities ( 4,213 ) ( 6,738 ) Financing activities: Treasury stock purchases ( 7,434 ) ( 22,390 ) Dividends paid ( 33,273 ) ( 31,316 ) Repayments of long-term senior notes ( 800 ) ( 800 ) Net (repayments) proceeds from revolving credit facility ( 11,917 ) 15,576 Shares withheld to cover taxes upon conversions of equity awards ( 600 ) ( 4,329 ) Net cash used in financing activities ( 54,024 ) ( 43,259 ) Effect of exchange rate changes on cash and cash equivalents 3,204 ( 2,821 ) Net increase (decrease) in cash and cash equivalents 560 ( 45,162 ) Cash and cash equivalents at beginning of period 37,843 85,961 Cash and cash equivalents at end of period $ 38,403 $ 40,799 Supplemental disclosure of noncash investing activities: Accrued capital expenditures $ 813 $ 1,018 See accompanying notes to condensed consolidated financial statements. 8 Table of Contents WD-40 COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. The Company 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. 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 unaudited condensed consolidated financial statements included herein have been prepared by the Company 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, 2022 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, 2022, which was filed with the SEC on October 24, 2022. 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 materially differ from those estimates. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year. Global economic conditions have been adversely impacted and financial markets have experienced significant volatility in recent years. 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 factors that have been subject to such volatility and how management expects them to change in the future, as appropriate. It is reasonably possible that actual results experienced may differ materially from the Company’s estimates in future periods, which could materially affect its 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 9 Table of Contents 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 condensed consolidated statements of operations. Cash flows from settlements of foreign currency forward contracts are included in operating activities in the condensed 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 condensed consolidated balance sheets. At May 31, 2023, the Company had a notional amount of $ 7.6 million outstanding in foreign currency forward contracts, which matured on June 29, 2023. Unrealized net gains and losses related to foreign currency forward contracts were not significant at May 31, 2023 and August 31, 2022. Realized net gains and losses related to foreign currency forward contracts were not significant for the three and nine months ended May 31, 2023 and 2022. 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. 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. 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 $ 61.1 million as of May 31, 2023, 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 $ 67.6 million. During the nine months ended May 31, 2023, the Company did not record any significant nonrecurring fair value measurements for assets or liabilities in periods subsequent to their initial recognition. Note 3. Inventories 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): May 31, 2023 August 31, 2022 Product held at third-party contract manufacturers $ 6,100 $ 7,915 Raw materials and components 16,908 13,952 Work-in-process 635 881 Finished goods 71,683 81,353 Total $ 95,326 $ 104,101 10 Table of Contents Note 4. Property and Equipment and Capitalized Cloud-Based Software Implementation Costs Property and equipment, net, consisted of the following (in thousands): May 31, 2023 August 31, 2022 Machinery, equipment and vehicles $ 47,763 $ 44,533 Buildings and improvements 27,231 27,958 Computer and office equipment 6,403 5,757 Internal-use software 10,415 9,591 Furniture and fixtures 2,995 2,669 Capital in progress 9,440 10,135 Land 4,196 4,240 Subtotal 108,443 104,883 Less: accumulated depreciation and amortization ( 41,807 ) ( 38,906 ) Total $ 66,636 $ 65,977 As of May 31, 2023 and August 31, 2022, the Company’s condensed consolidated balance sheets included $ 10.1 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 the Company is in the process of implementing. Accumulated amortization associated with cloud-based implementation costs were $ 0.7 million and $ 0.5 million as of May 31, 2023 and August 31, 2022, respectively. Amortization expense associated with these assets was not significant for the three and nine months ended May 31, 2023 and 2022. 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, 2022 $ 85,402 $ 8,569 $ 1,209 $ 95,180 Translation adjustments 24 206 - 230 Balance as of May 31, 2023 $ 85,426 $ 8,775 $ 1,209 $ 95,410 There were no indicators of impairment identified as a result of the Company’s review of events and circumstances related to its goodwill as of May 31, 2023. 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): May 31, 2023 August 31, 2022 Gross carrying amount $ 35,670 $ 35,166 Accumulated amortization ( 30,772 ) ( 29,578 ) Net carrying amount $ 4,898 $ 5,588 11 Table of Contents There has been no impairment charge for the nine months ended May 31, 2023 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 nine months ended May 31, 2023 are summarized below (in thousands): Americas EMEA Asia-Pacific Total Balance as of August 31, 2022 $ 4,437 $ 1,151 $ - $ 5,588 Amortization expense ( 610 ) ( 143 ) - ( 753 ) Translation adjustments - 63 - 63 Balance as of May 31, 2023 $ 3,827 $ 1,071 $ - $ 4,898 The estimated amortization expense for the Company’s definite-lived intangible assets is not significant in any future individual fiscal year. Note 6. Accrued and Other Liabilities Accrued liabilities consisted of the following (in thousands): May 31, 2023 August 31, 2022 Accrued advertising and sales promotion expenses $ 14,021 $ 13,563 Accrued professional services fees 1,984 1,979 Accrued sales taxes and other taxes 3,065 995 Deferred revenue 2,581 4,988 Short-term operating lease liability 1,960 1,703 Other 3,531 3,933 Total $ 27,142 $ 27,161 Accrued payroll and related expenses consisted of the following (in thousands): May 31, 2023 August 31, 2022 Accrued incentive compensation $ 4,076 $ 2,524 Accrued payroll 4,914 4,001 Accrued profit sharing 2,403 2,758 Accrued payroll taxes 1,291 1,779 Other 533 521 Total $ 13,217 $ 11,583 Note 7. Debt As of May 31, 2023, 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, as amended (the “Note Agreement”) by and among the Company, PGIM, Inc. (“Prudential”), and certain affiliates and managed accounts of Prudential (the “Note Purchasers”). As of May 31, 2023, the Company had outstanding balances on its series A, B and C notes issued under this Note Agreement. 12 Table of Contents Credit Agreement The Company’s Amended and Restated Credit Agreement, as amended (the “Credit Agreement”) with Bank of America, N.A. consists of a revolving commitment for borrowing by the Company up to $ 150.0 million with a sublimit of $ 100.0 million for WD-40 Company Limited, a wholly owned operating subsidiary of the Company for Europe, the Middle East, Africa and India. On 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 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. Short-term and long-term borrowings under the Company’s Credit Agreement and Note Agreement consisted of the following (in thousands): Issuance Maturities May 31, 2023 August 31, 2022 Credit Agreement – revolving credit facility (1) Various 9/30/2025 $ 68,549 $ 77,912 Note Agreement Series A Notes – 3.39 % fixed rate (2) 11/15/2017 2023-2032 15,600 16,400 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 136,149 146,312 Short-term portion of borrowings ( 27,256 ) ( 39,173 ) Total long-term borrowings $ 108,893 $ 107,139 (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, 2023, $ 42.1 million on this facility is classified as long-term and is denominated in Euros and Pounds Sterling, whereas $ 26.4 million is classified as short-term and is denominated entirely in U.S. Dollars. Euro and Pound Sterling denominated draws 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, resulting in $ 0.8 million classified as short-term. 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 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: 13 Table of Contents • 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 May 31, 2023, the Company was in compliance with all debt covenants under both the Note Agreement and the Credit Agreement. Note 8. Share Repurchase Plan On October 12, 2021, the Company’s Board of Directors (“Board”) approved a share repurchase plan (the “2021 Repurchase Plan”). Under the 2021 Repurchase 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 May 31, 2023, the Company repurchased 180,232 shares at an average price of $ 203.02 per share, for a total cost of $ 36.6 million under this $ 75.0 million plan. During the nine months ended May 31, 2023, the Company repurchased 41,670 shares at an average price of $ 178.41 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 stockholders (in thousands): Three Months Ended May 31, Nine Months Ended May 31, 2023 2022 2023 2022 Net income $ 18,895 $ 14,480 $ 49,418 $ 52,543 Less: Net income allocated to participating securities ( 82 ) ( 56 ) ( 207 ) ( 193 ) Net income available to common stockholders $ 18,813 $ 14,424 $ 49,211 $ 52,350 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, 2023 2022 2023 2022 Weighted-average common shares outstanding, basic 13,573 13,656 13,582 13,683 Weighted-average dilutive securities 27 24 24 29 Weighted-average common shares outstanding, diluted 13,600 13,680 13,606 13,712 For the three months ended May 31, 2023, there were no anti-dilutive stock-based equity awards outstanding. For the nine months ended May 31, 2023 , weighted-average stock-based equity awards outstanding that are non-participating securities in the amount of 6,068 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, 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. 14 Table of Contents Note 10. Revenue Recognition Disaggregation of Revenue The following table presents our revenues by segment and major source (in thousands): Three Months Ended May 31, 2023 Nine Months Ended May 31, 2023 Americas EMEA Asia-Pacific Total Americas EMEA Asia-Pacific Total Maintenance products $ 67,435 $ 49,721 $ 16,169 $ 133,325 $ 180,132 $ 132,801 $ 58,808 $ 371,741 HCCP (1) 3,695 2,803 1,894 8,392 11,902 7,304 5,856 25,062 Total net sales $ 71,130 $ 52,524 $ 18,063 $ 141,717 $ 192,034 $ 140,105 $ 64,664 $ 396,803 Three Months Ended May 31, 2022 Nine Months Ended May 31, 2022 Americas EMEA Asia-Pacific Total Americas EMEA Asia-Pacific Total Maintenance products $ 57,778 $ 47,289 $ 10,427 $ 115,494 $ 160,171 $ 154,825 $ 48,429 $ 363,425 HCCP (1) 3,675 2,161 2,337 8,173 12,067 6,243 6,664 24,974 Total net sales $ 61,453 $ 49,450 $ 12,764 $ 123,667 $ 172,238 $ 161,068 $ 55,093 $ 388,399 (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 $ 2.6 million and $ 5.0 million as of May 31, 2023 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 nine months ended May 31, 2023. These contract liabilities are recorded in accrued liabilities on the Company’s condensed consolidated balance sheets. 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 not have any contract assets as of May 31, 2023 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 was insignificant as of May 31, 2023 and August 31, 2022. 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 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. 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. 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, 2023, no such commitments were outstanding. 15 Table of Contents Litigation From time to time, the Company is subject to various claims, lawsuits, investigations and proceedings arising in the ordinary course of business, including but not limited to, product liability litigation and other claims and proceedings with respect to intellectual property, breach of contract, labor and employment, tax and other matters. As of May 31, 2023, 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. 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 May 31, 2023. 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 May 31, 2023. 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 22.5 % and 20.9 % of income before income taxes for the three months ended May 31, 2023 and 2022, respectively. The rate increase of 1.6 % in the effective tax rate was primarily due to higher tax rates in certain foreign jurisdictions. The provision for income taxes was 21.5 % and 20.2 % of income before income taxes for the nine months ended May 31, 2023 and 2022, respectively. The rate increase of 1.3 % in the effective income tax rate from period to period was primarily due to tax shortfalls from the settlements of stock-based equity awards, resulting in a 1.5 % unfavorable impact on the Company’s effective tax rate from period to period. In addition, higher tax rates in certain foreign jurisdictions resulted in a 1.3 % unfavorable impact on the Company’s effective tax rate. These unfavorable impacts to the effective tax rate were partially offset by a one-time tax-deductible charitable 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 1.2 % favorable impact on the Company’s effective tax rate from period to period. 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 2019 are no longer subject to examination. The Company is currently under audit in various state jurisdictions for fiscal years 2018 through 2022. 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. 16 Table of Contents Note 13. Business Segments and Foreign Operations 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: the Americas; EMEA; and Asia-Pacific. 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): For the Three Months Ended Americas EMEA Asia-Pacific Unallocated Corporate (1) Total May 31, 2023 Net sales $ 71,130 $ 52,524 $ 18,063 $ - $ 141,717 Income from operations $ 16,906 $ 11,966 $ 5,312 $ ( 8,527 ) $ 25,657 Depreciation and amortization expense $ 911 $ 1,035 $ 53 $ 76 $ 2,075 Interest income $ - $ 40 $ 29 $ - $ 69 Interest expense $ 1,079 $ 516 $ 2 $ - $ 1,597 May 31, 2022 Net sales $ 61,453 $ 49,450 $ 12,764 $ - $ 123,667 Income from operations $ 13,360 $ 10,146 $ 3,101 $ ( 7,623 ) $ 18,984 Depreciation and amortization expense $ 1,077 $ 780 $ 70 $ 131 $ 2,058 Interest income $ - $ - $ 27 $ - $ 27 Interest expense $ 518 $ 151 $ — $ - $ 669 For the Nine Months Ended May 31, 2023 Net sales $ 192,034 $ 140,105 $ 64,664 $ - $ 396,803 Income from operations $ 43,390 $ 28,632 $ 21,952 $ ( 27,485 ) $ 66,489 Depreciation and amortization expense $ 2,658 $ 2,905 $ 149 $ 227 $ 5,939 Interest income $ 4 $ 75 $ 85 $ - $ 164 Interest expense $ 3,056 $ 1,208 $ 4 $ - $ 4,268 May 31, 2022 Net sales $ 172,238 $ 161,068 $ 55,093 $ - $ 388,399 Income from operations $ 36,594 $ 38,074 $ 18,328 $ ( 25,209 ) $ 67,787 Depreciation and amortization expense $ 3,289 $ 2,377 $ 214 $ 260 $ 6,140 Interest income $ - $ - $ 73 $ - $ 73 Interest expense $ 1,502 $ 397 $ 3 $ - $ 1,902 (1) 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. 17 Table of Contents Note 14. Subsequent Events Dividend Declaration On June 20, 2023, the Company’s Board declared a cash dividend of $ 0.83 per share payable on July 31, 2023 to stockholders of record on July 14, 2023. Share Repurchase Plan On June 19, 2023, the Company’s Board approved a new share repurchase plan (the “2023 Repurchase Plan”). Under the 2023 Repurchase Plan, which will become effective on September 1, 2023, the Company is authorized to acquire up to $ 50.0 million of its outstanding shares through August 31, 2025. 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. 18 Table of Contents