WD-40 Company
Annual Report 2014

Plain-text annual report

The Passion of Our People T H E P O W E R O F O U R B R A N D Our Value(s) 2 014 Annual R epor t FY 2014 Results. Solid, Steady, Focused and Deliberate. 11% Return on Sales1 13% Return on Assets2 28% Return on Invested Capital3 1 Calculated as net income for fiscal year 2 Calculated as net income for fiscal 3 Calculated as net operating profit after tax 2014 divided by net sales for 2014. year 2014 divided by total assets at August 31, 2014. divided by average total assets less cash and cash equivalents, short-term investments and noninterest bearing liabilities. Gross Margin (percent) Sales per Employee (in millions) Weighted Average Shares Outstanding (in millions) 5151 51 5050 50 4949 49 51 5151 525252 1.01.022 1.02 1.01 1.01.011 0.99 0.90.999 1.00 1.01.000 0.970.90.977 16.16.77 16.7 17.0 17.17.00 16.0 16.16.00 15.6 15.15.66 15.1 15.15.11 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 Net Sales (in millions) 336.4 342.8 321.5 383.0 368.5 Earnings Per Share (in dollars) Net Income (in millions) 2.87 2.54 2.15 2.14 2.20 36.1 36.4 35.5 43.7 39.8 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 On the cover: Lynda Thomas, Sales Manager, National Accounts, Winner of the 2014 Most Valuable Player Award, Americas 2014 WD-40 Company Annual Report 1 Peter Gach Americas L O G I S T I C S M A N A G E R “In my job, I’m responsible for the freight emissions in fiscal year 2014 – the equiv- to get WD-40 Company products to our alent of taking over 100 cars off the customers. We saw an opportunity to do road. Our strategy reduced our carbon the right thing by converting our footprint and lessened our impact U.S. shipments from trucks to rail whenever feasi- ble. Because rail transit uses less energy and emits fewer greenhouse gasses, we avoided more than 750,000 pounds of carbon dioxide on the environment. It also delivered significant cost savings, directly benefiting our Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). Now every single time we can ship by rail, we do.” We value doing the r ig ht thing. 2 2014 WD-40 Company Annual Report “You don’t build a business. You build people and then people build the business.” Zig Ziglar ONE WORLD. ONE COMPANY. ONE TRIBE. are not the focus of our strategic initiatives and we have At WD-40 Company, we are building economic value for our stockholders by growing and staying true to our Company’s values. First and foremost, we value doing the right thing – for our tribe, our end users and our stockholders. In the pages ahead you’ll hear more about our values, our brands, our solid financial results and the opportunities that are ahead. And who better to tell our growth story than our own tribe? WD-40 Company has some of the strongest consumer product brands in the world. As a global marketing organi- zation, our tribe and our brands are our two most valuable assets. Together with our proven leadership team, a solid balance sheet, and diverse distribution channels across the globe, they are what allow us to continue to grow. reduced our investment in these brands, we continue to sell them because they generate positive cash flows for us. In total we generated net sales of $383 million in fiscal year 2014, an increase of 4% over the previous year and the highest revenue in our Company’s history. Net income was almost $44 million for the year, compared to approximately $40 million in fiscal year 2013. Diluted earnings per share was $2.87 in fiscal year 2014, compared to $2.54 in the previous year. In the second quarter of our 2014 fiscal year we raised our quarterly dividend by 10% to $0.34 per share, which resulted in an annualized dividend of $1.36 per share. With this latest increase, we have now increased our divi- dend in each of the last four years. For us, values are not just words on a page. They bring us together and allow us to execute deliberately on our stra- SOLID PROGRESS tegic initiatives, producing an industry-leading stockholder Once again, we delivered another year of solid progress return on invested capital of 28.2% in fiscal year 2014. Our against a clearly defined set of strategic initiatives. Our key values enable us to work cohesively together as one world, accomplishments for the year included: one company and one tribe. In fiscal year 2014, our tribe delivered another year of solid progress and exceptional results. Our growth path is clear: increasing sales of our multi-purpose maintenance products across the globe. Our multi-purpose maintenance products include WD-40 Multi-Use Product® – the famous blue and yellow can with the little red cap – as well as 3-IN-ONE® and our WD-40 Specialist® and WD-40 BIKE™ Strategic Driver #1: Grow WD-40 Multi-Use Product In fiscal year 2014 we took WD-40 Multi-Use Product to more places for more people with more uses. Sales of our flagship product grew to $303.0 million in fiscal year 2014, up 5% from the prior year, driven by geographic expansion, increased distribution and a higher level of promotional activity. In fiscal year 2014, WD-40 Multi-Use Product was sold in 188 countries worldwide and made up 79% of our product lines. Although our homecare and cleaning products global sales. 2014 WD-40 Company Annual Report 3 Strategic Initiative #2: Grow the WD-40 Specialist Product Line WD-40 Specialist, our first product line worthy of wearing the WD-40 shield, achieved a global sales growth rate of 34% in fiscal year 2014 and greater than double-digit growth across all three of our business segments. We launched the product line in several new countries last year, and we launched WD-40 Specialist Lawn and Garden in Australia at the end of the year. With higher gross margins, the WD-40 Specialist product line represents a sustainable source of revenue and earnings growth. We continue to work on new formulations and delivery systems for future WD-40 Specialist products. Strategic Initiative #3: Broaden Product and Revenue Base We refreshed our 3-IN-ONE brand – the versatile multi- purpose drip oil that has long been a trusted tool used by professional tradesmen and do-it-yourselfers – and introduced many new SKUs in fiscal year 2014. Other new product highlights include the official launch in Australia and Europe of the WD-40 BIKE products, which target the young and growing cycling market. Strategic Initiative #4: Attract, Develop and Retain Outstanding Tribe Members In closing, I want to recognize our dedicated tribe members for continuing to make WD-40 Multi-Use Product available to more people in more places with more uses. Every day they live our values, execute on our strategy and leverage the power of the shield, which in turn delivers growth and value to our stockholders. Our tribe is proud to work at WD-40 Company and it shows. On average, each employee generated nearly $1 million in sales for the WD-40 Company in fiscal year 2014. That’s a remarkable number – and one that speaks to the passion of our people and the power of our brand. As I said before, we value doing the right thing. We continue to focus on doing right by three important groups: our tribe, our end users and our stockholders. Our goal is to cre- ate positive lasting memories with each one of these groups. In the last ten years we’ve been able to double our global sales of multi-purpose maintenance products. We believe that if we execute our strategic initiatives successfully, we have the opportunity to double sales of our multi-purpose maintenance products again over the next ten years. While we will continue to see fluctuations in certain markets from year to year, our long-term growth plans remain solid and we are well positioned to deliver on our expectations. Our people are essential to our success as a global market- Finally, I want to thank you, our stock- ing organization. As measured by our most recent employee engagement survey, our employee engagement score is a reflection of our tribe’s dedication to the Company and is holders. We appreciate your interest and support and look forward to updating you as we continue to build stockholder value the envy of many organizations at 93.7%. Just as import- in the years ahead. ant, 97.6% of our employees love to tell people they work at WD-40 Company, and 99.7% understand how their job contributes to achieving our goals. Strategic Initiative #5: Operational Excellence To operate more efficiently, we completed the initial transi- tion to a major upgrade of our Enterprise Resource Planning (ERP) system in our EMEA business segment and went live with a new global human resources information system in fiscal year 2014. We also managed a smooth transition to a lower Volatile Organic Compound (VOC) formula in California to meet new regulatory requirements. Additionally, we com- pleted a can-sourcing project with a focus on the Americas, as well as improving operational efficiency within our supply chain network. Garry O. Ridge President and Chief Executive Officer 4 2014 WD-40 Company Annual Report Jocelyn Gonzalez Americas M A N A G E R O F F I N A N C I A L A N A L Y S I S F O R T H E A M E R I C A S “Sustaining and growing the WD-40 our tribe and creates new career oppor- Company economy enables us to re- tunities within the organization. Several ward both our stockholders and our tribe. initiatives contributed to the growth of We are a pay-for-performance or- the WD-40 Company economy ganization and every full-time employee is eligible to participate in our Growth Reward Program, which provides incentives for achieving growth and profit targets each year. Growing the WD-40 Company economy also supports the growth of in fiscal year 2014, including a can-sourcing project that reduced costs within EMEA and our Asia-Pacific seg- ments. This project was one of many initiatives that helped us achieve our highest gross margin in a decade.” We value sustaining t he W D-40 C ompany economy . 2014 WD-40 Company Annual Report 5 FOCUS: THE AMERICAS In the Americas, our largest business segment by revenues, we generated sales of $180.8 million in fiscal year 2014, representing 47% of global sales. (cid:26)(cid:7)(cid:487)(cid:886)(cid:882)(cid:3)(cid:22)(cid:19)(cid:8)(cid:6)(cid:12)(cid:4)(cid:15)(cid:12)(cid:22)(cid:23)(cid:3)(cid:19)(cid:8)(cid:17)(cid:8)(cid:23)(cid:21)(cid:4)(cid:17)(cid:23) WD-40 Specialist – our line of best-in-class specialty products for trade professionals – continues to support the WD-40 brand. We are growing sales and adding distribution for our first-ever line extension, with a primary focus on mature markets. Originally piloted and launched in the United States in fiscal year 2012, WD-40 Specialist is now available in all three of our business segments. WD-40 Specialist is expected to be a solid revenue and earnings machine for many years to come. “ In the Americas, we are always innovating our products, packaging, marketing and distribution. We are focused on harnessing innovation and renovation to build on organic growth. For our mature markets, the United Sta States and Canada, that is our biggest tha opp opportunity.” MMiM k Mike Freeman Division President, DDiiv AAmm Americas MEXICO: LATIN AMERICA’S GROWTH ENGINE In Mexico, which represents roughly one third of total sales in Latin America, we grew sales 176% to $6.9 million compared to fiscal year 2013. Improving economic and political conditions as well as collab- oration with our Mexican business partner enabled us to develop and implement programs for international retail customers that resulted in strong success in Mexico for fiscal year 2014. 6 2014 WD-40 Company Annual Report June Smith EMEA A C C O U N T S A S S I S T A N T “Making things better than they are new system will let us add new branch- today is a constant focus here. In May es and new products easily, so it will 2014 I helped roll out a new Enterprise allow us to grow. It was so rewarding Resource Planning ( ERP) software tool to match the needs of our growing business. We first went live in the U.K. and now we’re testing the platform be- fore expanding in Europe over the next year. Our to train our people and see them using the new sys- tem. Through the launch I hope I’ve become a more valuable em- ployee, and I look f o r w a r d t o u s - ing the skills I’ve learned to benefit the Company.” We value making it bet ter than it is today. 2014 WD-40 Company Annual Report 7 (cid:9)(cid:18)(cid:6)(cid:24)(cid:22)(cid:483)(cid:3)(cid:8)(cid:24)(cid:21)(cid:18)(cid:19)(cid:8)(cid:481)(cid:3)(cid:23)(cid:11)(cid:8)(cid:3)(cid:16)(cid:12)(cid:7)(cid:7)(cid:15)(cid:8)(cid:3)(cid:8)(cid:4)(cid:22)(cid:23)(cid:481)(cid:3)(cid:4)(cid:9)(cid:21)(cid:12)(cid:6)(cid:4)(cid:3)(cid:428)(cid:3)(cid:12)(cid:17)(cid:7)(cid:12)(cid:4)(cid:3)(cid:525)(cid:498)(cid:8)(cid:16)(cid:8)(cid:4)(cid:499)(cid:526) EMEA enjoyed another year of strong sales in fiscal year 2014 at $151.4 million, representing 40% of global sales. (cid:26)(cid:7)(cid:487)(cid:886)(cid:882)(cid:3)(cid:22)(cid:19)(cid:8)(cid:6)(cid:12)(cid:4)(cid:15)(cid:12)(cid:22)(cid:23)(cid:3)(cid:16)(cid:18)(cid:23)(cid:18)(cid:21)(cid:5)(cid:12)(cid:14)(cid:8) We created WD-40 Specialist Motorbike, an exciting product line wearing the WD-40® shield, for those who prefer life on two wheels. Since the line’s U.K. launch we have made inroads with motorsports enthusiasts. We have since expanded to the Czech Republic, Germany, Italy and the Netherlands, and the race is on. While it’s still early, sales are already revving up. “ EMEA has more countries than the other business segments put together, so it’s important for us to stay focused as a tribe. We concen- trate on the big opportunity: WD-40 Multi-Use Product. And there is a lot of opportunity bec because of the size and dynamics of and hthe the EMEA region.” BBil Bill Noble MMMa Managing Director, EMEA EEMM GERMANY: (cid:23)(cid:11)(cid:8)(cid:3)(cid:26)(cid:18)(cid:21)(cid:15)(cid:7)(cid:495)(cid:22)(cid:3)(cid:22)(cid:8)(cid:6)(cid:18)(cid:17)(cid:7)(cid:487)(cid:15)(cid:4)(cid:21)(cid:10)(cid:8)(cid:22)(cid:23)(cid:3)(cid:7)(cid:12)(cid:28)(cid:3)(cid:16)(cid:4)(cid:21)(cid:14)(cid:8)(cid:23) (cid:23) (cid:14)(cid:8)(cid:23) ny, the second-largesst A major focus is expanding distribution in Germany, the second- largest do-it-yourself (“DIY”) market in the world after the United States. We are developing our relationships with the biggest players, including major German DIY sheds and hardware groups. With WD-40 Multi-Use Product leading the way, we plan to make our famous blue and yellow can an essential part of every German’s toolbox. 8 2014 WD-40 Company Annual Report Marcus Chen Asia-Pacific R E G I O N A L D I R E C T O R , A S I A “In my 15 years with WD-40 Company, people around the world from R&D, qual- I’ve learned how important relation- ity control, supply chain, marketing and ships are to our growth. In January sales. Then we partnered with 16 dif- 2014 I saw this first-hand when we launched our WD-40 ferent marketing distributors to introduce WD-40 Specialist Specialist product line in Asia. First, as part of our research and product de- velopment process, we needed to work together closely as a team. That products in eight countries. These relationships, along with the sheer determina- tion and commitment of all our tribe members, were essential to a successful meant bringing together launch.” W e val u e cr eat ing posit iv e last ing m e mor i es in all our r e lat ionships . 2014 WD-40 Company Annual Report 9 (cid:9)(cid:18)(cid:6)(cid:24)(cid:22)(cid:483)(cid:3)(cid:4)(cid:22)(cid:12)(cid:4)(cid:487)(cid:19)(cid:4)(cid:6)(cid:12)(cid:9)(cid:12)(cid:6) Asia-Pacific, our business segment with the most emerging markets, produced sales of $50.8 million in fiscal year 2014, representing 13% of global sales. (cid:26)(cid:7)(cid:487)(cid:886)(cid:882)(cid:3)(cid:16)(cid:24)(cid:15)(cid:23)(cid:12)(cid:487)(cid:24)(cid:22)(cid:8)(cid:3)(cid:19)(cid:21)(cid:18)(cid:7)(cid:24)(cid:6)(cid:23) WD-40 Multi-Use Product, the product that started it all, is our key to expanding sales in Asia-Pacific. This “toolkit in a can” has literally thousands of uses and has been the go-to resource to get the job done for over 60 years. Most of its sales come from end users in workshops and factories, and this is especially true in the Asia-Pacific region. “ Our tribe is enthusiastic about growing the core brand in new and existing channels, creating opportu- nities for us to take the WD-40 shield to as many places and people as we can. We are getting the brand in the hands of more people, in places that we haven’t been before. These are exciting times.” Geoff Holdsworth Managing Director, Asia-Pacific CHINA: (cid:10)(cid:8)(cid:4)(cid:21)(cid:12)(cid:17)(cid:10)(cid:3)(cid:24)(cid:19)(cid:3)(cid:9)(cid:18)(cid:21)(cid:3)(cid:15)(cid:18)(cid:17)(cid:10)(cid:487)(cid:23)(cid:8)(cid:21)(cid:16)(cid:3)(cid:10)(cid:21)(cid:18)(cid:26)(cid:23)(cid:11) For us, the opportunity in China is as big and it is as complex as the country itself. Based in Shanghai, our well-established direct sales operations team grew sales by 5% to $12.0 million in fiscal year 2014. While it will take time to grow the China market and we expect sales to fluctuate, we remain committed to building our brand in China over the long term. 10 2014 WD-40 Company Annual Report Aaron Bert Americas C U S T O M E R A N D C H A N N E L D E V E L O P M E N T M A N A G E R “I’m very passionate about what I do, and a category management process that it starts with accountability. As a com- is changing the way we talk with our pany, we believe strongly in the retailers about our products. We are products we offer and our creating opportunities around the ability to get things accom- plished for our end users. When we task ourselves to do something, there’s really not much that can stop us from getting it done. Today I’m rolling out person they are most trying to target: their shopper. Then we offer specific WD-40 Company products to increase their sales – because when their category grows, we grow with it. ” We value owning it and passionately acting on it. 2014 WD-40 Company Annual Report 11 PERFORMANCE GRAPH The following graph compares the cumulative total stockholder return on the Company’s Common Shares to the yearly weighted cumulative return of a peer group of companies, the Standard & Poor’s 500 Composite Index (“S&P 500”) and the Russell 2000 Composite Stock Index for the five fiscal years ending August 31, 2014. In fiscal year 2013 the Company changed the peer group used for comparison purposes for its five-year performance graph to be consistent with the peer group used by the Compensation Committee for purposes of benchmarking executive compensation. There were no changes in fiscal year 2014 to the peer group used by Compensation Committee. The below comparison assumes $100 was invested on August 31, 2009 in the Company’s Common Shares and in each of the indices and assumes reinvestment of dividends. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN $300 $250 $200 $150 $100 $50 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 WD-40 Company S&P 500 Russell 2000 Peer Group FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 WD-40 Company S&P 500 Russell 2000 Peer Group 100.00 100.00 100.00 100.00 134.28 104.91 106.60 112.31 161.24 124.32 130.26 138.19 196.30 146.70 147.71 164.16 239.49 174.13 186.51 218.21 288.04 218.10 219.49 251.83 WD-40 Company’s peer group Index, as most recently approved by the Compensation Committee, is comprised of the following 21 companies: • Aceto Corporation • American Vanguard Corporation • Balchem Corporation • Calgon Carbon Corporation • Cambrex Corporation • Flotek Industries, Inc. • Hawkins, Inc. • Innophos Holdings, Inc. • Innospec, Inc. • Inter Parfums, Inc. • Landec Corporation • Measurement Specialties, Inc. • National Presto Industries Inc. • Nutraceutical International Corporation • Oil-Dri Corporation of America • Park Electrochemical Corporation • Prestige Brands Holdings, Inc. • Quaker Chemical Corporation • Synutra International, Inc. • USANA Health Sciences, Inc. • Zep, Inc. 12 2014 WD-40 Company Annual Report “In fiscal year 2014, we achieved the highest annual gross margin in a decade at 52%, up from 51% in fiscal year 2013. This gross margin improvement was driven by our continued efforts to lower input costs and maximize the value of our brands.” Jay W. Rembolt Vice President, Finance, Treasurer and Chief Financial Officer For WD-40 Company, fiscal year 2014 was another year of steady growth and successful creation of economic value for our stockholders. We remained focused on what we call the 50/30/20 rule, which targets a gross margin above 50% of net sales, a cost of doing business at or below 30% of net sales, and an Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) as a percentage of net sales at or above of 20%. In fiscal year 2014, we achieved the highest annual gross margin we’ve seen in a decade at 52%, up from 51% in fiscal year 2013. Gross margin growth was driven by lower major input costs, includ- ing those related to petroleum-based materials and aerosol cans, as well as price increases and lower discounts offered to our customers. Meanwhile, we kept our cost of doing business at 34%* of net sales in fiscal year 2014, compared to 35%* in the prior fiscal year. A signif- icant portion of our cost of doing business came from three main areas – our tribe; marketing, advertis- ing and promotion; and freight costs to get our product to our customers. Investing in our future is always a high priority. In fiscal year 2014, we con- tinued to invest in brand protection, new prod- uct development, and regulatory and quality assurance. Brand protec- tion is an investment that we will continue to make in order to safeguard one of our most valuable assets, the blue and yellow can with the little red cap. We also remain committed to quality and what we call “innovation and renovation” to keep our product roadmap fresh and relevant. We believe that these investments will position us to achieve long-term growth. EBITDA, the last of our 50/30/20 measures, was 18%* of net sales in fiscal year 2014 compared to 17%* in the prior year. Although we target EBITDA at 20% of net sales, we expect variations from time to time as sales, advertising and promotions and other expenses vary, including investments we make to support our future growth. We continue to maintain a strong balance sheet while generating significant cash and solid stockholder returns. Our capital allocation strategy both supports our long-term growth objectives and allows us to perform at the high end of our peer group in returning capital to stockholders. Our balance sheet included $57.8 million in cash and cash equivalents and $45.0 million in short-term investments as of August 31, 2014 and we had $27.0 million available on our line of credit. In fiscal year 2014, we returned to stock- holders in the form of an annual dividend $1.33 per share, which was up 9% from the previous year. We also continued our share repurchase program, acquiring approximately 602,000 shares of our stock at a total cost of $42.8 million during fiscal year 2014. In total, we delivered a return on invested capital to stockholders of 28.2% in fiscal year 2014. By executing on our strategic initiatives, we have delivered strong financial results while positioning ourselves to capture future opportunities. With our solid financial foundation, we see a long runway of growth ahead. Jay W. Rembolt Vice President, Finance, Treasurer and Chief Financial Officer *For reconciliations to the most comparable U.S. GAAP measures, see the information under the heading “Performance Measures and Non-GAAP Reconciliations” in the attached Annual Report on Form 10-K. TABLE OF CONTENTS WD-40 Company Proxy Statement WD-40 Company Annual Report on Form 10-K WD-40 Company Corporate Information WD-40 COMPANY 1061 Cudahy Place San Diego, California 92110 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To the Stockholders: The 2014 Annual Meeting of Stockholders of WD-40 Company will be held at the following location and for the following purposes: When: Where: Tuesday, December 9, 2014, at 2:00 p.m. Joan B. Kroc Institute for Peace & Justice University of San Diego 5998 Alcala Park San Diego, California 92110 Items of Business: 1. To elect a Board of Directors for the ensuing year and until their successors are elected and qualified; 2. To hold an advisory vote to approve executive compensation; 3. To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for fiscal year 2015; and 4. To consider and act upon such other business as may properly come before the meeting. Who Can Vote: Only the stockholders of record at the close of business on October 15, 2014 are entitled to vote at the meeting. REVIEW YOUR PROXY STATEMENT AND VOTE IN ONE OF FOUR WAYS: VIA THE INTERNET Visit the website listed on your proxy card BY TELEPHONE Call the telephone number on your proxy card BY MAIL Sign, date and return your proxy card in the enclosed envelope IN PERSON Attend the Annual Meeting in San Diego By Order of the Board of Directors Richard T. Clampitt Corporate Secretary San Diego, California October 30, 2014 TABLE OF CONTENTS PROXY STATEMENT SUMMARY GENERAL INFORMATION PRINCIPAL SECURITY HOLDERS ITEM NO. 1: NOMINEES FOR ELECTION AS DIRECTORS AND SECURITY OWNERSHIP OF MANAGEMENT Director Independence Security Ownership of Directors and Executive Officers Nominees for Election as Directors Board Leadership, Risk Oversight and Compensation-Related Risk Board of Directors Meetings, Committees and Annual Meeting Attendance Board of Directors Compensation Director Compensation Table – Fiscal Year 2014 Equity Holding Requirement for Directors Stockholder Communications with Board of Directors Committees ITEM NO. 2: ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION COMPENSATION DISCUSSION AND ANALYSIS Executive Summary of Fiscal Year 2014 Compensation Decisions Governance of Executive Officer Compensation Program Executive Compensation Philosophy and Framework Executive Officer Compensation Decisions Other Compensation Policies Accounting Considerations COMPENSATION COMMITTEE REPORT SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE EXECUTIVE COMPENSATION Summary Compensation Table Grants of Plan-Based Awards - Fiscal Year 2014 Outstanding Equity Awards at 2014 Fiscal Year End Option Exercises and Stock Vested - Fiscal Year 2014 Supplemental Death Benefit Plans and Supplemental Insurance Benefits Change of Control Severance Agreements AUDIT COMMITTEE REPORT ITEM NO. 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Audit Fees Audit-Related Fees Tax Fees All Other Fees STOCKHOLDER PROPOSALS Page 1 2 3 3 4 6 9 10 10 11 11 11 12 15 16 16 17 18 19 25 26 26 27 27 28 29 30 31 31 32 33 35 35 35 35 36 36 [THIS PAGE INTENTIONALLY LEFT BLANK] PROXY STATEMENT SUMMARY We provide below highlights of certain information in this Proxy Statement. As it is only a summary, please refer to the complete Proxy Statement and 2014 Annual Report before you vote. 2014 ANNUAL MEETING OF STOCKHOLDERS Date and Time: December 9, 2014, at 2:00 p.m. Record Date: October 15, 2014 Place: Joan B. Kroc Institute for Peace & Justice University of San Diego 5998 Alcala Park San Diego, California 92110 Meeting Webcast: www.wd40company.com in the Investor Relations section beginning at 2:00 p.m. Pacific Time on December 9, 2014 CORPORATE GOVERNANCE Our Corporate Governance Policies Reflect Best Practices • Annual election of all directors • Independent chair • Executive sessions of independent directors held at each regularly scheduled board meeting • Company policy prohibits pledging and hedging of WD-40 Company stock • Seven of eight directors are independent • All equity grants received by directors since 2007 must be held until board service is ended • Independent chair approves board meeting agendas VOTING MATTERS AND BOARD RECOMMENDATIONS Management Proposals: Election of Directors (Item No. 1) Advisory Vote To Approve Executive Compensation Board’s Recommendation FOR all Director Nominees FOR (Item No. 2) Ratification of appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for fiscal year 2015 (Item No. 3) FOR Page 3 15 3 5  EXECUTIVE COMPENSATION PHILOSOPHY AND FRAMEWORK Compensation Objectives The Company’s executive compensation program is designed to achieve five primary objectives: 1. Attract, motivate, reward and retain high performing executives; 2. Align the interests and compensation of executives with the value created for stockholders; 3. Create a sense of motivation among executives to achieve both short- and long-term Company objectives; 4. Create a direct, meaningful link between business and team performance and individual accomplishment and rewards; and 5. Ensure our compensation programs are appropriately competitive in the relevant labor markets. Our Executive Compensation Programs Incorporate Strong Governance Features • No Employment Agreements with Executive Officers • No Supplemental Executive Retirement Plans for Executive Officers • Long-Term Incentive Awards are Subject to Double-Trigger Vesting upon Change of Control • Annual and Long-Term Incentive Programs Provide a Balanced Mix of Goals for Profitability and Total Stockholder Return Performance • Executive Officers are Subject to Strong Stock Ownership Guidelines • Executives are Prohibited from Hedging or Pledging Company Stock • No Backdating or Re-pricing of Equity Awards • Financial Goals for Performance Awards Never Reset Say-on-Pay Voting At the Company’s 2011 Annual Meeting of Stockholders, the first advisory Say-on-Pay vote was held and the Company’s stockholders were also asked to express their preference as to the frequency of future Say-on-Pay votes. With regard to the advisory vote as to the frequency of future Say-on-Pay votes, the Company’s stockholders expressed a preference to have Say-on-Pay votes every year. The Say-on-Pay votes approving the Named Executive Officers (“NEOs”) compensation for 2011 through 2013 have been approved in each year by more than 95% of the votes cast. Please see the Compensation Discussion and Analysis section of this proxy statement for a detailed description of our executive compensation. GENERAL INFORMATION Q: Why am I receiving these proxy materials? A: This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of WD-40 Company for use at its Annual Meeting of Stockholders to be held on Tuesday, December 9, 2014, and at any postponements or adjournments thereof. This Proxy Statement and enclosed form of Proxy are first sent to stockholders on or about October 30, 2014. At the meeting, the stockholders of WD-40 Company will consider and vote upon (i) the election of the Board of Directors for the ensuing year; (ii) an advisory vote to approve executive compensation; and (iii) the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for fiscal year 2015. Detailed information concerning these matters is set forth below. Management knows of no other business to come before the meeting. Q: What constitutes a quorum in order to hold and transact business at the Annual Meeting? A: The close of business on October 15, 2014, is the record date for stockholders entitled to notice of and to vote at the Annual Meeting of Stockholders of WD-40 Company. On October 15, 2014, WD-40 Company had outstanding 14,633,820 shares of $.001 par value common stock. Stockholders of record entitled to vote at the meeting will have one vote for each share so held on the matters to be voted upon. If you are a beneficial owner whose shares are held of record by a broker, you must instruct the broker how to vote your shares. If you do not provide voting instructions, your shares will not be voted on any proposal on which the broker does not have discretionary authority to vote. This is called a “broker non-vote.” A majority of the outstanding shares will constitute a quorum at the meeting. Abstentions and broker non-votes are counted for purposes of determining the presence or absence of a quorum. Broker non- votes are shares that are held of record by a bank or broker as to which the bank or broker has not received instructions from the beneficial owner as to how the shares are to be voted. Q: If I hold my shares through a broker, how do I vote? A: If you are a beneficial owner whose shares are held of record by a broker, you must instruct the broker how to vote your shares. If you do not provide voting instructions, your shares will not be voted on any proposal on which the broker does not have discretionary authority to vote. If you hold your shares through a broker, it is important that you cast your vote if you want it to count in the election of directors and in the advisory vote to approve executive compensation. You may have received a notice from the Company entitled “Important Notice Regarding the Availability of Proxy Materials Stockholder Meeting to Be Held on December 9, 2014” with voting instructions or you may have received these proxy materials with separate voting instructions. Follow the instructions to vote or to request further voting instructions as set forth on the materials you have received. For more information on this topic, see the Securities and Exchange Commission (“SEC”) Investor Alert issued in February 2010 entitled “New Shareholder Voting Rules for the 2010 Proxy Season at http://www.sec.gov/investor/alerts/votingrules2010.htm. Q: How will my vote be cast if I provide instructions or return my Proxy and can I revoke my proxy? A: If the enclosed form of Proxy is properly executed and returned, the shares represented thereby will be voted in accordance with the instructions specified thereon. If no specified instruction is given with respect to a particular matter on your form of Proxy, your shares will be voted by the proxy holder as set forth on the form of Proxy. A Proxy may be revoked by attendance at the meeting or by filing a Proxy bearing a later date with the Secretary of the Company. Q: How are the proxies solicited and what is the cost? A: The cost of soliciting proxies will be borne by the Company. Solicitations other than by mail may be made by telephone or in person by employees of the Company for which the expense will be nominal. 1 PRINCIPAL SECURITY HOLDERS The following table sets forth information concerning those persons known to the Company to be the beneficial owners of more than 5% of the common stock of the Company. Name and Address of Beneficial Owner BlackRock, Inc. 40 East 52nd Street New York, NY 10022 Parnassus Investments 1 Market Street, Suite 1600 San Francisco, CA 94105 The Vanguard Group, Inc. 100 Vanguard Boulevard Malvern, PA 19355-2331 Kayne Anderson Rudnick Investment Management, LLC 1800 Avenue of the Stars, 2nd Floor Los Angeles, CA 90067 Amount and Nature of Beneficial Ownership October 15, 2014 1 1,225,597 2 1,183,870 3 970,348 4 855,600 Percent of Class 8.38% 8.09% 6.63% 5.85% 1 2 3 4 As of June 30, 2014, BlackRock, Inc. (“BlackRock”) and five BlackRock subsidiary investment managers filed reports on Form 13F with the Securities and Exchange Commission to report beneficial ownership of a total of 1,225,597 shares. BlackRock disclaims investment discretion with respect to all shares reported as beneficially owned by its investment management subsidiaries. Sole investment discretion and sole voting authority with respect to shares is reported for the following BlackRock subsidiaries: BlackRock Advisors, LLC as to 1,151,359 shares, BlackRock, Inc. as to 48,722 shares, BlackRock Investment Management (UK) Limited as to 16,635 shares, BlackRock Investment Management, LLC as to 8,434 shares and three other BlackRock subsidiaries as to a total of 447 shares. Beneficial ownership information for BlackRock, Inc. and its investment management subsidiaries as of October 15, 2014 is unavailable. As of June 30, 2014, Parnassus Investments (“Parnassus”) filed a report on Form 13F with the Securities and Exchange Commission to report beneficial ownership of 1,183,870 shares. Parnassus reported sole investment discretion and sole voting authority with respect to all shares. Beneficial ownership information as of October 15, 2014 is unavailable. As of June 30, 2014, The Vanguard Group, Inc. (“Vanguard”) filed a report on Form 13F with the Securities and Exchange Commission to report beneficial ownership of 970,348 shares, including 20,271 shares held by Vanguard Fiduciary Trust Company with respect to which Vanguard Fiduciary Trust Company reports shared investment discretion and sole voting authority. Vanguard reported sole investment discretion and no voting authority with respect to 948,877 shares and sole investment discretion and sole voting authority with respect to 1,200 shares. Beneficial ownership information as of October 15, 2014 is unavailable. As of June 30, 2014, Kayne Anderson Rudnick Investment Management LLC (“Kayne”) filed a report on Form 13F with the Securities and Exchange Commission to report beneficial ownership of 855,600 shares. Kayne reported sole investment discretion and sole voting authority with respect to all shares. Kayne is also included as a manager in a report on Form 13F filed by Bank of New York Mellon Corp. as of June 30, 2014, reporting beneficial ownership of 46,000 shares with respect to which Kayne has shared investment discretion and no voting authority. Beneficial ownership information as of October 15, 2014 is unavailable. 2 ITEM NO. 1 NOMINEES FOR ELECTION AS DIRECTORS AND SECURITY OWNERSHIP OF MANAGEMENT At the Company’s Annual Meeting of Stockholders, the eight nominees named below under the heading, Nominees for Election as Directors, will be presented for election as directors until the next Annual Meeting of Stockholders and until their successors are elected or appointed. In the event any nominee is unable or declines to serve as a director at the time of the Annual Meeting, any proxy granted to vote for such nominee will be voted for a nominee designated by the present Board of Directors to fill such vacancy. The nominees for election to the Board of Directors who receive a plurality of the votes cast for the election of directors by the shares present, in person or by proxy, shall be elected as directors. Holders of common stock are not entitled to cumulate their votes in the election of directors. Withheld votes and broker non-votes are not counted as votes in favor of any nominee. Since the eight nominees receiving the most votes will be elected as directors, withheld votes and broker non-votes will have no effect upon the outcome of the election. Article III, Section 2 of the Bylaws of the Company, approved by stockholders on December 9, 2008, provides that the authorized number of directors of the Company shall not be less than seven nor more than twelve until changed by amendment of the Certificate of Incorporation or by a bylaw duly adopted by the stockholders. The exact number of directors is to be fixed from time to time by a bylaw or amendment thereof duly adopted by the stockholders or by resolution of the Board of Directors. The number of directors was fixed at eight effective as of December 13, 2011 by resolution of the Board of Directors adopted on October 11, 2011. DIRECTOR INDEPENDENCE The Board of Directors has determined that each director and nominee other than Garry O. Ridge is an independent director as defined in Rule 5605(a)(2) of the Marketplace Rules of The Nasdaq Stock Market LLC (the “Nasdaq Rules”). In considering the independence of directors, the Board of Directors considered Gregory A. Sandfort’s indirect interest, as an executive officer of Tractor Supply Company, in purchases of the Company’s products made by Tractor Supply Company in the ordinary course of business. The Company has concluded that Mr. Sandfort’s indirect interest in such transactions is not material and does not require specific disclosure under Item 404(a) of Regulation S-K promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”). Information concerning the independence of directors serving on committees of the Board of Directors is provided below as to each committee. 3 SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS The following tables set forth certain information, including beneficial ownership of the Company’s common stock, for the current directors, for the executive officers named in the Summary Compensation Table below, and for all directors and executive officers as a group. Director/Nominee Giles H. Bateman Peter D. Bewley Age 69 68 Principal Occupation Investor; Retired CFO, Price Club Investor; Retired General Counsel, Amount and Nature of Beneficial Ownership October 15, 2014 1 Director Since 2003 2005 Number 18,832 2 27,892 3 Percent of Class * * The Clorox Company Richard A. Collato 71 Investor, Retired President & CEO, YMCA of San Diego County Mario L. Crivello Linda A. Lang 74 56 Investor Investor; Retired Chairman & CEO, Jack in the Box, Inc. Garry O. Ridge 58 President and CEO, WD-40 Company Gregory A. Sandfort Neal E. Schmale 59 68 President and CEO, Tractor Supply Company Board Chair, WD-40 Company; Retired President and COO, Sempra Energy 2003 1994 2004 1997 2011 2001 22,587 4 * 706,148 5 22,770 6 4.82% * 74,371 7 11,498 8 28,642 9 * * * Less than one (1) percent. All shares owned directly unless otherwise indicated. * 1 2 Mr. Bateman has the right to acquire 7,300 shares upon the exercise of stock options and the right to receive 7,567 shares upon settlement of restricted stock units upon termination of his service as a director of the Company. 3 Mr. Bewley has the right to acquire 9,800 shares upon the exercise of stock options and the right to receive 12,611 shares upon settlement of restricted stock units upon termination of his service as a director of the Company. 4 Mr. Collato has the right to acquire 9,800 shares upon the exercise of stock options and the right to receive 8,815 shares upon settlement of restricted stock units upon termination of his service as a director of the Company. 5 Mr. Crivello has the right to receive 6,801 shares upon settlement of restricted stock units upon termination of his service as a director of the Company. 6 Ms. Lang has the right to acquire 7,300 shares upon the exercise of stock options and the right to receive 11,828 shares upon settlement of restricted stock units upon termination of her service as a director of the Company. 7 Mr. Ridge has the right to acquire 20,000 shares upon exercise of stock options, the right to receive 5,884 shares upon settlement of restricted stock units upon termination of employment and the right to receive 5,233 shares upon settlement of restricted stock units upon vesting within 60 days. Mr. Ridge also has voting and investment power over 1,190 shares held under the Company’s 401(k) plan. 8 Mr. Sandfort has the right to receive 6,398 shares upon settlement of restricted stock units upon termination of his service as a director of the Company. 9 Mr. Schmale has the right to acquire 7,300 shares upon the exercise of stock options and the right to receive 12,611 shares upon settlement of restricted stock units upon termination of his service as a director of the Company. 4 SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS (Continued) Executive Officer Jay W. Rembolt Michael J. Irwin Age 63 51 Michael L. Freeman William B. Noble 61 56 Principal Occupation Vice President, Finance, Treasurer and Chief Financial Officer Executive Vice President, Global Business Development Group Division President, the Americas, WD-40 Company Managing Director, EMEA, WD-40 Company Limited All Directors and Executive Officers as a Group Amount and Nature of Beneficial Ownership October 15, 2014 1 Number 39,264 2 7,145 3 25,302 4 7,539 5 998,877 6 Percent of Class * * * * 6.75% Less than one (1) percent. All shares owned directly unless otherwise indicated. * 1 2 Mr. Rembolt has the right to acquire 16,160 shares upon exercise of stock options and the right to receive 1,300 shares upon settlement of restricted stock units upon vesting within 60 days. Mr. Rembolt also has voting and investment power over 5,977 shares held under the Company’s 401(k) plan. 3 Mr. Irwin has the right to receive 3,971 shares upon settlement of restricted stock units upon termination of employment and the right to receive 874 shares upon settlement of restricted stock units upon vesting within 60 days. Mr. Irwin also has voting and investment power over 829 shares held under the Company’s 401(k) plan. 4 Mr. Freeman has the right to receive 3,971 shares upon settlement of restricted stock units upon termination of employment and the right to receive 1,388 shares upon settlement of restricted stock units upon vesting within 60 days. Mr. Freeman also has voting and investment power over 2,264 shares held under the Company’s 401(k) plan. 5 Mr. Noble has the right to receive 3,971 shares upon settlement of restricted stock units upon termination of employment and the right to receive 6 969 shares upon settlement of restricted stock units upon vesting within 60 days. Total includes the rights of directors and executive officers to acquire 77,660 shares upon exercise of stock options, the rights of executive officers and directors to receive a total of 84,428 shares upon settlement of restricted stock units upon termination of employment or service as a director of the Company, the rights of executive officers to receive a total of 10,697 shares upon settlement of restricted stock units upon vesting within 60 days, and 10,389 shares held by executive officers under the Company’s 401(k) plan. 5 NOMINEES FOR ELECTION AS DIRECTORS GILES H. BATEMAN – Director Giles H. Bateman was elected to the Board of Directors in 2003. Mr. Bateman has been retired since 2000. He was a co- founder and Chief Financial Officer of Price Club from 1976 until 1991. Mr. Bateman served as director and Chairman of CompUSA, Inc. from 1994 until 2000. Mr. Bateman served as a director of Tuesday Morning, Inc. from 2002 until 2006 and as a director of United PanAm Financial Corp. from 2006 until 2010. He presently serves as a director of Life Time Fitness, Inc. Mr. Bateman’s financial expertise, considerable public company board experience and knowledge of the retail industry provide the Board with a breadth of relevant skill and experience. Skills and Expertise: (cid:120) Former CFO with in-depth financial expertise (cid:120) Strong consumer retail background (cid:120) Broad public company board experience Committees: (cid:120) Audit (Chair) (cid:120) Finance PETER D. BEWLEY– Director Peter D. Bewley was appointed to the Board of Directors in 2005. Mr. Bewley served as Associate General Counsel for Johnson & Johnson from 1985 to 1994 after serving as a staff attorney with Johnson & Johnson from 1977 to 1985. He was Vice President, General Counsel and Secretary and Chief Compliance Officer of Novacare, Inc. from 1994 to 1998. Mr. Bewley was the Senior Vice President–General Counsel and Secretary of The Clorox Company from 1998 until his retirement in 2005. He presently serves as a director of Tractor Supply Company. Mr. Bewley’s experience at consumer packaged goods companies prepared him to address strategic issues confronting the Company. In addition, his service as general counsel and secretary of two public companies provides the Board with a practical and in depth perspective on corporate governance and legal matters. Skills and Expertise: (cid:120) Former General Counsel with extensive legal experience (cid:120) Governance expert (cid:120) Consumer packaged goods industry background Committees: (cid:120) Governance (Chair) (cid:120) Audit (cid:120) Compensation RICHARD A. COLLATO – Director Richard A. Collato was elected to the Board of Directors in 2003. Mr. Collato served as President and Chief Executive Officer of the YMCA of San Diego County from 1981 until his retirement in 2010. He is currently a General Manager of Ingold Family Investments, LLC. Mr. Collato served as a director of Surge Global Energy, Inc. from 2006 to 2008, as a director of Sempra Energy from 1993 to 2010 and as a director of PepperBall Technologies, Inc. from 2008 to February 2011. Mr. Collato has extensive public and private company board experience and 29 years of successful CEO experience. He serves on the board of the Corporate Directors Forum and is an adjunct professor at the University of San Diego’s graduate program, teaching corporate governance. His understanding of corporate governance and management theory and practice makes him a contributing member of the Board. Skills and Expertise: (cid:120) Former CEO with deep management experience (cid:120) Particular expertise in compensation and risk management (cid:120) Knowledgeable in governance matters 6 Committees: (cid:120) Compensation (Chair) (cid:120) Audit MARIO L. CRIVELLO – Director Mario L. Crivello was elected to the Board of Directors in 1994. Mr. Crivello was the managing owner and master of Tuna Purse Seiners until his retirement in 1984. Mr. Crivello and members of his family have been investors in the Company since its founding. His long-standing relationship with the Company and his insight into its history and market position provide the Board with a valuable shareowner perspective. Skills and Expertise: (cid:120) Institutional knowledge from the Company’s beginning (cid:120) Significant shareholder with strong shareholder perspective (cid:120) Former business owner with focus on cost management and return Committees: (cid:120) Compensation (cid:120) Finance (cid:120) Governance LINDA A. LANG – Director Linda A. Lang was elected to the Board of Directors in 2004. Ms. Lang was Chairman of the Board and Chief Executive Officer of Jack in the Box, Inc. from 2005 until her retirement in January 2014. From 1996 until 2005 she held the offices of President and Chief Operating Officer, Executive Vice President, Senior Vice President Marketing, Vice President and Regional Vice President, Southern California Region, and Vice President Marketing. Ms. Lang has extensive knowledge and expertise in the areas of brand management and marketing, financial management and reporting, supply chain and distribution management as well as strategic planning, executive compensation and succession management. Her experience in these and other areas of corporate management and governance offer complementary experience to the Board. Skills and Expertise: (cid:120) Former CEO in touch with today’s consumer (cid:120) (cid:120) Strong focus on strategy development, strategic planning and strategy execution In depth experience in brand management, finance, distribution and compensation Committees: (cid:120) Finance (Chair) (cid:120) Compensation GARRY O. RIDGE – President & CEO Garry O. Ridge joined WD-40 Company in 1987 as Managing Director, WD-40 Company (Australia) Pty. Limited and he was responsible for Company operations throughout the Pacific and Asia. Mr. Ridge transferred to the corporate office in 1994 as Director International Operations and was elected Vice President - International in 1995. He was elected to the position of Executive Vice President/Chief Operating Officer in 1996 and he was named President and Chief Executive Officer in 1997. He was also elected to the Board of Directors in 1997. Prior to joining WD-40 Company Mr. Ridge was Managing Director of Mermax Pacific Pty. Ltd. and held a number of senior management positions with Hawker Pacific Pty. Ltd. (a Hawker Siddeley PLC Group Company) which was a licensee for WD-40 until 1988. As the CEO of the Company, Mr. Ridge offers the Board an important Company-based perspective. In addition, his particular knowledge of the Company’s international markets and industry position provides the Board with valuable insight. Skills and Expertise: (cid:120) CEO of the Company (cid:120) Leader with a passion for a strong culture, employee engagement and protecting and maximizing the return on the Company’s brand assets (cid:120) Particular expertise in driving a global business 7 GREGORY A. SANDFORT – Director Gregory A. Sandfort was elected to the Board of Directors in October 2011. Mr. Sandfort assumed the role of President and Chief Executive Officer of Tractor Supply Company in January 2013. Mr. Sandfort served as President and Chief Operating Officer of Tractor Supply Company since 2012. Mr. Sandfort served as President and Chief Merchandising Officer of Tractor Supply Company since 2009 and he served as Executive Vice President-Chief Merchandising Officer of Tractor Supply Company from 2007 to 2009. Mr. Sandfort previously served as President and Chief Operating Officer at Michael’s Stores, Inc. from 2006 to 2007, and as Executive Vice President-General Merchandise Manager at Michaels Stores, Inc. from 2004 to 2006. Mr. Sandfort brings a retail industry perspective to the board. The board also values Mr. Sandfort’s extensive management experience in the retail industry. Skills and Expertise: (cid:120) Active CEO in a channel that distributes the Company’s products (cid:120) Brings a retail industry perspective (cid:120) Direct connection with consumers of the Company’s products Committees: (cid:120) Finance (cid:120) Governance NEAL E. SCHMALE – Chair Neal E. Schmale was elected to the Board of Directors in 2001. Mr. Schmale was named Board Chair in 2004. Mr. Schmale was President and Chief Operating Officer of Sempra Energy from 2006 until his retirement effective as of November 1, 2011. Previously, he was Executive Vice President and Chief Financial Officer of Sempra Energy from 1998 through 2005. Mr. Schmale served as a director of Sempra Energy from 2004 until November 1, 2011. He presently serves as a director of Murphy Oil Corporation. Mr. Schmale’s past experience as director on four public company boards and his extensive senior management experience with a Fortune 300 company offers the Board valuable judgment and management perspective. Skills and Expertise: (cid:120) Former COO and CFO with broad financial and operations experience (cid:120) Focused on strategy and execution (cid:120) Extensive public company board experience Committees: (cid:120) Audit (cid:120) Finance (cid:120) Governance 8 BOARD LEADERSHIP, RISK OVERSIGHT AND COMPENSATION-RELATED RISK The Board of Directors of WD-40 Company has maintained separation of its principal executive officer and board chair positions for many years. In addition, the board chair position is held by an independent director and the Charter of the Corporate Governance Committee provides that a retiring Chief Executive Officer will not be nominated to stand for re- election to the Board. The Board of Directors believes that separation of the principal executive officer and the board chair positions is appropriate for the Company given the size of the Board and the need for undivided attention of the Chief Executive Officer to the implementation of strategic directives and overall management responsibilities. As an independent director, the board chair can provide leadership to the Board without perceived or actual conflicts associated with individual and collective interests of management employees. The Board of Directors believes that a retiring Chief Executive Officer should not continue to serve as a director in order to provide management with an unfettered ability to provide new leadership. Risk oversight is undertaken by the Board of Directors as a whole but various Board Committees are charged with responsibility to review and report on business and management risks included within the purview of each Committee’s responsibilities. The Compensation Committee considers risks associated with the Company’s compensation policies and practices, with particular focus on the incentive bonus and equity awards offered to the Company’s executive officers. The Audit Committee considers risks associated with financial reporting and internal control and risks related to information technology catastrophe and disaster recovery, as well as management of the Company’s insurance risks and coverage. The Finance Committee considers risks associated with the Company’s financial management and investment activities, acquisition-related risks and Employee Retirement Income Security Act of 1974 plan oversight. The Board and the Committees receive periodic reports from management employees having responsibility for the management of particular areas of risk. The Chief Executive Officer is responsible for overall risk management and provides input to the Board of Directors with respect to the Company’s risk management process and is responsive to the Board in carrying out its risk oversight role. With respect to compensation-related risk, the Company’s management has undertaken an annual assessment of the Company’s compensation policies and practices and strategic business initiatives to determine whether any of these policies or practices, as well as any compensation plan design features, including those applicable to the executive officers, are reasonably likely to have a material adverse effect on the Company. Based on this review, management has concluded that the Company’s compensation policies and practices are not reasonably likely to have a material adverse effect on the Company. This conclusion is based primarily on the fact that the incentives underlying most of the Company’s compensation plan design features are directed to a balance between increased revenues, increased profitability and achievement of longer-term strategic objectives. Management has discussed these findings with the Compensation Committee. 9 BOARD OF DIRECTORS MEETINGS, COMMITTEES AND ANNUAL MEETING ATTENDANCE The Board of Directors is charged by the stockholders with managing or directing the management of the business affairs and exercising the corporate power of the Company. The Board of Directors relies on the following standing committees to assist in carrying out the Board of Directors’ responsibilities: the Audit Committee, the Compensation Committee, the Corporate Governance Committee and the Finance Committee. Each of the committees has a written charter approved by the Board of Directors and such charters are available on WD-40 Company’s website at http://www.wd40company.com within the “Investors” section. There were six meetings of the Board of Directors during the last fiscal year. Each director serving for the full fiscal year attended at least 75 percent of the aggregate of the total number of meetings of the Board and of all committees on which the director served. The Board of Directors holds an annual organizational meeting on the date of the Annual Meeting of Stockholders. All Directors are expected to attend the Annual Meeting. At the last Annual Meeting of Stockholders, all nominee directors were present. BOARD OF DIRECTORS COMPENSATION Director compensation is set by the Board of Directors upon the recommendation of the Corporate Governance Committee. The Corporate Governance Committee conducts an annual review of non-employee director compensation, including consideration of a survey of director compensation for the same peer group of companies used by the Compensation Committee for the assessment of executive compensation. The compensation advisor serving the Compensation Committee, Compensia, Inc., has also provided guidance and analysis to the Corporate Governance Committee with respect to non-employee director compensation recommendations. For fiscal year 2014, non-employee directors received compensation for services as directors pursuant to the Directors’ Compensation Policy and Election Plan (the “Director Compensation Policy”) adopted by the Board of Directors on October 15, 2013. Pursuant to the Director Compensation Policy, non-employee directors received a base annual fee of $36,500 for services provided from January 1, 2014 through the date of the Company’s 2014 Annual Meeting of Stockholders. The Board Chair received an additional annual fee of $18,000. Non-employee directors received additional cash compensation for service on various Board Committees. The Chair of the Audit Committee received $16,000 and each other member of the Audit Committee received $8,000. The Chair of the Compensation Committee received $10,000 and each other member of the Compensation Committee received $4,000. Each Chair of the Corporate Governance Committee and the Finance Committee received $8,000 and each other member of those committees received $4,000. All such annual fees were paid in March 2014. In December 2007, the Company’s stockholders approved the WD-40 Company 2007 Stock Incentive Plan (the “Stock Incentive Plan”) to authorize the issuance of stock-based compensation awards to employees as well as to directors and consultants. For services provided for the period from the date of the Company’s 2013 Annual Meeting of Stockholders to the next annual meeting, the Director Compensation Policy provided for the grant of restricted stock unit (“RSU”) awards having a grant date value of $51,500 to each non-employee director. Each RSU represents the right to receive one share of the Company’s common stock. On December 10, 2013, each non-employee director received an RSU award covering 687 shares of the Company’s common stock. Additional information regarding the RSU awards is provided in a footnote to the Director Compensation table below. Each non-employee director was also permitted to elect to receive an RSU award in lieu of all or a portion of his or her base annual fee for service as a director as specified above. The number of shares of the Company’s common stock subject to each such RSU award granted to the non-employee directors equaled the compensation payable in RSUs divided by the fair market value of the Company’s common stock as of the date of grant. RSU awards granted to non-employee directors pursuant to the Director Compensation Policy are subject to Award Agreements under the Stock Incentive Plan. All RSU awards granted to non-employee directors are fully vested and are settled in shares of the Company’s common stock upon termination of the director’s service as a director of the Company. The Company also maintains a Director Contributions Fund from which each incumbent non-employee director has the right, at a specified time each fiscal year, to designate $6,000 in charitable contributions to be made by the Company to properly qualified (under Internal Revenue Code Section 501(c)(3)) charitable organizations. 10 DIRECTOR COMPENSATION TABLE - FISCAL YEAR 2014 The following Director Compensation table provides information concerning director compensation earned by each non- employee director for services rendered in fiscal year 2014. Since the annual base fee and fees for service on Committees are payable for services provided to the Company from January 1st of the fiscal year until the next annual meeting of stockholders, such compensation is reported for purposes of the Director Compensation table on a weighted basis. For fiscal year 2014, one third of the reported compensation earned or paid in cash is based on the Director Compensation Policy in effect for calendar year 2013 and two thirds of the reported compensation earned or paid in cash is based on the Director Compensation Policy in effect for calendar year 2014. Amounts earned and reported in the Director Compensation table for Fees Earned or Paid in Cash for the fiscal year for each director are dependent upon the various committees on which each director served as a member or as chair during the fiscal year. Name Giles H. Bateman Peter D. Bewley Richard A. Collato Mario L. Crivello Fees Earned or Paid in Cash ($)1 Option Awards ($)3 $ 56,000 $ 51,429 $ - $ 6,000 $ 113,429 $ 56,000 $ 51,429 $ - $ 6,000 $ 113,429 Stock Awards ($)2 Total ($) All Other Compensation ($)4 $ 54,000 $ 51,429 $ - $ 6,000 $ 111,429 $ 48,000 $ 51,429 $ - $ 6,000 $ 105,429 Linda A. Lang Gregory A. Sandfort $ 48,000 $ 51,429 $ - $ 6,000 $ 105,429 $ 44,000 $ 51,429 $ - $ 6,000 $ 101,429 Neal E. Schmale $ 68,667 $ 51,429 $ - $ 6,000 $ 126,096 1 2 For services rendered during fiscal year 2014, directors received RSU awards pursuant to elections made in 2012 and 2013 under the Director Compensation Policy with respect to their services as directors in calendar years 2013 and 2014, respectively, in each case in lieu of all or part of their base annual fees for such calendar year (as described in the narrative preceding the Director Compensation table) as follows: Peter D. Bewley, Linda A. Lang, Gregory A. Sandfort and Neal E. Schmale received RSU awards valued at $35,965. Amounts included in the Stock Awards column represent the grant date fair value for non-elective RSU awards granted to all non-employee directors pursuant to the Director Compensation Policy. On December 10, 2013, each director received a non-elective RSU award covering 687 shares of the Company’s common stock. Each RSU award has a grant date fair value equal to the closing price of the Company’s common stock on that date in the amount of $74.86 per share multiplied by the number of shares underlying the RSU award. The number of shares underlying each RSU award is rounded down to the nearest whole share. Outstanding RSUs held by each director as of October 15, 2014 are reported above in footnotes to the table under the heading, Security Ownership of Directors and Executive Officers. The RSUs are settled in stock only upon termination of service as a director and the RSUs provide for the payment of dividend equivalent compensation in amounts equal to dividends declared and paid on the Company’s common stock. 3 Outstanding options held by each director as of October 15, 2014 are reported above in footnotes to the table under the heading, Security Ownership of Directors and Executive Officers. 4 Amounts represent charitable contributions made by the Company as designated by each non-employee director pursuant to the Company’s Director Contribution Fund. EQUITY HOLDING REQUIREMENT FOR DIRECTORS All RSU awards to non-employee directors, including both non-elective grants and RSU awards granted pursuant to the annual elections of the directors to receive RSUs in lieu of all or part of their base annual fee, provide for immediate vesting but will not be settled in shares of the Company’s common stock until termination of each director’s service as a director. The number of shares to be issued to each non-employee director upon termination of service is disclosed in the footnotes to the table under the heading, Security Ownership of Directors and Executive Officers. STOCKHOLDER COMMUNICATIONS WITH BOARD OF DIRECTORS Stockholders may send communications to the Board of Directors by submitting a letter addressed to: WD-40 Company, Corporate Secretary, 1061 Cudahy Place, San Diego, CA 92110. The Board of Directors has instructed the Corporate Secretary to forward such communications to the Board Chair. The Board of Directors has also instructed the Corporate Secretary to review such correspondence and, at the Corporate Secretary’s discretion, to not forward correspondence which is deemed of a commercial or frivolous nature or inappropriate for Board of Director consideration. The Corporate Secretary may also forward the stockholder communication within the Company to another department to facilitate an appropriate response. 11 COMMITTEES Director Giles H. Bateman Peter D. Bewley Richard A. Collato Mario L. Crivello Linda A. Lang Gregory A. Sandfort Neal E. Schmale Number of Meetings Held in Fiscal Year 2014 CORPORATE GOVERNANCE COMMITTEE NOMINATION POLICIES AND PROCEDURES Audit Chair (cid:57)(cid:57)(cid:3)(cid:3) (cid:57)(cid:57)(cid:3)(cid:3) (cid:57)(cid:57)(cid:3)(cid:3) 5 Compensation Governance (cid:57)(cid:57)(cid:3)(cid:3) Chair (cid:57)(cid:57)(cid:3)(cid:3) (cid:57)(cid:57)(cid:3)(cid:3) 3 Chair (cid:57)(cid:57)(cid:3)(cid:3) (cid:57)(cid:57)(cid:3)(cid:3) (cid:57)(cid:57)(cid:3)(cid:3) 4 Finance (cid:57)(cid:57)(cid:3)(cid:3) (cid:57)(cid:57)(cid:3)(cid:3) Chair (cid:57)(cid:57)(cid:3)(cid:3) (cid:57)(cid:57)(cid:3)(cid:3) 5 The Corporate Governance Committee is comprised of Peter D. Bewley (Chair), Mario L. Crivello, Gregory A. Sandfort and Neal E. Schmale. The Corporate Governance Committee also functions as the Company’s nominating committee and is comprised exclusively of independent directors as defined in the Nasdaq Rules. The Corporate Governance Committee met four times during the last fiscal year. The Corporate Governance Committee acts in conjunction with the Board of Directors to ensure that a regular evaluation is conducted of succession plans, performance, independence, and of the qualifications and integrity of the Board of Directors. The Corporate Governance Committee also reviews the applicable skills and characteristics required of nominees for election as directors. The objective is to balance the composition of the Board of Directors to achieve a combination of individuals of different backgrounds and experiences, including, but not limited to, whether the candidate is currently or has recently been an executive officer at a publicly traded company; whether the candidate has substantial background in matters related to the Company’s products or markets, in particular, supply chain management, information technology, retailing and marketing; and whether the candidate has substantial international business experience, a substantial financial background or is serving as a director at one or more publicly traded companies. The Board of Directors has not established any specific diversity criteria for the selection of nominees other than the general composition criteria noted above. In determining whether to recommend a director for re-election, the Corporate Governance Committee considers the director’s past attendance at meetings, results of annual evaluations and the director’s participation in and anticipated future contributions to the Board of Directors. A director who will have reached the age of 72 prior to the date of the next annual meeting of stockholders, except for non-employee directors first elected to the Board prior to June 29, 1999, will be expected to retire from the Board. However, the Board may re-nominate any director for up to three additional years if relevant circumstances warrant continued service. The Corporate Governance Committee reviews new Board of Director nominees through a series of internal discussions, reviewing available information, and interviewing selected candidates. Generally, candidates for nomination to the Board of Directors have been suggested by directors or employees. The Company does not currently employ a search firm or third party in connection with seeking or evaluating candidates. The Corporate Governance Committee will consider director candidates recommended by security holders under the same criteria as other candidates described above. Nominations may be submitted by letter addressed to: WD-40 Company Corporate Governance Committee, Corporate Secretary, 1061 Cudahy Place, San Diego, CA 92110. Nominations by security holders must be submitted in accordance with the requirements of the Company’s Bylaws, including submission of such nominations within the time required for submission of stockholder proposals as set forth below under the heading, Stockholder Proposals. 12 AUDIT COMMITTEE RELATED PARTY TRANSACTIONS REVIEW AND OVERSIGHT The Audit Committee is comprised of Giles H. Bateman (Chair), Peter D. Bewley, Richard A. Collato and Neal E. Schmale. Five meetings were held during the last fiscal year to review quarterly financial reports, to consider the annual audit and other audit services, to review the audit with the independent registered public accounting firm after its completion and to review the Company’s business continuity and insurance programs. The Board of Directors has determined that Mr. Bateman is an “audit committee financial expert” as defined by regulations adopted by the Securities and Exchange Commission. Mr. Bateman and each of the other members of the Audit Committee are independent directors as defined in the Nasdaq Rules. Each member of the Audit Committee also satisfies the requirements for service on the Audit Committee as set forth in Rule 5605(c)(2) of the Nasdaq Rules. The Audit Committee has responsibility for review and oversight of related party transactions for potential conflicts of interest. Related party transactions include any independent business dealings between the Company and related parties who consist of the Company’s executive officers, directors, director nominees and holders of more than 5% of the Company’s shares. Such transactions include business dealings with parties in which any such related party has a direct or indirect interest. The Board of Directors has adopted a written policy to provide for the review and oversight of related party transactions by the Audit Committee. Executive officers and directors are required to notify the Secretary of the Company of any proposed or existing related party transactions in which they have an interest. The Secretary and the Audit Committee also rely upon the Company’s disclosure controls and procedures adopted pursuant to Exchange Act rules for the purpose of assuring that matters requiring disclosure, including related party transactions that may involve the potential for conflicts of interests, are brought to the attention of management and the Audit Committee on a timely basis. Certain related party transactions do not require Audit Committee review and approval. Such transactions are considered pre-approved. Pre-approved transactions include: • compensation arrangements approved by the Compensation Committee or the Board of Directors and expense reimbursements consistent with the Company’s expense reimbursement policy; • • • transactions in which the related party’s interest is derived solely from the fact that he or she serves as a director of another corporation that is a party to the transaction; transactions in which the related party’s interest is derived solely from his or her ownership (combined with the ownership interests of all other related parties) of not more than a 5% beneficial interest (but excluding any interest as a general partner of a partnership) in an entity that is a party to the transaction; and transactions available to all employees of the Company generally. If a related party transaction is proposed or if an existing transaction is identified, the Audit Committee has authority to disapprove, approve or ratify the transaction and to impose such restrictions or other limitations on the transaction as the Committee may consider necessary to best assure that the interests of the Company are protected and that the related party involved is not in a position to receive an improper benefit. In making such determination, the Audit Committee considers such factors as it deems appropriate, including without limitation (i) the benefits to the Company of the transaction; (ii) the commercial reasonableness of the terms of the transaction; (iii) the dollar value of the transaction and its materiality to the Company and to the related party; (iv) the nature and extent of the related party’s interest in the transaction; (v) if applicable, the impact of the transaction on a non-employee director’s independence; and (vi) the actual or apparent conflict of interest of the related party participating in the transaction. During the fiscal year ended August 31, 2014, there were no transactions required to be reported pursuant to the requirements of Item 404(a) of Regulation S-K under the Exchange Act that did not require review and approval by the Audit Committee. The Audit Committee also has responsibility for the selection, appointment and oversight of the independent registered public accounting firm for the Company. 13 FINANCE COMMITTEE The Finance Committee is comprised of Linda A. Lang (Chair), Giles H. Bateman, Mario L. Crivello, Gregory A. Sandfort and Neal E. Schmale. Five meetings of the Finance Committee were held during the last fiscal year. The Finance Committee is appointed by the Board for the primary purpose of assisting the Board in overseeing financial matters of importance to the Company, including matters relating to acquisitions, investment policy, capital structure, and dividend policy. The Finance Committee also reviews the Company’s annual and long-term financial strategies and objectives. COMPENSATION COMMITTEE COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee is comprised of Richard A. Collato (Chair), Peter D. Bewley, Mario L. Crivello and Linda A. Lang, all of whom are independent directors as defined under the Nasdaq Rules. The Compensation Committee met three times during the last fiscal year. During the fiscal year ended August 31, 2014, there were no compensation committee interlock relationships with respect to members of the Board of Directors and the Compensation Committee as described in Item 407(e)(4)(iii) of Regulation S-K promulgated under the Exchange Act. 14 ITEM NO. 2 ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION In accordance with the requirements of Section 14A of the Exchange Act, the Company’s stockholders are being asked to cast an advisory vote to approve the compensation of the Company’s Named Executive Officers (“NEOs”) identified in the Compensation Discussion and Analysis section of this proxy statement. This vote is commonly referred to as a “Say-on- Pay” vote. At the Company’s 2011 Annual Meeting of Stockholders, the first Say-on-Pay vote was held and the Company’s stockholders were also asked, by a non-binding advisory vote, to express their preference as to the frequency of future Say-on-Pay votes and the Board of Directors recommended annual Say-on-Pay voting. The Company’s stockholders expressed a preference to have Say-on-Pay votes every year. The following resolution will be presented for approval by the Company’s stockholders at the 2014 Annual Meeting of Stockholders: “RESOLVED, that the stockholders of WD-40 Company (the “Company”) hereby approve the compensation of the Company’s Named Executive Officers as disclosed in the Compensation Discussion and Analysis section of the Company’s proxy statement for the 2014 Annual Meeting of Stockholders and in the accompanying compensation tables and narrative disclosures.” The advisory vote to approve executive compensation is a non-binding vote on the compensation of the Company’s NEOs. This proxy statement contains a description of the compensation provided to the NEOs as required by Item 402 of Regulation S-K promulgated under the Exchange Act. Stockholders are encouraged to carefully consider the Compensation Discussion and Analysis, accompanying compensation tables and related narrative discussion in this proxy statement in considering this advisory vote. The Board of Directors believes that the compensation provided to the Company’s NEOs offers a competitive pay package with a proper balance of current and long term incentives aligned with the interests of the Company’s stockholders. This is an advisory vote and will not affect compensation previously paid or awarded to the NEOs. While a vote disapproving the NEOs’ executive compensation will not be binding on the Board of Directors or the Compensation Committee, the Compensation Committee will consider the results of the advisory vote in making future executive compensation decisions. The affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote on the proposal at the Annual Meeting of Stockholders is required to approve this advisory vote on executive compensation. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR ADOPTION OF THE PROPOSED RESOLUTION FOR APPROVAL OF THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS. 15 COMPENSATION DISCUSSION AND ANALYSIS WD-40 Company’s Compensation Discussion and Analysis addresses the processes and decisions of the Company’s Board of Directors and the Compensation Committee of the Company’s Board of Directors (the “Committee”) with respect to the compensation of the Company’s Named Executive Officers (the “NEOs”). For fiscal year 2014, the Company’s NEOs were: • Garry O. Ridge, our Chief Executive Officer (“CEO”); • Jay W. Rembolt, our Vice President, Finance, Treasurer and Chief Financial Officer (“CFO”); • Michael J. Irwin, our Executive Vice President, Global Business Development Group; • Michael L. Freeman, our Division President, the Americas; and • William B. Noble, our Managing Director, EMEA. EXECUTIVE SUMMARY OF FISCAL YEAR 2014 COMPENSATION DECISIONS The compensation structure for the NEOs is comprised of three elements: base salary, retention-related equity compensation and performance-related cash and equity compensation. Retention-related compensation includes restricted stock unit (“RSU”) allocations, which vest over a period of three years after grant. Performance-related compensation includes an annual cash bonus based on current year financial results and market share unit (“MSU”) allocations that are earned upon vesting based on comparison criteria for the Company’s total stockholder return (“TSR”) as compared to the stock market, as measured by the Russell 2000 Index (the “Index”). The foregoing compensation structure elements are described fully later in this Compensation Discussion and Analysis. In establishing the framework for overall NEO compensation and in assessing such compensation for each NEO in light of individual and overall Company performance, the Committee considers actual and target levels of compensation with reference to both short-term and long-term performance periods as well as labor market data and peer group executive compensation. The Committee seeks to align individual NEO performance incentives with both short-term and long-term Company objectives. The Committee reviews each of the principal elements of NEO compensation to determine the effectiveness of the established framework for NEO compensation based on measures of Company performance, specifically including earnings before interest, income taxes, depreciation and amortization (“EBITDA”), but also including relative Company performance as compared to the established peer group of companies and applicable market indices. Additionally, the Committee also considers the relative achievement of longer term strategic objectives as to which each NEO is accountable. Information regarding NEO strategic objectives is provided in the Executive Officer Compensation Decisions section below under the heading, Base Salary: Process. The Committee believes that a review of NEO compensation and relative company performance over multi-year periods demonstrates the effectiveness of the Company’s established framework for NEO compensation. The Company’s financial performance for fiscal year 2013, as measured against goals for EBITDA, exceeded most of the goals established by the Committee for that year. As a result, performance incentive bonus compensation for fiscal year 2013 for each NEO was above the target amount and near the maximum amount of the potential reward for all of the NEOs other than Mr. Irwin. For each of fiscal years 2011 and 2012, the Company’s financial performance did not reach most of the goals established by the Committee and none of the NEOs received performance incentive bonus compensation for those years with the exception of small amounts paid to Mr. Freeman and Mr. Noble for fiscal years 2012 and 2011, respectively. Performance share unit (“PSU”) awards, vesting over two fiscal years based on relative attainment of goals for aggregate revenue growth and increased gross margin, provided vested shares to the NEOs as of the end of fiscal years 2011, 2012 and 2013 at 53.5%, 48% and 80.75% of the target number of award shares, respectively. The PSU awards provided for maximum vesting at 150% of the target number of shares. Compensation decisions for fiscal year 2014 were made in October 2013, based on individual and Company performance during fiscal year 2013 and a market survey conducted by the Committee’s compensation consultant. The relative market percentile of total compensation for each of the NEOs for fiscal year 2014 based on peer group data is provided below under the heading Overall Reasonableness of Compensation. 16 The following is a summary of the decisions made by the Committee for NEO compensation for fiscal year 2014: • For fiscal year 2014, our CEO’s base salary was increased by 4.2% in contrast to the prior two years when he received no increase in salary. Base salaries for the other NEOs were increased by amounts ranging from 1.5% to 9.5%. Base salaries for the NEOs were assessed in relation to labor market information and the Company’s performance for fiscal year 2013 as compared to other companies in our peer group. Our CEO’s base salary was increased in light of applicable peer group data supporting such an increase and in recognition of the Company’s strong financial performance for fiscal year 2013. Merit increases for the NEOs other than our CEO were awarded in recognition of relative achievement of individual performance measures and goals established for each NEO as well as Company performance metrics for which each NEO is accountable. • • Annual incentive bonus compensation is awarded to the NEOs under the Company’s Performance Compensation Plan described below under the heading Performance Incentive Program. For purposes of the Performance Incentive Program, goals for global, regional and business unit EBITDA were established at the beginning of the year. As described in detail below, based on the Company’s strong financial results for fiscal year 2014, the NEOs earned performance incentive bonus compensation that ranged from 23% to 75% of each NEO’s individual bonus opportunity. In October 2013, the NEOs received annual RSU awards providing for the issuance of a total of 8,302 shares of the Company’s common stock to be earned by continued employment by the Company over a vesting period of three years. These awards serve a retention purpose together with an incentive to maximize long term stockholder value through share price appreciation. In October 2013, the NEOs received MSU awards subject to performance vesting covering a target number of shares of the Company’s common stock equal to 8,302 shares. If the Company’s TSR over the three year vesting period matches the median return for the Index, the target number of shares of the Company’s common stock would be issued to the NEOs. The actual number of shares to be issued will be from 0% to 200% of the target number of shares depending upon the Company’s TSR as compared to the return for the Index.1 • • RSU and MSU award amounts for fiscal year 2014 varied among the NEOs based on labor market compensation practices specific to the region of employment, relative achievement of individual performance measures and goals established for each NEO as well as Company performance for fiscal year 2013 in areas over which each NEO had direct influence. • The Company’s stockholders have provided advisory votes to approve executive compensation required by Section 14A of the Exchange Act (the “Say-on-Pay” votes) at the Company’s annual meeting of stockholders for fiscal years 2011, 2012 and 2013. In each instance, at least 95% of the votes cast in the Say-on-Pay votes approved the compensation of the NEOs as disclosed in the Compensation Discussion and Analysis section of the Company’s proxy statements for those fiscal years and in the accompanying compensation tables and narrative disclosures. The Committee has considered the results of these advisory Say-on-Pay votes in its decision-making for executive compensation of the NEOs and has concluded that no significant changes in executive compensation decisions and policies are warranted. 1 For a more complete description of the MSU awards, refer to the Executive Officer Compensation Decisions section below under the heading, Market Share Unit Awards. GOVERNANCE OF EXECUTIVE OFFICER COMPENSATION PROGRAM The purpose of the Committee is to establish and administer the compensation arrangements for our CEO and the other executive officers of the Company, including the other NEOs, on behalf of the Board of Directors. The Committee is responsible for developing the Company’s overall executive compensation strategy, with support from management and the Committee’s independent compensation consulting firm, Compensia, Inc. (“Compensia”). The Committee also has responsibilities in connection with administration of the Company’s equity compensation plans. The Committee operates pursuant to a Charter which outlines its responsibilities, including the Committee’s responsibilities with respect to performance reviews and approval of annual compensation arrangements for the NEOs. A copy of the Compensation Committee Charter can be found under the Investors section of the Company’s website at http://www.wd40company.com. 17 PROCESS FOR EVALUATING EXECUTIVE OFFICER PERFORMANCE AND COMPENSATION In accord with its Charter, the Committee works with the Company’s Human Resources function in carrying out its responsibilities; the Vice President of Global Organization Development is management’s liaison with the Committee. The Committee has engaged Compensia, a national compensation consulting firm, to provide advice and information relating to executive compensation. In fiscal year 2014, Compensia assisted the Committee in the evaluation of executive base salary, bonus compensation and equity incentive design and award levels, and the specific pay recommendation for our CEO. Compensia reports directly to the Committee and provides no additional services for management. EXECUTIVE COMPENSATION PHILOSOPHY AND FRAMEWORK COMPENSATION OBJECTIVES The Company’s executive compensation program is designed to achieve five primary objectives: 1. Attract, motivate, reward and retain high performing executives; 2. Align the interests and compensation of executives with the value created for stockholders; 3. Create a sense of motivation among executives to achieve both short- and long-term Company objectives; 4. Create a direct, meaningful link between business and team performance and individual accomplishment and rewards; and 5. Ensure our compensation programs are appropriately competitive in the relevant labor markets. TARGET PAY POSITION/MIX OF PAY The Company’s compensation program consists primarily of base salary, annual cash incentives, and long-term oriented equity awards. Each of these components is discussed in greater detail in the Executive Officer Compensation Decisions section below. The Committee has established a target for executive officer total compensation (defined as base salary, plus target performance incentive bonus, plus the grant date fair value of equity awards) at the 50th percentile relative to the market (details on the use of peer group data is provided below). Actual pay may vary, based on Company and/or individual performance, length of time within the position, and anticipated contribution. The Committee does not adhere to specific guidelines regarding the percentage of total compensation that should be represented by each compensation component, but monitors market competitiveness. A review of total compensation for each NEO relative to the target market percentile is provided in the Executive Officer Compensation Decisions section below under the heading, Overall Reasonableness of Compensation. COMPENSATION BENCHMARKING For purposes of its fiscal year 2014 compensation decisions, the Committee examined the executive compensation practices of a peer group of twenty-one companies to assess the competitiveness of the Company’s executive compensation. Peer group companies were selected from a list of U.S. headquartered companies having revenues and earnings reasonably comparable to the Company and doing business in the specialty chemical industry or within specific consumer products categories. In addition to the peer group data, the Committee considers a survey of general industry company data provided by Hay Group, a global management consulting firm. This mix of data has been weighted, 50% for the industry company data and 50% for the peer group data. The companies used in the peer group analysis for fiscal year 2014 compensation decisions were as follows: (cid:404)(cid:3) Aceto Corporation (cid:404)(cid:3)(cid:3) American Vanguard Corporation (cid:404)(cid:3)(cid:3) Balchem Corporation (cid:404)(cid:3)(cid:3) Calgon Carbon Corporation (cid:404)(cid:3)(cid:3) Cambrex Corporation (cid:404)(cid:3)(cid:3) Flotek Industries Inc. (cid:404)(cid:3)(cid:3) Hawkins, Inc. (cid:404)(cid:3)(cid:3) Innophos Holdings, Inc. (cid:404)(cid:3)(cid:3) Innospec Inc. (cid:404)(cid:3)(cid:3) Inter Parfums, Inc. (cid:404)(cid:3)(cid:3) Landec Corporation (cid:404)(cid:3)(cid:3) Measurement Specialties, Inc. (cid:404)(cid:3)(cid:3) National Presto Industries, Inc. (cid:404)(cid:3)(cid:3) Nutraceutical International Corporation (cid:404)(cid:3)(cid:3) Oil-Dri Corporation of America (cid:404)(cid:3)(cid:3) Park Electrochemical Corp. (cid:404)(cid:3)(cid:3) Prestige Brands Holdings, Inc. (cid:404)(cid:3)(cid:3) Quaker Chemical Corporation (cid:404)(cid:3)(cid:3) Synutra International, Inc. (cid:404)(cid:3)(cid:3) USANA Health Sciences, Inc. (cid:404)(cid:3)(cid:3) Zep, Inc. 18 EXECUTIVE OFFICER COMPENSATION DECISIONS BASE SALARY: PROCESS Base salaries for all executive officers, including the NEOs, are approved by the Committee effective for the beginning of each fiscal year. In setting base salaries, the Committee considers the salary range prepared by its compensation advisor based on each NEO’s job responsibilities and the market 50th percentile target pay position. Salary adjustments, if any, are based on factors such as individual performance, position, current pay relative to the market, future anticipated contribution and the Company-wide merit increase budget. Assessment of individual performance follows a rigorous evaluation process, including self-evaluation and the establishment of annual goals for each executive officer and an assessment of the achievement thereof. Individual performance elements considered in this process included individual and Company performance goals and achievements in such areas as growth, innovation, leadership, earnings and customer relations for Mr. Ridge; governance and risk, compliance, forecasting and financial reporting for Mr. Rembolt; strategic business development for Mr. Irwin; and business unit performance, teamwork, execution and growth for Messrs. Freeman and Noble. BASE SALARY: FISCAL YEAR 2014 In October 2013, the Committee reviewed the market competitiveness of executive officer base salaries relative to peer group market data presented by the Committee’s compensation advisor. The Committee considered each NEO’s individual performance relative to the performance elements identified above as well as the overall performance of the Company for fiscal year 2013. In that regard, the Committee considered the Company’s performance as compared to peer group companies as well. Based on these considerations, the Committee approved a merit increase in the salary of our CEO of 4.2%. The increase in salary for our CEO was in contrast to each of the two prior years when he did not receive any increase in salary. Our CFO received a 9.5% increase in base salary for fiscal year 2014, representing a merit increase as well as an appropriate market rate adjustment. Merit increases to the base salaries of the NEOs other than the CEO and CFO ranged from 1.5% to 4.5% based on the foregoing individual performance considerations and assessment of target pay positioning. PERFORMANCE INCENTIVE PROGRAM The Company uses its Performance Incentive Program to tie executive officer compensation to the Company’s financial performance. All Company employees participate in the same Performance Incentive Program as described below. The Performance Incentive Program is offered to the executive officers pursuant to the WD-40 Company Performance Incentive Compensation Plan most recently approved by the stockholders at the Company’s 2012 Annual Meeting of Stockholders. The Performance Incentive Program is intended to provide direct incentives to all Company employees, including executive officers, to affect regional financial performance and, for the Company as a whole, to promote sales at increasing levels of profitability. Specific performance measures tied to regional financial results are used in the Performance Incentive Program formulas as applied to each employee according to his or her particular area of responsibility. For the NEOs, incentive awards for fiscal year 2014 were based on pre-established goals for the following corporate performance measures: (i) the Company’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) computed for each of the Company’s relevant financial reporting segments (“Regional EBITDA”); (ii) net invoiced sales recorded for the WD-40 Bike business unit (“Bike Revenue”); (iii) EBITDA computed based on a weighted average of the attainment for each of the three financial reporting segments (“All Trade Blocs EBITDA”); and (iv) EBITDA computed on a consolidated basis (“Global EBITDA”). The All Trade Blocs EBITDA performance measure weights the attainment of the Americas financial reporting segment at 50% of the total potential bonus for the All Trade Blocs metric; the attainment of the Europe, the Middle East, Africa and India (“EMEA”) financial reporting segment at 35% of the total potential bonus for the All Trade Blocs metric; and the attainment of the Asia-Pacific financial reporting segment at 15% of the total potential bonus for the All Trade Blocs metric. The calculations of attainment of these performance measures for the NEOs are the same as the calculations for all other employees for whom such performance measures were applicable. 19 Depending upon actual performance results, the Performance Incentive Program bonus opportunities range from 0% to 100% of base salary for our CEO and from 0% to 60% of base salary for the other NEOs. The maximum bonus opportunity for our CEO at 100% of base salary as compared to the maximum bonus opportunity for the other NEOs at 60% of base salary has been established by the Board of Directors in recognition of the higher level of responsibility of our CEO for overall Company performance, in reliance on competitive market data that supports total potential CEO compensation at such levels, and to establish a compensation package for our CEO that has a higher percentage of potential compensation tied to Company performance. The maximum bonus for each NEO is referred to herein as their “annual opportunity”. For each of the NEOs, the Performance Incentive Program for fiscal year 2014 provided three distinct performance measure levels for possible bonus awards. Except with respect to Mr. Irwin, the first level represented 50% of the annual opportunity, the second level represented 30% of the annual opportunity and the third level represented 20% of the annual opportunity. For Mr. Irwin, the first level represented 60% of the annual opportunity and the second and third levels each represented 20% of the annual opportunity. The Performance Incentive Program is consistently applied for all employees of the Company. The maximum bonus payouts for Messrs. Freeman and Noble required achievement of specified segment goals for Regional EBITDA (first level), All Trade Blocs EBITDA (second level) and Company performance that equaled the maximum goal amount for Global EBITDA as described below (third level). For Messrs. Ridge and Rembolt (each of whom has global rather than regional responsibilities), the maximum bonus payouts required achievement of specified goals for Global EBITDA (first level), All Trade Blocs EBITDA (second level) and Company performance that equaled the maximum goal for Global EBITDA as described below (third level). For Mr. Irwin, the maximum bonus payout required achievement of specified performance goals that were the same as the goals for Messrs. Ridge and Rembolt except that the first level goal required achievement of a specified goal for Bike Revenue. After all bonus amounts earned for the first level and second level were calculated, the Global EBITDA result was measured. The maximum goal for Global EBITDA was established by means of a formula that was based on all bonus payouts under the first and second levels and the anticipated maximum bonus payout under the third level. Target and maximum payout amounts for each of the NEOs for the fiscal year 2014 Performance Incentive Program are disclosed below in the table under the heading, Grants of Plan-Based Awards - Fiscal Year 2014. The following table sets forth the fiscal year 2014 Performance Incentive Program payout weightings and the minimum and maximum goals for the performance measures applicable to each of the NEOs: Level i i i i ii Performance Measure Regional EBITDA (Americas) Regional EBITDA (EMEA)1 Global EBITDA Bike Revenue All Trade Blocs EBITDA (weighted average) Americas (50% weighting) EMEA (35% weighting)1 Asia-Pacific (15% weighting) Garry O. Ridge Jay W. Rembolt N/A N/A 50% N/A Michael L. Freeman 50% N/A N/A N/A William B. Noble N/A 50% N/A N/A Michael J. Irwin N/A N/A N/A 60% Minimum Goal FY 2014 ($ millions) Maximum Goal FY 2014 ($ millions) $ 46.0 $ 48.5 $ 36.2 $ 39.2 $ 64.9 $ 72.1 $ 0.9 $ 1.0 30% 30% 30% 20% N/A N/A $ 48.5 $ 51.1 $ 39.2 $ 41.9 $ 11.5 $ 12.1 $ 66.2 $ 70.0 iii Global EBITDA 20% 20% 20% 20% 1 EMEA figures have been converted from pounds sterling at an average annual exchange rate for fiscal year 2014 of $1.6490 per pound. 20 The following table sets forth the actual fiscal year 2014 performance results and percentage achievement for each of the performance measures under the Performance Incentive Program formulas applicable to the NEOs: Level i i i i ii Performance Measure Regional EBITDA (Americas) Regional EBITDA (EMEA)1 Global EBITDA Bike Revenue All Trade Blocs EBITDA (weighted average) Americas (50% weighting) EMEA (35% weighting)1 Asia-Pacific (15% weighting) iii Global EBITDA Actual FY 2014 ($ millions) $ 49.8 $ 38.7 $ 77.5 $ 0.4 N/A $ 49.4 $ 38.7 $ 11.5 $ 71.3 % Achievement2 100.0% 81.4% 100.0% 0.0% 16.9% 33.7% 0.0% 0.0% 100.0% 1 2 EMEA figures have been converted from pounds sterling at an average annual exchange rate for fiscal year 2014 of $1.6490 per pound. Percentage achievement amounts are calculated using whole numbers and not the rounded amounts that are included in this table and the table above. As a result, percentage achievement as shown in this table differs from what would be calculated using the rounded amounts. Achievement of the maximum goals for Regional EBITDA and Global EBITDA are intended to be attainable through the concerted efforts of all management teams working in their own regions and areas of responsibility and for the Company as a whole. Based on the Company’s fiscal year 2014 performance and the Committee’s certification of the relative attainment of each of the performance measures under the Performance Incentive Program, the payouts for our executive officers, including the NEOs, were calculated. On October 13, 2014, the Committee approved payment of the following bonuses to the NEOs for fiscal year 2014 performance. Executive Officer Garry O. Ridge Jay W. Rembolt President and Chief Executive Officer Vice President, Finance, Treasurer and Chief Financial Officer Title Michael J. Irwin Michael L. Freeman Division President, the Americas William B. Noble1 Managing Director, EMEA Executive Vice President, Global Business Development Group FY 2014 Annual Opportunity (As % of Base Salary) FY 2014 Bonus Paid ($) FY 2014 Actual Bonus (As % of Opportunity) 100% $ 470,089 60% $ 135,397 60% $ 44,414 60% $ 146,013 60% $ 141,426 75% 75% 23% 75% 66% 1 Mr. Noble’s bonus amount has been converted from pounds sterling at an average annual exchange rate for fiscal year 2014 of $1.6490 per pound. 2 FY 2014 bonus paid amounts were calculated using eligible earnings which are those earnings that were processed and paid through the Company’s payroll in fiscal year 2014 for each executive officer. As an example of the operation of the Performance Incentive Program, Mr. Freeman’s bonus payout for fiscal year 2014 was computed as follows: • Bonus Opportunity = 60% X Eligible Earnings ($324,205) = $194,523. • Level 1 (Regional EBITDA (Americas)) = 50% of Bonus Opportunity = $97,261. — Level 1 Bonus = Level 1 Achievement (100%) X Level 1 Bonus Opportunity = $97,261. • Level 2 (All Trade Blocs EBITDA) = 30% of Bonus Opportunity = $58,357 — Level 2 Bonus = Level 2 Achievement (16.87%) X Level 2 Bonus Opportunity = $9,847. • Level 3 (Global EBITDA) = 20% of Bonus Opportunity = $38,905. — Level 3 Bonus = Level 3 Achievement (100%) X Level 3 Bonus Opportunity = $38,905. 21 Mr. Freeman’s aggregate bonus payout was the sum of the payouts under each of the three levels of the Performance Incentive Program, or $146,013. EQUITY COMPENSATION Equity compensation is a critical component of the Company’s efforts to attract and retain executives and key employees, encourage employee ownership in the Company, link pay with performance and align the interests of executive officers with those of stockholders. To provide appropriately directed incentives to our executive officers, the Committee has provided awards of both time-vesting restricted stock unit (“RSU”) awards and performance-vesting market share unit (“MSU”) awards. Equity awards are awarded pursuant to the Company’s 2007 Stock Incentive Plan (the “Stock Incentive Plan”) approved by the stockholders at the 2007 Annual Meeting of Stockholders. The Company’s MSU awards are designed to track against a measure of total stockholder return (“TSR”) that incorporates asset appreciation and the assumption of reinvested dividends. Equity allocations for fiscal year 2014 were divided equally between RSU awards and MSU awards. MSU awards provide for vesting after a three year performance vesting period based on a comparison of the Company’s TSR against the Russell 2000 Index (the “Index”) as described in more detail below. All RSU and MSU awards are subject to terms and conditions set forth in an applicable award agreement (the “Award Agreement”). The principal attributes and benefits of the RSU and MSU awards for executive officers are as follows: • Both RSU and MSU awards provide for the issuance of shares of the Company’s common stock upon vesting; • RSU awards provide for vesting in relatively equal portions over a period of three years from the grant date; • MSU awards provide for performance-based vesting tied to the Company’s TSR over a performance measurement period of three fiscal years beginning with the year of the award and ending on August 31st of the third calendar year; and • A mix of RSU and MSU awards for our executive officers has been considered by the Committee to be appropriate as compared to RSU awards alone or other equity awards, such as stock options, for the following reasons: i) MSU awards granted annually provide a more direct performance-based incentive aligned directly with longer term stockholder interests; ii) RSU awards have a greater perceived value to recipients than stock options; iii) RSU and MSU awards have a lower compensation expense impact on the Company’s reported financial results than stock options; iv) RSU and MSU awards have less dilutive impact on a share count basis than stock options; and v) the issuance of shares of the Company’s common stock upon vesting encourages long-term stock ownership and facilitates the achievement of the Company’s stock ownership guidelines (as described below in the Other Compensation Policies section, under the heading, Executive Officer Stock Ownership Guidelines). The Board recognizes the potentially dilutive impact of equity awards. The Company’s equity award practices are designed to balance the impact of dilution and the Company’s need to remain competitive by recruiting, retaining and providing incentives for high-performing employees. Restricted Stock Unit Awards RSU awards provide for the issuance of shares of the Company’s common stock to the award recipient upon vesting provided that the recipient remains employed with the Company through each vesting date. Shares of the Company’s common stock equal to the portion of the RSU award that has vested are issued promptly upon the vesting date. RSU awards provide for vesting over a period of three years from the grant date. 34% of the RSU award will vest on the first vesting date and 33% of the RSU award will vest on each of the second and third vesting dates. The vesting date each year is the third business day following the Company’s public release of its annual earnings for the preceding fiscal year, but not later than November 15 of the vesting year. Payment of required withholding taxes due with respect to the vesting of the RSU awards, if any, will be covered through withholding of shares by the Company. For RSU award recipients who retire from the Company after reaching age 65, all RSUs will have a vesting date that is 30 days following the effective date of retirement. The Company will issue a net number of shares to the recipient for a vested RSU award after withholding shares having a value as of the vesting date equal to the required tax withholding obligation. 22 Market Share Unit Awards MSU awards granted to the NEOs for fiscal year 2014 provide for performance-based vesting over a performance measurement period of three fiscal years ending August 31, 2016 (the “Measurement Period”). The recipient must remain employed with the Company for vesting purposes until the date on which the Committee certifies achievement of the requisite performance provided for in the MSU Award Agreement. A number of shares of the Company’s common stock equal to an “Applicable Percentage” of the “Target Number” of shares covered by the MSU awards to the NEOs will be issued as of the “Settlement Date”. The Applicable Percentage is determined by reference to the performance vesting provisions of the MSU Award Agreements as described below. The Settlement Date for an MSU award is the third business day following the Company’s public release of its annual earnings for the third fiscal year of the Measurement Period. Payment of required withholding taxes due with respect to the settlement of an MSU award, if any, will be covered through withholding of shares by the Company. The Company will issue a net number of shares to the recipient for a vested MSU award after withholding shares having a value as of the Settlement Date equal to the required tax withholding obligation. The performance vesting provisions of MSU awards are based on relative TSR for the Company over the Measurement Period as compared to the total return (“Return”) for the Index as reported for total return (with dividends reinvested), as published by Russell Investments. For purposes of computing the relative TSR for the Company as compared to the Return for the Index, dividends paid with respect to the Shares will be treated as having been reinvested as of the ex- dividend date for each declared dividend. The Applicable Percentage of the Target Number of shares will be determined based on the absolute percentage point difference between the TSR for the Company as compared to the Return for the Index as set forth in the table below: Relative TSR (absolute percentage point difference) > 20% 20% 15% 10% 5% Equal -5% -10% >-10% Applicable Percentage 200% 200% 175% 150% 125% 100% 75% 50% 0% The Applicable Percentage will be determined on a straight line sliding scale from the minimum 50% Applicable Percentage achievement level to the maximum 200% Applicable Percentage achievement level. For purposes of determining the TSR for the Company and the Return for the Index, the beginning and ending values for each measure will be determined on an average basis over a period of all market trading days within the ninety (90) calendar days prior to the beginning of the fiscal year for the beginning of the Measurement Period and over a period of all market trading days within the ninety (90) calendar days prior to the end of the third fiscal year of the Measurement Period. In the event of a Change in Control (as defined in the Stock Incentive Plan), the Measurement Period will end as of the effective date of the Change in Control and the ending values for calculating the TSR for the Company and the Return for the Index will be determined based on the closing price of the Company’s common stock and the value of the Index, respectively, immediately prior to the effective date of the Change in Control. The Applicable Percentage will be applied to a proportionate amount of the Target Number of MSUs based on the portion of the Measurement Period elapsed as of the effective date of the Change in Control. The recipient NEO will receive RSUs for the portion of the Target Number of MSUs to which the Applicable Percentage is not applied. Those RSUs will time vest, subject to rights under the NEO’s Change of Control Severance Agreement, as of the Settlement Date. EQUITY AWARDS - FISCAL YEAR 2014 For fiscal year 2014, equity awards to our executive officers were granted to satisfy goals for executive officer retention, to provide incentives for future performance, and to meet objectives for overall levels of compensation and pay mix. In October 2013, the Committee approved RSU and MSU awards to the NEOs as set forth below in the table under the heading, Grants of Plan-Based Awards - Fiscal Year 2014. In establishing award levels for the NEOs for fiscal year 2014, 23 the Committee placed emphasis on long-term retention goals and desired incentives for future contributions. The RSU and MSU awards to our CEO were, consistent with past practice, larger than the awards to the other NEOs in recognition of his higher level of responsibility for overall Company performance and in reliance on market data that supports a higher level of equity compensation for our CEO. The specific award amounts were determined for each NEO based on an assessment of the NEO’s achievement of individual performance goals as well as Company performance for fiscal year 2013 in areas over which the NEO had particular influence. BENEFITS AND PERQUISITES As is the case with most Company employees, the NEOs are provided with standard health and welfare benefits, as well as the opportunity to participate in the WD-40 Company Profit Sharing/401(k) Plan (the “Plan”). The Plan serves to provide our executive officers, including the NEOs, with tax-advantaged retirement savings as an additional component of overall compensation. Employees have the right to invest the Company’s contributions to the Plan in a Company Stock Fund invested in shares of the Company’s common stock as an alternative to other investment choices available under the Plan. The Company maintains individual Supplemental Death Benefit Plan agreements with each of the NEOs other than Mr. Noble. The Company’s Supplemental Death Benefit Plan agreement obligations are funded by life insurance policies owned by the Company. The Company also provides leased vehicles to its executive officers and private health insurance for Mr. Noble in excess of coverage available to other Company employees in the United Kingdom. The costs associated with the perquisites and other personal benefits provided to the NEOs are included in the Summary Compensation Table below and they are separately identified in the footnote disclosure of such perquisites and other personal benefits included with the Summary Compensation Table. The Committee considers the cost of the foregoing health and welfare benefits and perquisites in connection with its approval of the total compensation for each of our NEOs. All such costs are considered appropriate in support of the Committee’s objective of attracting and retaining high quality executive officers because they are common forms of compensation for senior executives and are expected by such executives when they consider competing compensation packages. POST-EMPLOYMENT OBLIGATIONS The Company has change of control severance agreements with each of the NEOs. The specific terms of the agreements are described in detail below under the heading, Change of Control Severance Agreements. The agreements were entered into with our executive officers after extensive review by the Committee and the Board of Directors and negotiation with the executive officers to replace previously existing employment agreements. Consideration was given to possible inclusion of severance compensation to be paid to the executive officers in the event of their termination of employment without cause (or for good reason) without regard to the existence of a change of control of the Company. No such provisions were included and severance compensation is payable only following a termination of employment without “cause” or for “good reason” within two years following a “change of control” of the Company (as the quoted terms are defined in the severance agreements). The Committee believes that the change of control severance agreements help ensure the best interests of stockholders by fostering continuous employment of key management personnel. As is the case in many public companies, the possibility of an unsolicited change of control exists. The uncertainty among management that can arise from a possible change of control can result in the untimely departure or distraction of key executive officers. Reasonable change of control severance agreements reinforce continued attention and dedication of executive officers to their assigned duties and support the Committee’s objective of retaining high quality executives. OVERALL REASONABLENESS OF COMPENSATION The Committee believes that the Company is achieving its compensation objectives and, in particular, rewards executive officers for driving operational success and stockholder value creation. Based on reviews of tally sheets and a “pay-for- performance” analysis by the Committee, and in light of the Company’s compensation objectives, the Committee and the Board of Directors believe that the pay mix and target pay position relative to market for each of the NEOs are reasonable and appropriate. The “pay-for-performance” analysis includes a review of the individual components of executive officer 24 compensation that are tied to Company performance, as measured by identified performance metrics as well as the price of the Company’s common stock. In particular, the Committee reviews executive officer bonus compensation to determine whether it appropriately rewards individual efforts directed toward the achievement of specific target levels of Company performance and does not otherwise provide rewards in the absence of reasonable measures of individual and Company success. Similarly, with respect to equity awards, the Committee considers the effectiveness of such awards in providing a reasonable incentive to the executive officers to pursue the achievement of performance targets for increasing revenues, gross margin and profitability without inappropriately rewarding the executive officers if performance targets are not achieved over the long term. The following table sets forth the total compensation for each of our NEOs (as reported based on cash compensation received as base salary and performance incentive bonus plus the grant date fair value of equity awards) for fiscal year 2014, together with the relative market percentile for each NEO. Executive Officer Garry O. Ridge Jay W. Rembolt Base Salary Annual Bonus Earned Grant Value of Stock Awards1 Total Compensation $ 626,747 $ 470,089 $ 642,682 $ 1,739,518 $ 301,136 $ 135,397 $ 160,565 $ 597,098 $ 316,771 $ 44,414 $ 85,626 $ 446,811 Michael J. Irwin Michael L. Freeman $ 324,473 $ 146,013 $ 160,565 $ 631,051 William B. Noble2 $ 358,555 $ 141,426 $ 117,823 $ 617,804 Total Compensation Received vs Market 65th percentile 60th percentile 40th percentile 45th percentile 50th percentile 1 Stock Awards are reported at their grant date fair values. Information concerning such awards for fiscal year 2014 is set forth below in the table under the heading, Grants of Plan-Based Awards - Fiscal Year 2014. 2 Mr. Noble’s salary and bonus amounts have been converted from pounds sterling at an average annual exchange rate for fiscal year 2014 of $1.6490 per pound. For fiscal year 2014, total compensation for our NEOs was assessed by Compensia. In reviewing total compensation for the NEOs, the Committee also reviews the Company’s relative performance against the peer group. Due to the strong operational performance and financial results for fiscal year 2014, actual total compensation received by most of the NEOs was near or above the target established by the Committee for executive officer total compensation. These market position comparisons are based on the blended analysis from the Committee’s compensation consultant which incorporates peer group proxy analysis and a general industry survey data as discussed above under the heading, Compensation Benchmarking. OTHER COMPENSATION POLICIES EXCHANGE ACT RULE 10b5-1 TRADING PLANS AND INSIDER TRADING GUIDELINES The Company maintains insider trading guidelines, including transaction pre-approval requirements, applicable to our officers and directors required to report changes in beneficial ownership under Section 16 of the Exchange Act as well as certain other employees who can be expected to have access to material non-public information concerning the Company. These insider trading guidelines also require pre-approval of all trading plans adopted pursuant to Rule 10b5-1 promulgated under the Exchange Act. To avoid the potential for abuse, the Company’s policy with respect to such trading plans is that, once adopted, trading plans are not subject to change or cancellation. Any such change or cancellation of an approved trading plan by an executive officer, director or employee covered by the Company’s insider trading guidelines in violation of the policy will result in the Company’s refusal to approve future trading plan requests for that person. EXECUTIVE OFFICER STOCK OWNERSHIP GUIDELINES In December 2007, the Board of Directors approved guidelines for executive officer ownership of the Company’s common stock. The guidelines specify that each executive officer will be expected to attain, within a period of five years from the date of adoption of the guidelines, and to maintain thereafter, equity ownership in the Company valued at not less than one times his or her current base salary for executive officers other than our CEO and two times base salary for our CEO. Our CEO’s higher required ownership guideline is consistent with market best practices. Valuation for purposes of the guidelines is to be determined at the higher of cost or current fair market value for shares of the Company’s common stock held outright and shares underlying vested RSUs then held. Vested stock options are valued on a net after tax basis 25 assuming a 45% marginal tax rate on the stock option value equal to the current market price for the Company’s common stock less the option exercise price. The Board of Directors believes that the stock ownership guidelines serve to improve alignment of the interests of our executive officers and the Company’s stockholders. At the present time, all of the NEOs have exceeded the expected level of stock ownership. As noted above under the heading Equity Compensation, the NEOs receive both time-vesting RSU awards and performance-vesting MSU awards. As these awards vest, shares of the Company’s common stock are issued to the NEOs and these shares may then be sold or retained, subject to the stock ownership guidelines described above. RSU and MSU awards held as of August 31, 2014 by the NEOs are set forth, together with stock options granted for fiscal years prior to 2009, in the table below under the heading, Outstanding Equity Awards at 2014 Fiscal Year End. Each of the NEOs, other than Mr. Rembolt, hold vested RSU awards that must be retained until termination of employment as noted above in the footnotes to the tables under the heading, Security Ownership of Directors and Executive Officers. TAX CONSIDERATIONS Section 162(m) of the Internal Revenue Code of 1986 (the “Code”) limits the deductibility of compensation payable in any tax year to certain covered executive officers (generally limited to the NEOs, but presently excluding the CFO pursuant to current Treasury Department guidance). Section 162(m) of the Code generally provides that a publicly-held company cannot deduct compensation paid to its most highly paid executive officers to the extent that such compensation exceeds $1 million per officer per taxable year. Compensation that is “performance-based” within the meaning of the Code does not count toward the $1 million limit. Compensation paid in fiscal year 2014 to the NEOs pursuant to the WD-40 Company Performance Incentive Compensation Plan most recently approved by the stockholders at the Company’s 2012 Annual Meeting of Stockholders is intended to qualify as “performance-based” compensation. In addition, vested shares under MSU awards are intended to qualify as “performance-based” compensation upon the Settlement Date for such awards. While the Compensation Committee attempts to maximize the deductibility of compensation paid to the NEOs, the Committee retains the flexibility necessary to provide total compensation in line with competitive practice, the Company’s compensation philosophy, and the interests of stockholders. Therefore, the Company may from time to time pay compensation to its executive officers that may not be deductible under Section 162(m). ACCOUNTING CONSIDERATIONS We follow Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC Topic 718”) for our stock-based compensation awards. ASC Topic 718 requires companies to measure the compensation expense for all share-based payment awards made to employees and directors, including stock options and restricted stock awards, based on the grant date fair value of these awards. This calculation is performed for accounting purposes and reported in the compensation tables below, even though our executive officers may never realize any value from their awards. ASC Topic 718 also requires companies to recognize the compensation cost of their stock-based compensation awards in their income statements over the period that an executive officer is required to render service in exchange for the option or other award. COMPENSATION COMMITTEE REPORT The Compensation Committee of WD-40 Company’s Board of Directors has reviewed and discussed with management of the Company the Compensation Discussion and Analysis included in this proxy statement and the Company’s annual report on Form 10-K for the year ended August 31, 2014, and, based upon that review and discussion, recommended to the board that it be so included. Compensation Committee Richard A. Collato, Chair Peter D. Bewley Mario L. Crivello Linda A. Lang 26 SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than ten percent of the Company’s stock, to file with the Securities Exchange Commission initial reports of stock ownership and reports of changes in stock ownership. Reporting persons are required by SEC regulation to furnish the Company with copies of all Section 16(a) reports they file. To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company during the last fiscal year and written representations that no other reports were required, except as described below, all Section 16(a) requirements were complied with by all persons required to report with respect to the Company’s equity securities during the last fiscal year. On August 20, 2014, Giles H. Bateman filed a late report on Form 5 to report previously unreported shares acquired as a result of a dividend reinvestment on August 1, 2013. EXECUTIVE COMPENSATION None of our executive officers has an employment agreement or other arrangement, whether written or unwritten, providing for a term of employment or compensation for services rendered other than under specific plans or programs described herein. For fiscal year 2014, our executive officers received a base salary amount established by the Compensation Committee of the Board of Directors at the beginning of the fiscal year. In addition, each employee of the Company, including each executive officer, may receive bonus compensation under a Performance Incentive Program established at the beginning of the fiscal year by the Company and, for our executive officers, by the Committee. A complete description of the Performance Incentive Program is provided in the Compensation Discussion and Analysis section of this proxy statement under the heading, Performance Incentive Program. Information regarding the target and maximum potential bonus compensation payable under the Performance Incentive Program for fiscal year 2014 is provided below in the table under the heading, Grants of Plan-Based Awards - Fiscal Year 2014. The actual payouts under the Performance Incentive Program for fiscal year 2014 and further details regarding the program are provided in the Compensation Discussion and Analysis section of this proxy statement. 27 SUMMARY COMPENSATION TABLE The following table shows information for the three fiscal years ended August 31, 2014, August 31, 2013 and August 31, 2012, concerning the compensation of our CEO, our CFO and the three most highly compensated executive officers other than the CEO and CFO as of the end of fiscal year 2014 (collectively, the “Named Executive Officers” or “NEOs”). Name and Principal Position Garry O. Ridge President and Chief Executive Officer Jay W. Rembolt Vice President, Finance, Treasurer and Chief Financial Officer Michael J. Irwin Executive Vice President, Global Business Development Group Michael L. Freeman Division President, the Americas William B. Noble4 Managing Director, EMEA Stock Awards1 Salary Year 2014 $ 626,747 $ 642,682 $ 470,089 $ 81,286 $ 1,820,804 1,792,406 2013 1,142,692 2012 546,039 472,642 571,815 - 601,747 601,747 72,805 68,303 Total Non-Equity Incentive Plan Compensation2 All Other Compensation3 2014 $ 301,136 $ 160,565 $ 135,397 $ 80,251 $ 677,349 623,394 2013 482,458 2012 113,697 141,793 156,710 - 275,010 267,000 77,977 73,665 2014 $ 316,771 $ 85,626 $ 44,414 $ 73,489 $ 520,300 590,939 2013 470,027 2012 112,338 - 312,090 303,000 90,992 94,529 75,519 72,498 2014 $ 324,473 $ 160,565 $ 146,013 $ 80,615 $ 711,666 702,756 2013 518,376 2012 136,489 141,793 176,918 3,510 310,500 300,000 78,849 73,073 2014 $ 358,555 $ 117,823 $ 141,426 $ 120,394 $ 738,198 683,039 2013 492,508 2012 185,462 - 325,284 320,923 95,533 94,529 76,760 77,056 1 2 3 Stock Awards for fiscal years 2014, 2013 and 2012 are reported at their grant date fair values. Grant date fair value assumptions and related information is set forth in Note13, Stock-based Compensation, to the Company’s financial statements included in the Company’s annual report on Form 10-K filed on October 21, 2014. Stock Awards consisting of market share units (“MSUs”) awarded in fiscal years 2014 and 2013, and performance share units (“PSUs”) awarded in fiscal year 2012, are included based on the value of 100% of the target number of shares of the Company’s common stock to be issued upon achievement of the applicable performance measures. For achievement of the highest level of the applicable performance measure for the MSUs, NEOs will receive 200% of the target number of shares. For achievement of the highest level of all applicable performance measures for the PSUs, NEOs would have received 150% of the target number of shares. For fiscal years 2014 and 2013, the total amounts for Stock Awards based on the grant date fair values for all MSU awards based on the maximum number of shares to be received for each of the NEOs would be as follows: $997,620 and $807,650, respectively, for Mr. Ridge; $249,241 and $168,171, respectively, for Mr. Rembolt; $132,915 and $134,587, respectively, for Mr. Irwin; $249,241 and $201,881, respectively, for Mr. Freeman; and $182,894 and $141,304, respectively, for Mr. Noble. Based on the actual number of vested PSU awards for those awards granted in fiscal year 2012, the total amounts for Stock Awards for fiscal year 2012 for each of the NEOs would have been as follows: $418,060 for Mr. Ridge; $125,434 for Mr. Rembolt; $83,596 for Mr. Irwin; $125,434 for Mr. Freeman; and $83,596 for Mr. Noble. Amounts reported as Non-Equity Incentive Plan Compensation represent incentive bonus payouts under the Company’s Performance Incentive Program as described in the narrative preceding the Summary Compensation Table and in the Compensation Discussion and Analysis section of this proxy statement. Threshold, target and maximum payouts for each of the NEOs for fiscal year 2014 are set forth below in the table under the heading, Grants of Plan-Based Awards - Fiscal Year 2014. All Other Compensation for each of the NEOs includes, among other nominal cost benefits, group medical, dental, vision, wellness, and life insurance benefit costs for each NEO other than Mr. Noble and supplemental health insurance costs for Mr. Noble (“welfare benefit costs”), employer profit sharing and matching contributions to the Company’s 401(k) Profit Sharing Plan for each NEO other than Mr. Noble and a U.K. retirement benefit for Mr. Noble, and vehicle allowance costs which include lease or depreciation expense, fuel, maintenance and insurance costs for each NEO other than Mr. Noble and a cash allowance and fuel for Mr. Noble. For fiscal year 2014, the welfare benefit costs for each NEO were as follows: Mr. Ridge - $21,028; Mr. Rembolt - $23,163; Mr. Irwin - $17,518; Mr. Freeman - $21,256; and Mr. Noble - $13,412. For fiscal year 2014, the total profit sharing and matching contributions for each of the NEOs other than Mr. Noble was $42,583. Mr. Noble’s retirement cost was $86,053. The vehicle allowance costs for each NEO for fiscal year 2014 were as follows: Mr. Ridge - $17,675; Mr. Rembolt - $14,505; Mr. Irwin - $13,388; Mr. Freeman - $16,776; and Mr. Noble - $20,929. 4 Mr. Noble’s Salary, Non-Equity Incentive Plan Compensation and All Other Compensation for each fiscal year have been converted from pounds sterling at average annual exchange rates for the year as follows: for fiscal year 2014 at $1.6490 per pound, for fiscal year 2013 at $1.5633 per pound and for fiscal year 2012 at $1.5809 per pound. 28 GRANTS OF PLAN-BASED AWARDS - FISCAL YEAR 2014 In December 2007, the Company’s stockholders approved the WD-40 Company 2007 Stock Incentive Plan to authorize the issuance of stock-based compensation awards to employees, directors and consultants. In addition to base salary and the Performance Incentive bonus, for fiscal year 2014 the executive officers were granted RSU and MSU awards under the Stock Incentive Plan. A description of the restricted stock unit (“RSU”) awards and market share unit(“MSU”) awards is provided above in the Compensation Discussion and Analysis section under the heading, Equity Compensation. Information concerning the grant of RSU and MSU awards to the NEOs is provided in the following Grants of Plan-Based Awards table. The table also contains information with respect to Performance Incentive Program opportunity awards for fiscal year 2014 as described above in the Compensation Discussion and Analysis section under the heading, Performance Incentive Program. The table provides threshold, target and maximum payout information relating to the Company’s fiscal year 2014 Performance Incentive Program. Estimated Future Payouts Under Non-Equity Incentive Plan Awards1 Estimated Future Payouts Under Equity Incentive Plan Awards2 Name Garry O. Ridge Threshold ($) Target ($) Maximum ($) Grant Date 10/14/2013 $ 1 $ 313,374 $ 626,747 10/14/2013 10/14/2013 Threshold (#) Target (#) Maximum (#) All Other Stock Awards: Number of Shares of Stock or Units3 (#) Grant Date Fair Value of Stock and Options Awards4 ($) 2,285 4,571 9,142 4,571 $ 354,938 $ 287,744 Jay W. Rembolt 10/14/2013 $ 1 $ 90,341 $ 180,682 10/14/2013 10/14/2013 571 1,142 2,284 1,142 $ 88,676 $ 71,889 Michael J. Irwin 10/14/2013 $ 1 $ 95,031 $ 190,063 10/14/2013 10/14/2013 304 609 1,218 $ 47,289 $ 38,337 609 Michael L. Freeman 10/14/2013 $ 1 $ 97,342 $ 194,684 10/14/2013 10/14/2013 571 1,142 2,284 1,142 $ 88,676 $ 71,889 William B. Noble5 10/14/2013 $ 1 $ 107,567 $ 215,133 10/14/2013 10/14/2013 419 838 1,676 $ 65,071 $ 52,752 838 1 2 3 4 5 The Estimated Future Payouts Under Non-Equity Incentive Plan Awards represent Threshold, Target and Maximum payouts under the WD-40 Company Performance Incentive Plan for bonuses payable for fiscal year 2014 performance. The Target amount represents fifty percent of the Maximum payout for each NEO. The Maximum amount represents the bonus opportunity for each NEO that assumes full achievement of the performance measures for each of the first two levels of the Performance Incentive Program (as more fully discussed above in the Compensation Discussion and Analysis section under the heading, Performance Incentive Program) and attainment by the Company of a level of Global EBITDA sufficient to maximize such payouts under the Performance Incentive Program’s third level formula applicable to all employees. The Estimated Future Payouts Under Equity Incentive Plan Awards represent the Threshold, Target and Maximum number of shares to be issued upon performance vesting of MSU awards as described in the Compensation Discussion and Analysis section under the heading, Equity Compensation. All Other Stock Awards represent RSUs described in the Compensation Discussion and Analysis section under the heading, Equity Compensation. Information relating to the Grant Date Fair Value of Stock Awards is included in footnote 1 to the Summary Compensation Table above. The Target and Maximum amounts for Mr. Noble’s Estimated Future Payouts Under Non-Equity Incentive Plan Awards have been converted from pounds sterling at an average annual exchange rate for fiscal year 2014 of $1.6490 per pound. 29 OUTSTANDING EQUITY AWARDS AT 2014 FISCAL YEAR END The following table provides detailed information concerning the unexercised stock options and RSU and MSU awards that were not vested as of the end of the last fiscal year for each of the NEOs. Option Awards Stock Awards Option Exercise Price ($) Option Expiration Date 36.03 10/16/17 27.67 27.27 35.99 36.03 10/19/14 10/18/15 10/17/16 10/16/17 Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable 20,000 20,000 1,000 5,000 5,000 6,160 17,160 - - - - - - - - - - - - - - - - - - - Name Garry O. Ridge Total Jay W. Rembolt Total Michael J. Irwin Total Michael L. Freeman Total William B. Noble Total Number of Shares or Units of StockThat Have Not Vested (#)1 Market Value of Shares or Units of StockThat Have Not Vested ($)2 Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)3 Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)4 10,352 $ 711,182 10,944 $ 751,853 10,352 $ 711,182 10,944 $ 751,853 2,490 $ 171,063 2,469 $ 169,620 2,490 $ 171,063 2,469 $ 169,620 1,625 $ 111,638 1,671 $ 114,798 1,625 $ 111,638 1,671 $ 114,798 2,665 $ 183,086 2,735 $ 187,895 2,665 $ 183,086 2,735 $ 187,895 1,889 $ 129,774 1,953 $ 134,171 1,889 $ 129,774 1,953 $ 134,171 1 Represents RSU awards to the NEOs that were not vested as of the fiscal year end. 2 The Market Value of the RSU awards at fiscal year end was $68.70 per unit, determined by reference to the closing price for the Company’s common stock as of August 31, 2014. 3 Represents the target number of shares to be issued with respect to MSU awards granted to the NEOs that were not vested as of the fiscal year end. The target number of shares to be issued with respect to MSU awards equals the number of shares to be issued with respect to the MSU awards upon achievement of the target level of achievement for such MSU awards which is equal to that of the applicable comparative Index performance as described above in the Compensation Discussion and Analysis section under the heading, Equity Compensation. The Market Value of the target number of shares to be issued with respect to unvested MSU awards at fiscal year end was $68.70 per share, determined by reference to the closing price for the Company’s common stock as of August 31, 2014. 4 30 OPTION EXERCISES AND STOCK VESTED - FISCAL YEAR 2014 The following table sets forth the number of shares of the Company’s common stock acquired on exercise of stock options in the Company’s last fiscal year and the aggregate dollar value realized on exercise of such stock options for the NEOs. The table also sets forth the number of shares of the Company’s common stock acquired upon the vesting of RSU and PSU awards in the Company’s last fiscal year and the aggregate dollar value realized with respect to such vested RSU and PSU awards. Option Awards Stock Awards Executive Officer Garry O. Ridge Jay W. Rembolt Michael J. Irwin Michael L. Freeman William B. Noble Number of Shares Acquired on Exercise (#) Value Realized on Exercise1 ($) Number of Shares Acquired on Vesting2 (#) 10,000 2,000 - - 10,000 $ 331,799 $ 72,660 $ - $ - $ 340,321 11,634 3,186 2,360 3,277 2,378 Value Realized on Vesting3 ($) $ 814,380 $ 223,020 $ 165,200 $ 229,390 $ 166,460 1 2 3 The Value Realized on Exercise is calculated by subtracting the aggregate exercise price for the shares of the Company’s common stock acquired upon exercise of the stock options from the fair market value price of such shares as of the date of exercise. The fair market value price of each share at exercise is determined by the actual trade price for the share if sold in a cashless exercise transaction, otherwise by the closing price as of the date of exercise. The Number of Shares Acquired on Vesting for each NEO includes shares of the Company’s common stock issued upon vesting of RSU and PSU awards on October 22, 2013. The Value Realized on Vesting for shares of the Company’s common stock issued on October 22, 2013 is calculated based on the number of vested RSU and PSU awards multiplied by the closing price of $70.00 for the Company’s common stock as of that date. SUPPLEMENTAL DEATH BENEFIT PLANS AND SUPPLEMENTAL INSURANCE BENEFITS The Company maintains Supplemental Death Benefit Plans for the NEOs other than Mr. Noble. Under the death benefit plan agreements, the NEO’s designated beneficiary or estate, as applicable, will receive a death benefit equal to the NEO’s then current base salary in the event of his death prior to retirement from the Company. All of the NEOs are also eligible to receive life insurance benefits offered to all employees of the Company and, in the case of Mr. Noble, to all employees of the Company’s U.K. subsidiary. The death benefits under the Supplemental Death Benefit Plans are not formally funded but the Company has purchased key man life insurance policies owned by the Company to cover its benefit obligations. The Board of Directors has determined which key employees participate in the plans and the amount of the benefit payable for each participant. Non- employee directors do not have death benefit plan agreements. Based upon their fiscal year 2014 base salaries, the supplemental death benefit to be provided to the NEOs other than Mr. Noble as of the end of fiscal year 2014 would have been as set forth in the following table. Executive Officer Garry O. Ridge Jay W. Rembolt Michael J. Irwin Michael L. Freeman William B. Noble Death Benefit $ 626,747 $ 301,136 $ 316,771 $ 324,473 $ - 31 CHANGE OF CONTROL SEVERANCE AGREEMENTS Each executive officer serves at the discretion of the Board of Directors. On February 14, 2006, the Company entered into Change of Control Severance Agreements (“Severance Agreements”) with each of the executive officers identified in the Summary Compensation Table above, with the exception of Mr. Rembolt. On October 16, 2008, the Company entered into a Severance Agreement with Mr. Rembolt. The Severance Agreements provide that each executive officer will receive certain severance benefits if his employment is terminated without “Cause” or if he resigns for “Good Reason”, as those terms are defined in the Severance Agreements, within two years after a “Change of Control” as defined in the Severance Agreements and summarized below. If the executive officer’s employment is terminated during the aforementioned two-year period by the Company without “Cause” or by the executive officer for “Good Reason”, the executive officer will be entitled to a lump sum payment (subject to limits provided by reference to Section 280G of the Internal Revenue Code which limits the deductibility of certain payments to executives upon a change in control) of twice the executive officer’s salary, calculated based on the greater of the executive officer’s then current annual salary or a five-year average, plus twice the executive officer’s bonus compensation, calculated based on the greater of the most recent annual bonus compensation or a five-year average. Further, any of the executive officer’s outstanding stock options and other equity incentive awards that are not then fully vested will be accelerated and vested in full following such termination of employment within such two-year period and the executive officer will be entitled to continuation of health and welfare benefits under the Company’s then existing benefit plans or equivalent benefits for a period of up to two years from the date of termination of employment. No employment rights or benefits other than the change of control severance benefits described in this paragraph are provided by the Severance Agreements. For purposes of the Severance Agreements and subject to the express provisions and limitations contained therein, a “Change of Control” means a transaction or series of transactions by which a person or persons acting together acquire more than 30% of the Company’s outstanding shares; a change in a majority of the incumbent members of the Company’s Board of Directors as specified in the Severance Agreements, a reorganization, merger or consolidation as specified in the Severance Agreements or a sale of substantially all of the assets or complete liquidation of the Company. As specified more particularly in the Severance Agreements, a “Change of Control” does not include a reorganization, merger or consolidation or a sale or liquidation where a majority of the incumbent members of the Company’s Board of Directors continue in office and more than 60% of the successor company’s shares are owned by the Company’s pre- transaction stockholders. The Severance Agreements have a term of two years, subject to automatic renewal for successive two year periods unless notice of non-renewal is provided by the Company’s Board of Directors not less than six months prior to the end of the current term. The term of the Severance Agreements will be automatically extended for a term of two years following any “Change of Control.” 32 The following table sets forth the estimated amounts payable to each of the NEOs pursuant to their respective Severance Agreements on the assumption that the employment of each NEO was terminated without “Cause” or otherwise for “Good Reason” effective as of the end of fiscal year 2014 following a “Change of Control” as provided for in the Severance Agreements. The table also includes the value, as of the end of the fiscal year, of all RSU and MSU awards that were not vested as of the end of fiscal year 2014. Executive Officer Garry O. Ridge Jay W. Rembolt Severance Pay1 Welfare Benefits2 Accelerated Vesting of RSUs and MSUs3 Total Change of Control Severance Benefits $ 2,397,124 $ 36,456 $ 1,463,035 $ 3,896,615 $ 915,692 $ 43,322 $ 340,683 $ 1,299,697 Michael J. Irwin Michael L. Freeman $ 858,218 $ 31,908 $ 226,436 $ 1,116,562 $ 1,002,782 $ 39,322 $ 370,981 $ 1,413,085 William B. Noble $ 1,088,034 $ 15,998 $ 263,945 $ 1,367,977 1 2 3 For each NEO, Severance Pay includes two times the reported Salary for fiscal year 2014 plus two times the reported Non-Equity Incentive Plan Compensation for fiscal year 2013. For each NEO, Welfare Benefits includes an estimate of the Company’s cost to provide 2 years of continuation coverage under the Company’s welfare benefit plans, which does not include life insurance or long-term disability insurance. The value included for accelerated vesting of RSU and MSU awards equals the value of the RSU and MSU awards that were not vested at $68.70 for each RSU and MSU based on the closing price for the Company’s common stock as of August 31, 2014. MSUs are valued for this purpose based upon the Target Number of shares of the Company’s common stock to be issued with respect to the MSUs as described above in the Compensation Discussion and Analysis section under the heading, Equity Compensation, in the event of the acceleration of vesting thereof pursuant to the NEOs’ Severance Agreements and MSU Award Agreements. AUDIT COMMITTEE REPORT Each year the Board of Directors appoints an Audit Committee to fulfill regulatory requirements and to assist the Board in oversight of the Company’s financial reporting, internal control functions and audit process. Each member of the Audit Committee meets the independence requirements set by the Nasdaq Stock Market. The responsibilities of the Audit Committee include the selection and appointment of an independent registered public accounting firm to be hired as the Company’s independent accountants. The Audit Committee is also responsible for recommending to the Board that the Company’s consolidated financial statements be included in its annual report on Form 10-K. With respect to the preparation and audit of the Company’s consolidated financial statements, management is responsible for the preparation of the financial statements; the establishment of accounting and financial reporting principles; the establishment of disclosure controls and procedures; the establishment of internal control over financial reporting; the evaluation of the effectiveness of both disclosure controls and procedures and internal control over financial reporting; and the evaluation of changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting. The Company’s independent registered public accounting firm is responsible for performing an independent audit of the consolidated financial statements and expressing an opinion as to whether the consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The Audit Committee has reviewed the consolidated financial statements of the Company for the fiscal year ended August 31, 2014. The Audit Committee has discussed the preparation of the consolidated financial statements with management and with the Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, and the Audit Committee has met separately with PricewaterhouseCoopers LLP and with management to discuss issues relating to the preparation and audit of the financial statements. For the fiscal year ended August 31, 2014, management has completed the documentation, testing and evaluation of the Company’s system of internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002. The Audit Committee has been kept apprised of management’s activities in the completion of such work and evaluation and the Audit Committee has provided oversight and advice with respect to the process undertaken by 33 management. The Audit Committee will continue to oversee such work being undertaken by the Company for the fiscal year ending August 31, 2015. The Audit Committee has taken the following steps in making its recommendation that the Company’s consolidated financial statements be included in its annual report on Form 10-K for the fiscal year ended August 31, 2014: 1. At regularly scheduled meetings of the Audit Committee, management and PricewaterhouseCoopers LLP provided periodic reports as to the work undertaken by the Company to complete the documentation, testing and evaluation of the Company’s system of internal control over financial reporting. Upon completion of such work and upon preparation of the Company’s consolidated financial statements for the fiscal year ended August 31, 2014, the Audit Committee reviewed a report provided by management on the effectiveness of the Company’s internal control over financial reporting; 2. The Audit Committee discussed with PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm for the fiscal year ended August 31, 2014, those matters required to be discussed by Statement on Auditing Standards No. 61 and Public Company Accounting Oversight Board Auditing Standard No. 2, including information concerning the scope and results of the audit. These communications and discussions are intended to assist the Audit Committee in overseeing the financial reporting and disclosure process; 3. The Audit Committee discussed with PricewaterhouseCoopers LLP from PricewaterhouseCoopers LLP a letter concerning independence as required under applicable independence standards for auditors of public companies. This discussion and disclosure helped the Audit Committee in evaluating such independence; independence and received its 4. The Audit Committee reviewed and discussed with the Company’s management and PricewaterhouseCoopers LLP the Company’s audited consolidated balance sheet at August 31, 2014, and the related consolidated statements of operations, of shareholders’ equity, of comprehensive income and of cash flows for the fiscal year ended August 31, 2014; and 5. The Audit Committee has reviewed PricewaterhouseCoopers LLP’s Report of Independent Registered Public Accounting Firm and Management’s Report on Internal Control over Financial Reporting included in the Company’s annual report on Form 10-K for the fiscal year ended August 31, 2014. Based on the reviews and discussions explained above, the Audit Committee recommended to the Board that the Company’s consolidated financial statements be included in its annual report on Form 10-K for its fiscal year ended August 31, 2014. PricewaterhouseCoopers LLP has been selected to serve as the Company’s independent registered public accounting firm for the fiscal year ending August 31, 2015. Audit Committee Giles H. Bateman, Chair Peter D. Bewley Richard A. Collato Neal E. Schmale 34 ITEM NO. 3 RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Audit Committee of the Board of Directors has appointed PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company to audit the consolidated financial statements of the Company for fiscal year 2015. Although ratification by stockholders is not required by law, the Audit Committee has determined that it is desirable to request ratification of this selection by the stockholders. Notwithstanding its selection, the Audit Committee, in its discretion, may appoint a new independent registered public accounting firm at any time during the year if the Audit Committee believes that such a change would be in the best interests of the Company and its stockholders. If the stockholders do not ratify the appointment of PricewaterhouseCoopers LLP, the Audit Committee may reconsider its selection. A majority of the votes of the common stock present or represented at the meeting is required for approval. Broker non- votes will be voted in favor of approval. PricewaterhouseCoopers LLP acted as the Company’s independent registered public accounting firm during the past fiscal year and, unless the Audit Committee appoints new independent accountants, PricewaterhouseCoopers LLP will continue to act in such capacity during the current fiscal year. It is anticipated that a representative of PricewaterhouseCoopers LLP will attend the Annual Meeting of Stockholders, will have an opportunity to make a statement if he or she desires to do so and will be available to respond to appropriate questions. The Audit Committee’s policy is to pre-approve all audit and permissible non-audit products and services provided by the independent registered public accounting firm. These products and services may include audit services, audit-related services, tax services, software and other products or services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent accountants and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent public accountants in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by- case basis. The possible effect on the independence of the public accountants is considered by the Audit Committee. There is no direct or indirect understanding or agreement that places a limit on current or future years’ audit fees or permissible non-audit product and services. AUDIT FEES PricewaterhouseCoopers LLP has provided audit services to the Company for each of the past two fiscal years. Audit fees consist of fees for professional services rendered for the audit of the Company’s consolidated annual financial statements, the review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by PricewaterhouseCoopers LLP in connection with statutory and regulatory filings or engagements. The aggregate fees billed to the Company by PricewaterhouseCoopers LLP for audit services performed for the Company for the past two fiscal years were $775,317 for the year ended August 31, 2013, and $819,074 for the year ended August 31, 2014. AUDIT-RELATED FEES Audit-related services consist of assurance and related services that are reasonably related to the performance of the audit or review of the Company’s consolidated financial statements and are not reported under “Audit Fees.” No such audit-related services were performed by PricewaterhouseCoopers LLP or billed to the Company for the year ended August 31, 2013 or the year ended August 31, 2014. TAX FEES tax planning services provided by fees consist of Tax PricewaterhouseCoopers LLP the Company by PricewaterhouseCoopers LLP in connection with intercompany transfer pricing consulting services were $72,500 for the year ended August 31, 2013, and in connection with tax hedging policy documentation consulting services were $7,500 for the year ended August 31, 2014. tax compliance, to the Company. The aggregate tax consulting or tax advice, fees billed to date to 35 ALL OTHER FEES Other fees for services provided by PricewaterhouseCoopers LLP for fiscal years 2013 and 2014 consisted of fees for access provided by PricewaterhouseCoopers LLP to its online research reference materials and fees associated with a U.K. generally accepted accounting principles (“GAAP”) impact assessment prepared by Pricewaterhouse Coopers LLP on behalf of the Company. The aggregate fees billed to the Company by PricewaterhouseCoopers LLP for other services performed for the Company were $1,800 for the year ended August 31, 2013 and $8,444 for the year ended August 31, 2014. STOCKHOLDER PROPOSALS Stockholder proposals must be received by the Company no sooner than May 3, 2015 and not later than July 2, 2015 to be included in the proxy statement and form of proxy for the next annual meeting. Any proposal submitted outside of these dates will be considered untimely in order to be considered at the Company’s 2015 Annual Meeting of Stockholders in accordance with the Company’s Bylaws. By Order of the Board of Directors Richard T. Clampitt Corporate Secretary Dated: October 30, 2014 IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, STOCKHOLDERS ARE URGED TO FILL IN, SIGN AND RETURN THE ACCOMPANYING FORM OR FORMS OF PROXY IN THE ENCLOSED ENVELOPE. 36 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) (cid:59) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended August 31, 2014 or (cid:0)(cid:0) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission File Number: 000-06936 WD-40 COMPANY (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 1061 Cudahy Place, San Diego, California (Address of principal executive offices) 95-1797918 (I.R.S. Employer Identification No.) 92110 (Zip code) Registrant’s telephone number, including area code: (619) 275-1400 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, $0.001 par value Name of each exchange on which registered The NASDAQ Stock Market, LLC Securities registered pursuant to Section 12(g) of the Act: Title of each class None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:133) No (cid:59) Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:133) No (cid:59) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:59) No (cid:133)(cid:3) Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes (cid:59) No (cid:133)(cid:3) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:133) Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer (cid:59) Accelerated filer (cid:133) Non-accelerated filer (cid:133) Smaller reporting company (cid:133) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:133) No (cid:59) The aggregate market value (closing price) of the voting stock held by non-affiliates of the registrant as of February 28, 2014 was approximately $1,028,029,906. As of October 17, 2014, there were 14,631,670 shares of the registrant’s common stock outstanding. Documents Incorporated by Reference: The Proxy Statement for the annual meeting of stockholders on December 9, 2014 is incorporated by reference into Part III, Items 10 through 14 of this Annual Report on Form 10-K.  WD-40 COMPANY ANNUAL REPORT ON FORM 10-K For the Fiscal Year Ended August 31, 2014 TABLE OF CONTENTS PART I Page Business Item 1. Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Item 3. Item 4. Mine Safety Disclosures Properties Legal Proceedings Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer PART II Purchases of Equity Securities Selected Financial Data Item 6. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Item 9. Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accountant Fees and Services Item 15. Exhibits, Financial Statement Schedules PART IV 1 5 15 15 16 17 18 19 20 44 45 45 45 46 47 47 47 48 48 49 [THIS PAGE INTENTIONALLY LEFT BLANK] Forward-Looking Statements PART I This Annual Report on Form 10-K contains forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements other than those that are purely historical are forward-looking statements which reflect the Company’s current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties. The words “aim,” “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that indicate future events and trends identify forward-looking statements. These statements include, but are not limited to, references to the near-term growth expectations for multi-purpose maintenance products and homecare and cleaning products, the impact of changes in product distribution, competition for shelf space, the impact of competition on product pricing, the level of promotional and advertising spending, plans for and success of product innovation, the impact of new product introductions on the growth of sales, the impact of customer mix and costs of raw materials, components and finished goods costs on gross margins, the impact of promotional programs on sales, the rate of sales growth in the Asia-Pacific segment, direct European countries and Eastern and Northern Europe, foreign currency exchange rates and fluctuations in those rates, the impact of changes in inventory management, the effect of future income tax provisions and audit outcomes on tax rates, and the effects of, and changes in, worldwide economic conditions and legal proceedings and other risk factors identified in Item 1A of this report. The Company undertakes no obligation to revise or update any forward-looking statements. As used in this report, the terms “we,” “our,” “us” and “the Company” refer to WD-40 Company and its wholly- owned subsidiaries, unless the context suggests otherwise. Amounts and percentages in tables and discussions may not total due to rounding. Item 1. Business Overview WD-40 Company is a global marketing organization dedicated to creating positive lasting memories by developing and selling products which solve problems in workshops, factories and homes around the world. The Company was founded in 1953 and is headquartered in San Diego, California. For more than four decades, the Company sold only one product, WD-40® multi-use product, a multi-purpose maintenance product which acts as a lubricant, rust preventative, penetrant, cleaner and moisture displacer. Over the last two decades, the Company has evolved and expanded its product offerings through both research and development activities and through the acquisition of several brands worldwide. As a result, the Company has built a family of brands and product lines that deliver high quality performance at an extremely good value to its end users. The Company currently sells its products in 188 countries worldwide primarily through mass retail and home center stores, warehouse club stores, grocery stores, hardware stores, automotive parts outlets, sport retailers, independent bike dealers and industrial distributors and suppliers. The Company’s sales come from its two product groups – multi-purpose maintenance products and homecare and cleaning products. Multi-purpose maintenance products are sold worldwide in markets throughout North, Central and South America, Asia, Australia and the Pacific Rim, 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 core strategic initiatives and the areas where it will continue to focus its time, talent and resources in future periods include: (i) maximizing the WD-40 multi-use product through geographic expansion and increased market penetration; (ii) leveraging the WD-40 brand by growing the WD-40 Specialist product line; (iii) expanding product and revenue base; (iv) attracting, developing and retaining people; and (v) operating with excellence. 1 The Company is focused on and committed to innovation and renovation of its products. The Company sees innovation and renovation as important factors to the long-term growth of its brands and product lines, and it intends to continue to work on future products, product lines, packaging and promotional innovations and renovations. The Company is also focused on expanding its current brands in existing markets with new product development. The Company’s product development team supports new product development and current product improvement for the Company’s brands. Over the years, the Company’s research and development team has made an innovation impact on most of the Company’s brands. Key innovations for the Company’s products include, but are not limited to, WD-40 Smart Straw®, WD-40 Trigger Pro®, 3-IN-ONE Professional Garage Door Lube™, Spot Shot Pet Clean™ which is a non-aerosol Spot Shot trigger product and a mildew stain remover under the X-14 brand. In addition, during fiscal year 2012 the Company launched the WD-40 Specialist® product line, which consists of certain specialty maintenance products aimed at an expanded group of end users that currently uses WD-40 multi-use product. In late fiscal year 2012, the Company also launched the WD-40 Bike™ product line and formed WD-40 Bike Company LLC, a new business unit focused on the development of a comprehensive line of bicycle maintenance products for cyclists and mechanics. Financial Information about Operating Segments The Company’s operating segments are determined consistent with the way management organizes and evaluates financial information internally for making operating decisions and assessing performance. The Company is organized on the basis of geographical area into the following three segments: (cid:120) Americas segment consists of the United States (“U.S.”), Canada and Latin America; (cid:120) Europe, Middle East and Africa (“EMEA”) segment consists of countries in Europe, the Middle East, Africa and India; and (cid:120) Asia-Pacific segment consists of Australia, China and other countries in the Asia region. The Company’s management reviews product performance on the basis of sales, which comes from its two product groups – multi-purpose maintenance products and homecare and cleaning products. The financial information required by this item is included in Note 15 – Business Segments and Foreign Operations of the Company’s consolidated financial statements, included in Item 15 of this report, and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in Item 7 of this report. Products Multi-Purpose Maintenance Products The WD-40 brand is a market leader among multi-purpose maintenance products and is sold as an aerosol spray, a non-aerosol trigger spray and in liquid form through mass retail stores, hardware stores, warehouse club stores, automotive parts outlets and industrial distributors and suppliers. WD-40 products are sold worldwide in North, Central and South America, Asia, Australia and the Pacific Rim, Europe, the Middle East and Africa. WD-40 products have a wide variety of consumer uses in, for example, household, marine, automotive, construction, repair, sporting goods and gardening applications, in addition to numerous industrial applications. The 3-IN-ONE brand consists of multi-purpose drip oil and spray lubricant products, as well as other specialty maintenance products. The drip oil is a lubricant with unique spout options that allow precise applications for small mechanisms and assemblies, tool maintenance and threads on screws and bolts. 3-IN-ONE Oil is the market share leader among drip oils for household consumers. It also has wide industrial applications in such areas as locksmithing, HVAC, marine, farming, construction and jewelry manufacturing. In addition to the drip oil line of products, the 3-IN-ONE brand also includes a professional line of products known as 3-IN-ONE Professional, which is a line of high quality, multi-purpose maintenance products. The high quality of the 3-IN-ONE brand and its established distribution network have enabled these products to gain international acceptance. 3-IN-ONE products are sold primarily in the U.S., Europe, Canada, Latin America, Australia and Asia. WD-40 Specialist consists of a line of best-in-class performing specialty problem solving products that include penetrants, water resistant degreaser silicone sprays, corrosion inhibitors and rust removers that are aimed at an expanded group of end users that currently uses the WD-40 multi-use product. The Company has launched the WD- 40 Specialist product line in the U.S., Canada and select countries in Latin America, Asia and Europe over the last three fiscal years. Within the WD-40 Specialist product line, the Company also launched WD-40 Specialist Motorbike in Europe and WD-40 Specialist Lawn and Garden in Australia during fiscal year 2014. The launch of 2 the WD-40 Specialist product line has used the same established distribution channels, through which the Company currently sells its existing products. WD-40 Bike Company LLC is a business unit that the Company formed as part of its focus on global innovation and product development. The WD-40 Bike product line consists of a comprehensive line of bicycle maintenance products that include wet and dry chain lubricants, heavy-duty degreasers, foaming wash and frame protectants that are designed specifically for avid cyclists, bike enthusiasts and mechanics. The Company started the launch of this product line in the U.S. during the first quarter of fiscal year 2013 and in Australia and Europe towards the end of fiscal year 2014, but the focus for such sales to date has been to smaller independent bike dealers rather than larger retailers. As a result, sales to date have been immaterial and are expected to remain immaterial in the near term. Homecare and Cleaning Products The X-14 brand is a line of quality products designed for unique cleaning needs. X-14 is sold as a liquid mildew stain remover and two types of automatic toilet bowl cleaners. X-14 is sold primarily in the U.S. through grocery and mass retail channels. The 2000 Flushes brand is a line of long-lasting automatic toilet bowl cleaners which includes a variety of formulas. 2000 Flushes is sold primarily in the U.S. and Canada through grocery and mass retail channels. The Carpet Fresh brand is a line of room and rug deodorizers sold as powder, aerosol quick-dry foam and trigger spray products. Carpet Fresh is sold primarily through grocery and mass retail channels in the U.S., the U.K. and Australia. In the U.K., Carpet Fresh is sold under the 1001 brand name. In Australia, Carpet Fresh is sold under the No Vac brand name. The Spot Shot brand is sold as an aerosol carpet stain remover and a liquid trigger carpet stain and odor eliminator. The brand also includes environmentally friendly products such as Spot Shot Instant Carpet Stain & Odor Eliminator™ and Spot Shot Pet Clean, which are non-toxic and biodegradable. Spot Shot products are sold primarily through grocery and mass retail channels, warehouse club stores and hardware and home center stores in the U.S. and Canada. Spot Shot products are also sold in the U.K. under the 1001 brand name. The 1001 brand includes carpet and household cleaners and rug and room deodorizers which are sold primarily through mass retail, grocery and home center stores in the U.K. The brand was acquired to introduce the Company’s other homecare and cleaning product formulations under the 1001 brand in order to expand the Company’s homecare and cleaning products business into the U.K. market. The Lava and Solvol brands consist of heavy-duty hand cleaner products which are sold in bar soap and liquid form through hardware, grocery, industrial, automotive and mass retail channels. Lava is sold primarily in the U.S., while Solvol is sold exclusively in Australia. The homecare and cleaning products are considered harvest brands providing positive returns to the Company, but they are becoming a smaller part of the business as the multi-purpose maintenance products sales grow as the Company executes its core strategic initiatives. The Company began to evaluate the strategic alternatives for certain of its homecare and cleaning products, particularly those in th U.S., during the first half of fiscal year 2013. Since that time, the Company has continued to sell these brands but has reduced its level of investments in such brands. Financial information about operating segments and product lines is included in Note 15 – Business Segments and Foreign Operations of the consolidated financial statements, included in Item 15 of this report. Sales and Marketing The Company’s sales do not reflect any significant degree of seasonality. However, it is common for the Company’s sales to fluctuate from period to period or year to year due to various factors including, but not limited, to new or lost distribution, the number of product offerings carried by a customer and the level of promotional activities and programs being run at customer locations. New or lost distribution occurs when the Company gains or loses customers, when it gains or loses store count for a customer or when its products are added to new locations within a store or removed from existing locations. From time to time, as part of new product offering launches, the Company may gain access to entirely new distribution channels. The number of product offerings refers to the number of brands and/or the number of products within each of those brands that the Company’s customers offer for sale to end 3 user customers. The level of promotional activities and programs relates to the number of events or volumes of purchases by customers in support of off-shelf or promotional display activities. Changes in any one of these three factors or a combination of them can cause the Company’s sales levels to increase or decrease from period to period. It is also common and/or possible that the Company could lose distribution or product offerings and experience a decrease in promotional activities and programs in one period and subsequently regain this business in a future period. The Company is accustomed to such fluctuations and manages this as part of its normal business activities. Sources and Availability of Components and Raw Materials The Company relies on a limited number of suppliers, including single or sole suppliers, for certain of its raw materials, packaging, product components and other necessary supplies. The Company’s primary components and raw materials include petroleum-based products and aerosol cans, which are manufactured from commodities that are subject to volatile price changes. The availability of these components and raw materials is affected by a variety of supply and demand factors, including global market trends, plant capacity decisions and natural disasters. The Company expects these components and raw materials to continue to be readily available in the future, although the Company will continue to be exposed to volatile price changes. Research and Development The Company recognizes the importance of innovation and renovation to its long-term success and is focused on and committed to research and new product development activities. The Company’s product development team engages in consumer research, product development, current product improvement and testing activities. The product development team also leverages its development capabilities by partnering with a network of outside resources including the Company’s current and prospective outsource suppliers. In addition, the research and development team engages in activities and product development efforts which are necessary to ensure that the Company meets all regulatory requirements for the formulation of its products. The Company incurred research and development expenses of $6.9 million, $7.2 million and $5.1 million in fiscal years 2014, 2013 and 2012, respectively. None of this research and development activity was customer-sponsored. Manufacturing The Company outsources directly or through its marketing distributors the manufacturing of its finished products to various third-party contract manufacturers. The Company or its marketing distributors use contract manufacturers in the U.S., Canada, Mexico, Brazil, Argentina, Columbia, the U.K., Italy, Australia, Japan, China, South Korea and India. Although the Company does not typically have definitive minimum purchase obligations included in the contract terms with its contract manufacturers, when such obligations have been included, they have been immaterial to date. Supply needs are communicated by the Company to its contract manufacturers, and the Company is committed to purchase the products manufactured based on orders and short-term projections, ranging from two to five months, provided to the contract manufacturers. The Company also formulates and manufactures concentrate used in its WD-40 products at its own facilities and at third-party contract manufacturers. In addition to the commitments to purchase products from contract manufacturers described above, the Company may also enter into commitments with other manufacturers from time to time to purchase finished goods and components to support innovation initiatives and/or supply chain initiatives. Order Backlog Order backlog is not a significant factor in the Company’s business. Competition The markets for the Company’s products, particularly those related to its homecare and cleaning products, are highly competitive. The Company’s products compete both within their own product classes as well as within product distribution channels, competing with many other products for store placement and shelf space. Competition in international markets varies by country. The Company is aware of many competing products, some of which sell for lower prices or are produced and marketed by companies with greater financial resources than those of the Company. The Company relies on the awareness of its brands among consumers, the value offered by those brands as perceived by consumers, product innovation and renovation and its multiple channel distributions as its primary strategies. New products typically encounter intense competition, which may require advertising and 4 promotional support and activities. When or if a new product achieves consumer acceptance, ongoing advertising and promotional support may be required in order to maintain its relative market position. Trademarks and Patents The Company owns numerous patents, but relies primarily upon its established trademarks, brand names and marketing efforts, including advertising and sales promotion, to compete effectively. The WD-40 brand, 3-IN-ONE, Lava, Solvol, X-14, 2000 Flushes, Carpet Fresh and No Vac, Spot Shot and 1001 trademarks are registered or have pending registration in various countries throughout the world. Employees At August 31, 2014, the Company employed 395 people worldwide: 154 by the U.S. parent corporation; 6 by the Malaysia subsidiary; 11 by the Canada subsidiary; 152 by the U.K. subsidiary (including 67 in the U.K., 28 in Germany, 29 in France, 18 in Spain and 10 in Italy); 17 by the Australia subsidiary; 49 by the China subsidiary; 4 by WD-40 Bike Company; and 2 by WD-40 Manufacturing Company, the Company’s manufacturing subsidiary. Financial Information about Foreign and Domestic Operations For detailed information about the Company’s foreign and domestic operations, including net sales by reportable segment and long-lived assets by geography, refer to Note 15 - Business Segments and Foreign Operations of the consolidated financial statements, included in Item 15 of this report. Access to SEC Filings The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available through the Investors section of the Company’s website at www.wd40company.com. These reports can be accessed free of charge from the Company’s website as soon as reasonably practicable after the Company electronically files such materials with, or furnishes them to, the Securities and Exchange Commission (“SEC”). Information contained on the Company’s website is not included as a part of, or incorporated by reference into, this report. Interested readers may also read and copy any materials that the Company files at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Readers may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site (www.sec.gov) that contains the Company’s reports. Item 1A. Risk Factors The following risks and uncertainties, as well as other factors described elsewhere in this report or in other SEC filings by the Company, could adversely affect the Company’s business, financial condition and results of operations. The Company’s financial results could suffer if the Company is unable to implement and successfully manage its core strategic initiatives or if the Company’s core strategic initiatives do not achieve the intended results. There is no assurance that the Company will be able to implement and successfully manage its core strategic initiatives, including its five major strategic initiatives, or that the core strategic initiatives will achieve the intended results, which include sales volume growth. The Company’s five major strategic initiatives include: (i) maximizing the WD-40 multi-use product through geographic expansion and market penetration; (ii) leveraging the WD-40 brand by growing the WD-40 Specialist product line; (iii) expanding product and revenue base; (iv) attracting, developing and retaining people; and (v) operating with excellence. If the Company is unable to implement and successfully manage its core strategic initiatives in accordance with its business plans, the Company’s business and financial results could be adversely affected. Moreover, the Company cannot be certain that implementation of its core strategic initiatives will necessarily advance its business or financial results as intended. 5 Cost increases in finished goods, components, raw materials, transportation and other necessary supplies or services could harm the Company’s financial condition and results of operations. Increases in the cost of finished goods, components and raw materials and increases in the cost of transportation and other necessary supplies or services may harm the Company’s financial condition and results of operations. Petroleum-based products and aerosol cans, which constitute a significant portion of the costs for many of the Company’s products, have experienced significant price volatility in the past, and may continue to do so in the future. Fluctuations in oil and diesel fuel prices have also impacted the Company’s cost of transporting its products. As component and raw material costs are the principal contributors to the cost of goods sold for all of the Company’s products, any significant fluctuation in the costs of components and raw materials could have a material impact on the gross margins realized on the Company’s products. Specifically, the costs of petroleum-based materials, which are included in many of the Company’s products, are exposed to fluctuations resulting from the increase in the cost of petroleum and there has been significant volatility in such costs in recent years. In the event there is significant volatility in the Company’s cost of goods or increases in raw material and/or component costs or the costs of transportation and other necessary supplies or services, the Company may not be able to maintain its gross margins if it chooses not to raise its product sales prices. Should the Company choose to increase product sales prices to offset cost increases, such increases may adversely affect demand and unit sales. Sustained increases in the cost of raw materials, components, transportation and other necessary supplies or services, or significant volatility in such costs, could have a material adverse effect on the Company’s financial condition and results of operations. Global economic conditions may negatively impact the Company’s financial condition and results of operations. A general weakening or decline in the global economy or a reduction in business or consumer spending or confidence could delay or significantly decrease purchases of the Company’s products by its customers, including mass retail and home center stores, warehouse club stores, grocery stores, hardware stores, automotive parts outlets and industrial distributors and suppliers. Consumer purchases of discretionary items, which could include the Company’s multi-purpose maintenance products and homecare and cleaning products, may decline during periods where disposable income is reduced or there is economic uncertainty, and this may negatively impact the Company’s financial condition and results of operations. During unfavorable or uncertain economic times, consumers may also increase purchases of lower-priced or non-branded products and the Company’s competitors may increase their level of promotional activities to maintain sales volumes, both of which may negatively impact the Company’s financial condition and results of operations. In addition, adverse global economic conditions could result in a lower level of manufacturing and industrial activities, particularly in areas such as China where the Company primarily sells its products through the industrial channel. The Company’s sales and operating results may be affected by uncertain or changing economic and market conditions, including inflation, deflation, prolonged weak consumer demand or other changes which may affect the principal markets in which the Company conducts its business. If economic or market conditions in key global markets deteriorate, the Company may experience material adverse effects on its business, financial condition and results of operations. In calendar year 2008 and 2009, the banking system and financial markets experienced disruptions, including among other things, bank failures and consolidations, diminished liquidity and credit availability and rating downgrades. These events and conditions caused a loss of confidence in the U.S. and global financial markets. Although global economic conditions have somewhat stabilized in recent years, the recovery has been slow. The pace of economic recovery or any new economic downturn or recession could cause the Company’s customers to delay or significantly decrease their purchases, which could reduce the Company’s future sales and negatively impact its results of operations and cash flows. Adverse economic and market conditions could also harm the Company’s business by negatively affecting the parties with whom it does business, including its customers, retailers, distributors and wholesalers, and third-party contract manufacturers and suppliers. These conditions could impair the ability of the Company’s customers to pay for products they have purchased from the Company. As a result, allowances for doubtful accounts and write-offs of accounts receivable from the Company’s customers may increase. In addition, the Company’s third-party contract manufacturers and its suppliers may experience financial difficulties that could negatively affect their operations and their ability to supply the Company with finished goods and the raw materials, packaging, and components required for the Company’s products. 6 Reliance on a limited base of third-party contract manufacturers, logistics providers and suppliers of raw materials and components may result in disruption to the Company’s business and this could adversely affect the Company’s financial condition and results of operations. The Company relies on a limited number of third-party contract manufacturers, logistics providers and suppliers, including single or sole source suppliers for certain of its raw materials, packaging, product components and other necessary supplies. The Company does not have direct control over the management or business of these third parties, except indirectly through terms negotiated in service or supply contracts. Should the terms of doing business with the Company’s primary third-party contract manufacturers, suppliers and/or logistics providers change or should the Company have a disagreement with or be unable to maintain relationships with such third parties or should such third parties experience financial difficulties, the Company’s business may be disrupted. In addition, if the Company is unable to contract with third-party manufacturers or suppliers for the quantity and quality levels needed for its business, the Company could experience disruptions in production and its financial results could be adversely affected. Sales unit volume growth may be difficult to achieve. The Company’s ability to achieve sales volume growth will depend on its ability to (i) execute its core strategic initiatives, (ii) drive growth within its existing markets through innovation, renovation and enhanced merchandising and marketing of its established brands, (iii) introduce its products to new users and (iv) capture market share from its competitors. It is more difficult for the Company to achieve sales volume growth in mature markets where the Company’s products are widely used as compared to in developing markets where the Company’s products have been newly introduced or are not well known by consumers. In order to protect the Company’s existing market share or capture additional market share from its competitors, the Company may need to increase its expenditures related to promotions and advertising or introduce and establish new products or product lines. In past periods, the Company has also increased sales prices on certain of its products in response to increased costs for components and raw materials. Sales price increases may slow sales volume growth or create declines in volume in the short term as customers adjust to sales price increases. In addition, a change in the strategies of the Company’s existing customers, including shelf simplification, the discontinuation of certain product offerings or the shift in shelf space to competitors’ products could reduce the Company’s sales and potentially offset sales volume increases achieved as a result of other sales growth initiatives. If the Company is unable to increase market share in its existing product lines by developing product improvements, investing adequately in its existing brands, building usage among new customers, developing, acquiring or successfully launching new products or product line extensions, or successfully penetrating new and developing markets globally, the Company may not achieve its sales volume growth objectives. Global operations outside the U.S. expose the Company to uncertain conditions, foreign currency exchange rate risk and other risks in international markets. The Company’s sales outside of the U.S. were approximately 62% of consolidated net sales in fiscal year 2014 and one of its core strategic initiatives includes maximizing the WD-40 multi-use product through geographic expansion and market penetration. As a result, the Company currently faces, and will continue to face, substantial risks associated with having increased global operations outside the U.S., including: (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) economic or political instability in the Company’s international markets, including Latin America, the Middle East, parts of Asia, Russia, Eastern Europe and the Eurozone countries; restrictions on or costs relating to the repatriation of foreign profits to the U.S., including possible taxes or withholding obligations on any repatriations; challenges associated with conducting business in foreign jurisdictions, including those related to the Company’s understanding of business laws and regulations in such foreign jurisdictions; increasing tax complexity associated with operating in multiple tax jurisdictions; dispersed employee base and compliance with employment regulations and other labor issues, such as labor laws and minimum wages, in countries outside the U.S.; and the imposition of tariffs or trade restrictions and costs, burdens and restrictions associated with other governmental actions. These risks could have a significant impact on the Company’s ability to sell its products on a competitive basis in global markets outside the U.S. and could have a material adverse effect on the Company’s business, financial condition and results of operations. 7 The Company is also exposed to foreign currency exchange rate risk with respect to its sales, expenses, profits, assets and liabilities denominated in currencies other than the U.S. dollar. Although the Company uses instruments to hedge certain foreign currency risks, primarily those associated with its U.K. subsidiary, it is not fully protected against foreign currency fluctuations and, therefore, the Company’s reported earnings may be affected by changes in foreign currency exchange rates. Moreover, any favorable impacts to profit margins or financial results from fluctuations in foreign currency exchange rates are likely to be unsustainable over time. Additionally, the Company’s global operations outside the U.S. are subject to risks relating to appropriate compliance with legal and regulatory requirements in local jurisdictions, potential difficulties in staffing and managing local operations, potentially higher incidence of fraud or corruption, credit risk of local customers and distributors and potentially adverse tax consequences. Also, as the Company further develops and grows its business operations outside the U.S., the Company may be exposed to additional complexities and risks, particularly in China, Russia and emerging markets. In many foreign countries, particularly in those with developing economies, it may be a local custom for a company which operates in such countries to engage in business practices that are prohibited by the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act or other applicable anti- corruption laws and regulations. The Company is also subject to anti-corruption laws in the jurisdictions in which it operates, and the risk that unauthorized conduct may go undetected will generally be higher at the Company’s foreign subsidiaries. Any failure to comply with these laws, even if inadvertent, could result in significant penalties or otherwise harm the Company’s reputation and business. Although the Company has adopted policies and contract terms to mandate compliance with these laws, there can be no assurance that all of its employees, contractors and agents will comply with the Company’s requirements. Violations of these laws could be costly and disrupt the Company’s business, which could have a material adverse effect on its business, financial condition and results of operations. The Company faces significant competition in its markets which could lead to reduced sales and profitability. The Company faces significant competition from other consumer products companies, both in the U.S. and in other global markets. Many of the Company’s products, particularly its homecare and cleaning products, compete with other widely advertised brands within each product category and with “private label” brands and “generic” non- branded products of the Company’s customers in certain categories, which are typically sold at lower prices. The Company also encounters competition from similar and alternative products, many of which are produced and marketed by major national or multinational companies. In addition, from time to time the Company discovers products in certain markets that are counterfeit reproductions of the Company’s products as well as products otherwise bearing an infringing trade dress. The availability of counterfeits and other infringing products, particularly in China, Russia and emerging markets, could adversely impact the Company’s sales and potentially damage the value and reputation of its brands. The Company’s products generally compete on the basis of product performance, brand recognition, price, quality or other benefits to consumers and meeting end users needs. Advertising, promotions, merchandising and packaging also have a significant impact on consumer purchasing decisions. A newly introduced consumer product, whether improved or recently developed, usually encounters intense competition requiring substantial expenditures for advertising, sales and consumer promotion. If a product gains consumer acceptance, it normally requires continued advertising, promotional support and product improvements in order to maintain its relative market position. Some of the Company’s competitors are larger and have financial resources greater than those of the Company. These competitors may be able to spend more aggressively on advertising and promotional activities, introduce competing products more quickly and respond more effectively to changing business and economic conditions than the Company. In addition, the Company’s competitors may attempt to gain market share and shelf space by offering products at sales prices at or below those typically offered by the Company. Competitive activity may require the Company to increase its investment in marketing or reduce its sales prices and this may lead to reduced profit margins, a loss of market share or loss of distribution, each of which could have a material adverse effect on the Company’s business, financial condition and results of operations. There can be no assurance that the Company will be able to compete successfully against current and future competitors or that competitive pressures faced by the Company or the infringement of its products and brands will not have a material adverse effect on its business, financial condition and results of operations. 8 Dependence on key customers could adversely affect the Company’s business, financial condition and results of operations. The Company sells its products through a network of domestic and international mass retail and consumer retailers as well as industrial distributors and suppliers. The retail industry has historically been the subject of consolidation due to economic events, and as a result, the development of large chain stores has taken place. Today, the retail channel in the U.S. is comprised of several of these large chain stores that capture the bulk of the market share. Since many of the Company’s customers have been part of the consolidation in the retail industry, these limited customers account for a large percentage of the Company’s net sales. The Company expects that a significant portion of its revenues will continue to be derived from this limited number of customers. As a result, changes in the strategies of the Company’s largest customers, including shelf simplification, a reduction in the number of brands they carry or a shift in shelf space to “private label” or competitors’ products, may harm the Company’s sales. The loss of, or reduction in, orders from any of the Company’s most significant customers could have a material adverse effect on the Company’s brand values, business, financial condition and results of operations. Large customers may seek price reductions, added support or promotional concessions. If the Company agrees to such customer demands and/or requests, it could negatively impact the Company’s ability to maintain existing profit margins. In addition, the Company’s business is based primarily upon individual sales orders, and the Company typically does not enter into long-term contracts with its customers. Accordingly, these customers could reduce their purchasing levels or cease buying products from the Company at any time and for any reason. The Company is also subject to changes in customer purchasing patterns or the level of promotional activities. These types of changes may result from changes in the manner in which customers purchase and manage inventory levels, or display and promote products within their stores. Other potential factors such as customer disputes regarding shipments, fees, merchandise condition or related matters may also impact operating results. If the Company ceases doing business with a significant customer or if sales of its products to a significant customer materially decrease, the Company’s business, financial condition and results of operations may be harmed. Government regulations and environmental laws and regulations could result in material costs or otherwise adversely affect the Company’s financial condition and results of operations. The manufacturing, chemical composition, packaging, storage, distribution and labeling of the Company’s products and the manner in which the Company’s business operations are conducted must comply with extensive federal, state and foreign laws and regulations, such as the California Air Resources Board (“CARB”) regulations and the California Transparency in Supply Chains Act as well as many others in the United States. In addition, the Company’s international operations are subject to regulations in each of the foreign jurisdictions in which it manufactures, distributes and sells its products. If the Company is not successful in complying with the requirements of all such regulations or changes to existing regulations, it could be fined or other actions could be taken against the Company by the governing body and this could adversely affect the Company’s financial condition and results of operations. It is also possible that governments will increase regulation of the transportation, storage or use of certain chemicals, to enhance homeland security or protect the environment and such regulation could negatively impact the Company’s ability to obtain raw materials, components and/or finished goods or could result in increased costs. In the event that such regulations result in increased product costs, the Company may not be in a position to raise selling prices, and therefore an increase in costs could have a material adverse effect on the Company’s business, financial condition and results of operations. Some of the Company’s products have chemical compositions that are controlled by various state, federal and international laws and regulations. The Company is required to comply with these laws and regulations and it seeks to anticipate regulatory developments that could impact the Company’s ability to continue to produce and market its products. The Company invests in research and development to maintain product formulations that comply with such laws and regulations. There can be no assurance that the Company will not be required to alter the chemical composition of one or more of the Company’s products in a way that will have an adverse effect upon the product’s efficacy or marketability. A delay or other inability of the Company to complete product research and development and successfully reformulate its products in response to any such regulatory requirements could have a material adverse effect on the Company’s business, financial condition and results of operations. The Company is subject to an SEC rule mandated by Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and this rule requires management to conduct annual due diligence and disclose and report on whether certain minerals and metals, known as “conflict minerals”, are contained in the Company’s products and, if so, whether they originate from the Democratic Republic of Congo (“DRC”) and adjoining 9 countries. Since the Company’s supply chain structure is complex, management may have difficulty determining whether these materials exist within the Company’s products, and if the Company were to conclude that these materials exist within the Company’s products, the Company may have difficulty verifying the origin of such materials. The Company is also subject to numerous environmental laws and regulations that impose various environmental controls on its business operations, including, among other things, the discharge of pollutants into the air and water, the handling, use, treatment, storage and clean-up of solid and hazardous wastes and the investigation and remediation of soil and groundwater affected by hazardous substances. Such laws and regulations may otherwise relate to various health and safety matters that impose burdens upon the Company’s operations. These laws and regulations govern actions that may have adverse environmental effects and also require compliance with certain practices when handling and disposing of hazardous wastes. These laws and regulations also impose strict, retroactive and joint and several liability for the costs of, and damages resulting from, cleaning up current sites, past spills, disposals and other releases of hazardous substances. The Company believes that its expenditures related to environmental matters have not had, and are not currently expected to have, a material adverse effect on its financial condition, results of operations or cash flows. However, the environmental laws under which the Company operates are complicated, often become increasingly more stringent and may be applied retroactively. Accordingly, there can be no assurance that the Company will not be required to incur additional expenditures to remain in or to achieve compliance with environmental laws in the future or that any such additional expenditures will not have a material adverse effect on the Company’s business, financial condition or results of operations. The Company may not successfully develop, introduce and /or establish new products and line extensions. The Company’s future performance and growth depend, in part, on its ability to successfully develop, introduce and/or establish new products as both brand extensions and/or line extensions. The Company cannot be certain that it will successfully achieve those goals. The Company competes in several product categories where there are frequent introductions of new products and line extensions and such product introductions often require significant investment and support. The ability of the Company to understand consumer preferences is key to maintaining and improving the competitiveness of its product offerings. The development and introduction of new products, as well as the renovation of current products and product lines, require substantial and effective research, development and marketing expenditures, which the Company may be unable to recoup if the new or renovated products do not gain widespread market acceptance. There are inherent risks associated with new product development and marketing efforts, including product development or launch delays, product performance issues during development, changing regulatory frameworks that affect the new products in development and the availability of key raw materials included in such products. These inherent risks could result in the failure of new products and product line extensions to achieve anticipated levels of market acceptance, additional costs resulting from failed product introductions and the Company not being first to market. As the Company continues to focus on innovation and renovation of its products, the Company’s business, financial condition or results of operations could be adversely affected in the event that the Company is not able to effectively develop and introduce new or renovated products and line or brand extensions. If the success and reputation of one or more of the Company’s leading brands erodes, its business, financial condition and results of operations could be negatively impacted. The financial success of the Company is directly dependent on the success and reputation of its brands, particularly its WD-40 brand. The success and reputation of the Company’s brands can suffer if marketing plans or product development and improvement initiatives do not have the desired impact on the brands’ image or do not attract customers as intended. The Company’s brands can also be adversely impacted due to the activities and pressures placed on them by the Company’s competitors. Further, the Company’s business, financial condition and results of operations could be negatively impacted if one of its leading brands suffers damage to its reputation due to real or perceived quality or safety issues. Quality issues, which can lead to large scale recalls of the Company’s products, can be due to items such as product contamination, regulatory non-compliance, packaging errors and incorrect ingredients in the Company’s product. Although the Company makes every effort to prevent brand erosion and preserve its reputation and the reputation of its brands, there can be no assurance that such efforts will be successful. Goodwill and intangible assets are subject to impairment risk. In accordance with the authoritative guidance on goodwill, intangibles and other, the Company assesses the potential impairment of its existing goodwill during the second quarter of each fiscal year and otherwise when events or 10 changes in circumstances indicate that an impairment condition may exist. The Company also assesses its definite- lived intangible assets for potential impairment when events and circumstances indicate that the carrying amount of the asset may not be recoverable and/or its estimated remaining useful life may no longer be appropriate. Indicators such as underperformance relative to historical or projected future operating results, changes in the Company’s strategy for its overall business or use of acquired assets, unexpected negative industry or economic trends, decline in the Company’s stock price for a sustained period, decreased market capitalization relative to net book values, unanticipated technological change or competitive activities, loss of key distribution, change in consumer demand, loss of key personnel and acts by governments and courts may signal that an asset has become impaired. During the fourth quarter of fiscal year 2013, as part of the Company’s ongoing evaluation of potential strategic alternatives for certain of its homecare and cleaning products, the Company determined based on its review of events and circumstances that there were indicators of impairment for the Carpet Fresh and 2000 Flushes trade names. Management accordingly performed the Step 1 recoverability test for these two trade names and based on the results of this analysis, it was determined that the total of the undiscounted cash flows significantly exceeded the carrying value for the Carpet Fresh asset group and that no impairment existed for this trade name as of August 31, 2013. However, the Step 1 analysis indicated that the carrying value of the asset group for the 2000 Flushes trade name exceeded its undiscounted future cash flows, and consequently, a second phase of the impairment test (“Step 2”) was performed specific to the 2000 Flushes trade name to determine whether this trade name was impaired. Based on the results of this Step 2 analysis, the 2000 Flushes asset group’s estimated fair value was determined to be lower than its carrying value. Consequently, the Company recorded a non-cash, before tax impairment charge of $1.1 million in the fourth quarter of fiscal year 2013 to reduce the carrying value of the 2000 Flushes asset to its estimated fair value of $7.9 million. At August 31, 2014, the carrying value of definite-lived intangible assets associated with the Company’s trade names was $22.1 million. For additional information, refer to the information set forth in Note 5 – Goodwill and Other Intangible Assets of the consolidated financial statements, included in Item 15 of this report. The assessment for possible impairment of the Company’s goodwill and intangible assets requires management to make judgments on a number of significant estimates and assumptions, including macroeconomic conditions, overall category growth rates, sales growth rates, cost containment and margin expansion and expense levels for advertising and promotions and general overhead, all of which must be developed from a market participant standpoint. The Company may be required to record a significant charge in its consolidated financial statements during the period in which any impairment of its goodwill or intangible assets is identified and this could negatively impact the Company’s financial condition and results of operations. Although the Company has recorded significant impairments to certain of its intangible assets in prior fiscal years, no such impairments have been identified or recorded to its goodwill. Changes in management estimates and assumptions as they relate to valuation of goodwill and intangible assets could affect the Company’s financial condition or results of operations in the future. The Company’s business development activities may not be successful. The Company seeks to increase growth through business development activities such as acquisitions, joint ventures, licensing and/or other strategic partnerships in the U.S. and internationally. However, if the Company is not able to identify, acquire and successfully integrate acquired products or companies or successfully manage joint ventures or other strategic partnerships, the Company may not be able to maximize these opportunities. The failure to properly manage business development activities because of difficulties in the assimilation of operations and products, the diversion of management’s attention from other business concerns, the loss of key employees or other factors could materially adversely affect the Company’s business, financial condition and results of operations. In addition, there can be no assurance that the Company’s business development activities will be profitable at their inception or that they will achieve sales levels and profitability that justify the investments made. Future acquisitions, joint ventures or strategic partnerships could also result in the incurrence of debt, potentially dilutive issuances of equity securities, contingent liabilities, amortization expenses related to certain intangible assets, unanticipated regulatory complications and/or increased operating expenses, all of which could adversely affect the Company’s results of operations and financial condition. In addition, to the extent that the economic benefits associated with any of the Company’s business development activities diminish in the future, the Company may be required to record impairments to goodwill, intangible assets or other assets associated with such activities, which could also adversely affect the Company’s business, financial condition and results of operations. 11 The Company’s operating results and financial performance may not meet expectations which could adversely affect the Company’s stock price. The Company cannot be sure that its operating results and financial performance, which include sales growth, net income, earnings per common share, gross margin and cash flows, will meet expectations. If the Company’s assumptions and estimates are incorrect or do not come to fruition, or if the Company does not achieve all of its key goals or core strategic initiatives, then the Company’s actual performance could vary materially from its internal expectations and those of the market. Failure to meet or exceed these expectations could cause the market price of the Company’s stock to decline. The Company’s operating results and financial performance may be negatively influenced by a number of factors, many of which are discussed in this Item 1A “Risk Factors”. In addition, sales volume growth, whether due to acquisitions or internal growth, can place burdens on management resources and financial controls that, in turn, can have a negative impact on operating results and financial condition of the Company. To some extent, the Company plans its expense levels in anticipation of future revenues. If actual revenues fall short of these expectations, operating results may be adversely affected by reduced operating margins due to actual expense levels that are higher than might otherwise have been appropriate. Failure to maximize or to successfully assert the Company’s intellectual property rights or infringement by the Company on the intellectual property rights of others could impact its competitiveness or otherwise adversely affect the Company’s financial condition and results of operations. The Company relies on trademark, trade secret, patent and copyright laws to protect its intellectual property rights. Although the Company has established a global enforcement program to protect its intellectual property rights, there can be no assurance that these intellectual property rights will be maximized or that they can be successfully asserted. There is a risk that the Company will not be able to obtain and perfect its own intellectual property rights or, where appropriate, license intellectual property rights necessary to support new product introductions or acquired product lines. The Company cannot be certain that these rights, if obtained, will not be invalidated, circumvented or challenged in the future, and the Company could incur significant costs in connection with legal actions to defend its intellectual property rights. In addition, even if such rights are obtained in the U.S., it may be that the laws of some of the other countries in which the Company’s products are or may be sold do not protect intellectual property rights to the same extent as the laws of the United States, or they may be difficult to enforce. If other companies infringe the Company’s intellectual property rights or take part in counterfeiting activities, they may dilute the value of the Company’s brands in the marketplace, which could diminish the value that consumers associate with the Company’s brands and harm its sales. The failure of the Company to protect or successfully assert its intellectual property rights or to protect its other proprietary information could make the Company less competitive and could have a material adverse effect on its business, financial condition and results of operations. If the Company is found to have violated the trademark, trade secret, copyright, patent or other intellectual property rights of others, such a finding could result in the need to cease the use of a trademark, trade secret, copyrighted work or patented invention in the Company’s business and an obligation to pay a substantial amount for past infringement. It could also be necessary to pay a substantial amount in the future if the holders of such rights are willing to permit the Company to continue to use the intellectual property rights. Either having to cease use or pay such amounts could make the Company less competitive and could have a material adverse impact on its business, financial condition and results of operations. Changes in marketing distributor relationships that are not managed successfully by the Company could result in a disruption in the affected markets. The Company distributes its products throughout the world in one of two ways: the direct distribution model, in which products are sold directly by the Company to wholesalers and retailers in the U.S., Canada, Australia, China, the U.K. and a number of other countries throughout Europe; and the marketing distributor model, in which products are sold to marketing distributors who in turn sell to wholesalers and retailers. The marketing distributor model is generally used in certain countries where the Company does not have direct Company-owned operations. Instead, the Company partners with local companies who perform the sales, marketing and distribution functions. The Company invests time and resources in these relationships. Should the Company’s relationship with a marketing distributor change or terminate, the Company’s sales within such marketing distributor’s territory could be adversely impacted until such time as a suitable replacement could be found and the Company’s key marketing strategies implemented. There is a risk that changes in such marketing distributor relationships, including changes in key marketing distributor personnel, that are not managed successfully, could result in a disruption in the affected 12 markets and that such disruption could have a material adverse effect on the Company’s business, financial condition and results of operations. Additionally, in some countries, local laws may require substantial payments to terminate existing marketing distributor relationships, which could also have a material adverse effect on the Company’s business, financial condition and results of operations. Product liability claims and other litigation and/or regulatory action could adversely affect the Company’s sales and operating results. While the Company makes every effort to ensure that the products it develops and markets are safe for consumers, the use of the Company’s products may expose the Company to liability claims resulting from such use. Claims could be based on allegations that, among other things, the Company’s products contain contaminants, provide inadequate instructions regarding their use or inadequate warnings concerning their use or interactions with other substances. Product liability claims could result in negative publicity that could harm the Company’s sales and operating results. The Company maintains product liability insurance that it believes will be adequate to protect the Company from material loss attributable to such claims but the extent of such loss could exceed available limits of insurance or could arise out of circumstances under which such insurance coverage would be unavailable. Other business activities of the Company may also expose the Company to litigation risks, including risks that may not be covered by insurance such as contract disputes. If successful claims are asserted by third parties against the Company for uninsured liabilities or liabilities in excess of applicable limits of insurance coverage, the Company’s business, financial condition and results of operations may be adversely affected. In addition, if one of the Company’s products was determined to be defective, the Company could be required to recall the product, which could result in adverse publicity and significant expenses. Additionally, the Company’s products may be associated with competitor products or other products in the same category, which may be alleged to have caused harm to consumers. As a result of this association, the Company may be named in unwarranted legal actions. The potential costs to defend such claims may materially affect the Company’s business, financial condition and results of operations. Resolution of income tax matters may impact the Company’s financial condition and results of operations. Significant judgment is required in determining the Company’s effective income tax rate and in evaluating tax positions, particularly those related to uncertain tax positions. The Company provides for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement standards prescribed by the accounting standard for uncertain tax positions. Changes in uncertain tax positions or other adjustments resulting from tax audits and settlements with taxing authorities, including related interest and penalties, impact the Company’s effective tax rate. When particular tax matters arise, a number of years may elapse before such matters are audited and finally resolved. Favorable resolution of such matters could be recognized as a reduction to the Company’s effective tax rate in the year of resolution. Unfavorable resolution of any tax matter could increase the Company’s effective tax rate. Any resolution of a tax matter may require the adjustment of tax assets or tax liabilities or the use of cash in the year of resolution. For additional information, refer to the information set forth in Note 12 – Income Taxes of the consolidated financial statements, included in Item 15 of this report. In addition, changes in tax rules may adversely affect the Company’s future financial results or the way management conducts its business. For example, the Company holds a significant amount of cash outside of the United States. As of August 31, 2014, the Company has not provided for U.S. federal and state income taxes and foreign withholding taxes on $106.4 million of undistributed earnings of certain foreign subsidiaries since these earnings are considered indefinitely reinvested outside of the United States. The Company’s future financial results and liquidity may be adversely affected if tax rules regarding un-repatriated earnings change, if management elects for any reason in the future to repatriate some or all of the foreign earnings that were previously deemed to be indefinitely reinvested outside of the U.S., or if the U.S. international tax rules change as part of comprehensive tax reform or other tax legislations. The Company may experience difficulties with or malfunctions of the critical information systems that it uses for the daily operations of its business and this could adversely affect the Company’s business, financial condition and results of operations. The Company relies extensively on information technology systems, networks and services, some of which are managed, hosted and provided by third-party service providers, to conduct its business. System failure, malfunction or loss of data which is housed in the Company’s critical information systems could disrupt its ability to timely and 13 accurately process transactions and produce key financial reports, including information on the Company’s operating results, financial position and cash flows. In addition, information technology security threats and more sophisticated computer crime pose a potential risk to the security of the Company’s information technology systems and networks, as well as to the confidentiality, availability and integrity of the Company’s data. The Company’s information systems could be damaged or cease to function properly due to a number of reasons, including catastrophic events, power outages and security breaches. Although the Company has certain business continuity plans in place to address such service interruptions, there is no guarantee that these business continuity plans will provide alternative processes in a timely manner. As a result, the Company may experience interruptions in its ability to manage its daily operations and this could adversely affect the Company’s business, financial condition and results of operations. The information system that the U.S. office uses for its business operations is a market specific application which is not widely used by other companies. The company that owns and supports this application may not be able to provide the same level of support as that of companies which own larger, more widely spread information systems. If the company that supports this application in the U.S. were to cease its operations or were unable to provide continued support for this application, it could adversely affect the Company’s daily operations or its business, financial condition and results of operations. In addition, the Company’s U.K. subsidiary has been in the process of implementing a major upgrade to its critical information system and it successfully completed the initial phase of this implementation in May 2014. The final phase of this implementation is underway, and it includes rolling out the new system to the branch offices of the U.K. subsidiary over the next twenty four months. This information system is being used by the U.K. subsidiary to process all of the daily transactions for the U.K. subsidiary and its branch offices located in Europe and to produce key financial reports for the European operations. If the U.K. subsidiary experiences difficulties in completing the final phase of this implementation of this upgraded information system at its various locations, the Company may experience interruptions in its ability to manage its daily operations and report financial results and this could adversely affect the Company’s business, financial condition and results of operations. The Company may not have sufficient cash to service its indebtedness or to pay cash dividends. The Company’s current debt consists of a revolving credit facility and management has used the proceeds of this revolving credit facility primarily for stock repurchases. In order to service such debt, the Company is required to use its income from operations to make interest and principal payments required by the terms of the loan agreements. In addition, the Company’s loan agreements typically include covenants to maintain certain financial ratios and to comply with other financial terms, conditions and covenants, including clauses that could require the Company to immediately repay the debt upon an event that has a material adverse effect. Also, the Company has historically paid out a large part of its earnings to stockholders in the form of regular quarterly cash dividends. In December 2013, the Board of Directors declared a 10% increase in the regular quarterly cash dividend, increasing it from $0.31 per share to $0.34 per share. The Company may incur substantial debt in the future for acquisitions or other business development activities. In addition, the Company may continue to use available cash balances to execute share repurchases under approved share buy-back plans. To the extent that the Company is required to seek additional financing to support certain of these activities, such financing may not be available in sufficient amounts or on terms acceptable to the Company. If the Company is unable to obtain such financing or to service its existing or future debt with its operating income, or if available cash balances are affected by future business performance, liquidity, capital needs, alternative investment opportunities or debt covenants, the Company could be required to reduce, suspend or eliminate its dividend payments to its stockholders. Compliance with changing regulations and standards for accounting, corporate governance and public disclosure may result in additional expenses and this could negatively impact the Company’s business, financial condition and results of operations. Changing laws, regulations and standards relating to accounting and financial reporting, corporate governance and public disclosure, including new SEC regulations such as those required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, new NASDAQ Stock Market rules, new accounting requirements, including any that result from the joint convergence projects of the Financial Accounting Standards Board and the International Accounting Standards Board, and the potential future requirement to transition to international financial reporting standards, may create uncertainty and additional burdens and complexities for the Company. To maintain high 14 standards of accounting and financial reporting, corporate governance and public disclosure, the Company intends to invest all reasonably necessary resources to comply with all such evolving standards and requirements. These investments may result in increased general and administrative expenses and a diversion of management time and attention from strategic revenue generating and cost management activities, either of which could negatively impact the Company’s business, financial condition and results of operations. The operations of the Company and its third-party contract manufacturers and suppliers of raw materials and components are subject to disruption by events beyond the Company’s control. Operations of the Company and the operations of its third-party contract manufacturers and suppliers of raw materials and components are subject to disruption for a variety of reasons, including work stoppages, acts of war, terrorism, pandemics, fire, earthquakes, hurricanes, flooding or other natural disasters. If a major disruption were to occur, it could result in harm to people or the natural environment, temporary loss of access to critical data, delays in shipments of products to customers, supply chain disruptions, increased costs for finished goods, components and/or raw materials or suspension of operations, any of which could have a material adverse effect on the Company’s business, financial condition and results of operations. Although the Company has certain business continuity plans in place to respond to such events, there is no assurance that such plans are adequate or would be successfully implemented. The Company’s continued growth and expansion could adversely affect its internal control over financial reporting which could harm its business and financial condition. Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting per the Sarbanes-Oxley Act of 2002. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting standards generally accepted in the United States. Internal control over financial reporting includes maintaining records in reasonable detail such that they accurately and fairly reflect the Company’s transactions, providing reasonable assurance that receipts and expenditures are made in accordance with management’s authorization, policies and procedures and providing reasonable assurance that the unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements would be prevented or detected in a timely manner. The Company’s continued growth and expansion, particularly in global markets, will place additional pressure and risk on the Company’s system of internal control over financial reporting. Any failure by the Company to maintain an effective system of internal control over financial reporting associated with such growth and expansion could limit the Company’s ability to report its financial results accurately and on a timely basis or to detect and prevent fraud. Item 1B. Unresolved Staff Comments None. Item 2. Properties Americas The Company owns and occupies an office and plant facility, consisting of office, plant and storage space, which is located at 1061 Cudahy Place, San Diego, California 92110. The Company also leases additional office and storage space in San Diego. The Company leases a regional sales office in Miami, Florida, a research and development office in Summit, New Jersey and office space in Toronto, Ontario, Canada. EMEA The Company owns and occupies an office and plant facility, consisting of office, plant and storage space, located in Milton Keynes, United Kingdom. In addition, the Company leases space for its branch offices in Germany, France, Italy, Spain, Portugal and the Netherlands. Asia-Pacific The Company leases office space in Epping, New South Wales, Australia, Shanghai, China and Kuala Lumpur, Malaysia. 15 Item 3. Legal Proceedings The Company is party to various claims, legal actions and complaints, including product liability litigation, arising in the ordinary course of business. On February 25, 2014, a legal action was filed against the Company in the Superior Court of California for San Diego County (David Wolf v. WD-40 Company). Mr. Wolf’s complaint seeks class action status and alleges that the Company violated California Penal Code Section 632.7 which prohibits the interception or reception and intentional recording of “a communication transmitted between two cellular radio telephones, a cellular radio telephone and a landline telephone, two cordless telephones, a cordless telephone and a landline telephone, or a cordless telephone and a cellular radio telephone” without the consent of both parties to the communication. Mr. Wolf alleges that he called a toll free number for the Company from his cellular radio telephone and that his call was recorded by the Company without his consent in violation of the statute. The California Penal Code provides for a private right of action to persons who are injured by a violation of the statute. If entitled to recover, the injured plaintiff may recover the greater of $5,000 or three times the amount of actual damages sustained by the plaintiff. The Company asserts that the Company has not violated the California Penal Code and the Company intends to vigorously defend this action. At the present time, the Company is unable to estimate the extent of possible loss or a range of possible loss that could result from this legal proceeding. On May 31, 2012, a legal action was filed against the Company in the United States District Court, Southern District of Texas, Houston Division (IQ Products Company v. WD-40 Company). IQ Products Company, a Texas corporation ("IQPC"), or an affiliate or a predecessor of IQPC, provided contract manufacturing services to the Company for many years. The allegations of IQPC’s complaint arose out of a pending termination of this business relationship. In 2011, the Company requested proposals for manufacturing services from all of its domestic contract manufacturers in conjunction with a project to redesign the Company’s supply chain architecture in North America. IQPC submitted a proposal as requested, and the Company tentatively awarded IQPC a new contract based on the information and pricing included in that proposal. IQPC subsequently sought to materially increase the quoted price for such manufacturing services. As a result, the Company chose to terminate its business relationship with IQPC. IQPC’s complaint alleged that the Company wrongfully terminated the business relationship. IQPC also raised alleged safety concerns regarding a long-standing manufacturing specification related to the Company’s products. The Company believes that IQPC’s safety concerns are unfounded. In its complaint, IQPC asserted that the Company is obligated to indemnify IQPC for prospective claims and losses based on a 1993 indemnity agreement and pursuant to common law. IQPC asserted that it was harmed by the Company's allegedly retaliatory conduct in seeking to terminate its relationship with IQPC, allegedly in response to the safety concerns identified by IQPC. IQPC seeks declaratory relief to establish that it is entitled to indemnification and also to establish that the Company is responsible for reporting the alleged safety concerns to the United States Consumer Products Safety Commission and to the United States Department of Transportation. On January 22, 2014, proceedings brought by the Company to require that all of IQPC’s claims be resolved by arbitration under the rules of the American Arbitration Association in accordance with an arbitration provision of the parties’ pre-existing 1996 Manufacturing License and Product Purchase Agreement were concluded. An Arbitration Panel of three Arbitrators selected by the parties tentatively confirmed that all claims arising out of the agreement are subject to arbitration. Although IQPC continues to contest this determination in the arbitration proceeding, the arbitration proceeding was commenced in August 2014 and is presently scheduled to be concluded in January 2015 in San Diego, California. In its claim for arbitration, the Company seeks damages from IQPC arising out of the termination of the relationship, specifically including damages arising out of IQPC’s failure to cooperate with the Company with respect to the required sale and shipment of finished goods inventory to the Company in conjunction with the termination of the relationship. In the arbitration proceedings, IQPC is asserting claims for breach of contract damages relating to IQPC’s production of the finished goods inventory prior to termination of the relationship, damages arising out of alleged negligent misrepresentations by the Company as to its product manufacturing specifications, and storage fees for materials and finished goods held at its facilities after termination of the relationship. The Company believes that IQPC’s claims are without merit and the Company continues to vigorously defend this matter. At the present time, the Company is unable to estimate the extent of possible loss or a range of possible loss that could result from this legal proceeding. 16 Item 4. Mine Safety Disclosures Not applicable. Executive Officers of the Registrant The following table sets forth the names, ages, year elected to current position and current titles of the executive officers of the Company as of August 31, 2014: Name, Age and Year Elected to Current Position 58 1997 Garry O. Ridge 63 2008 Jay W. Rembolt 51 2013 Michael J. Irwin 60 2013 Graham P. Milner 61 2002 Michael L. Freeman 52 1997 Geoffrey J. Holdsworth 56 1996 William B. Noble Title President and Chief Executive Officer Vice President, Finance, Treasurer and Chief Financial Officer Executive Vice President, Global Business Development Group Executive Vice President, Global Business Development Group Division President, The Americas Managing Director, Asia-Pacific Managing Director, EMEA As of September 1, 2014, Mr. Irwin and Mr. Milner were excluded from the list of the Company’s executive officers due to changes in their respective roles and responsibilities with the Company and their dedicated focus on development of the Company’s WD-40 Bike product line. On September 1, 2014, the Company designated the following additional persons as executive officers of the Company: Name, Age and Year Elected to Current Position Stanley A. Sewitch Richard T. Clampitt 59 2014 Title 61 2012 Vice President, Global Organization Development Vice President, General Counsel and Corporate Secretary Mr. Ridge joined the Company’s Australian subsidiary, WD-40 Company (Australia) Pty. Limited, in 1987 as Managing Director. He held several senior management positions prior to his election as Chief Executive Officer in 1997. Mr. Rembolt joined the Company in 1997 as Manager of Financial Services. He was promoted to Controller in 1999 and to Vice President, Finance/Controller in 2001. He was then named Vice President, Finance and Chief Financial Officer in 2008. Mr. Irwin joined the Company in 1995 as Director of U.S. Marketing, and he was subsequently promoted to Director of Marketing, The Americas. He was named Vice President, Marketing, The Americas in 1998, Senior Vice President, Chief Financial Officer and Treasurer in 2001, Executive Vice President in 2002, and Executive Vice President, Strategic Development in 2008. In 2013, he was appointed to his current position of Executive Vice President, Global Business Development Group and has been supporting the activities associated with the WD-40 Bike business unit since its formation. Mr. Milner joined the Company in 1992 as International Director. He was named Vice President, Sales and Marketing, The Americas, in 1997, Senior Vice President, The Americas, in 1998, and Executive Vice President, Global Innovation and Chief Branding Officer in 2002. He was then appointed to his current position of Executive Vice President, Global Business Development Group in 2013 and has been supporting the activities associated with the WD-40 Bike business unit since its formation. Mr. Freeman joined the Company in 1990 as Director of Marketing and was promoted to Director of Operations in 1994. He became Vice President, Administration and Chief Information Officer in 1996, and was named Senior Vice President, Operations in 2001 and Division President, The Americas, in 2002. Mr. Holdsworth joined the Company’s Australia subsidiary, WD-40 Company (Australia) Pty. Limited, in 1996 as General Manager and was promoted to his current position of Managing Director, Asia-Pacific and as a Director of WD-40 Company (Australia) Pty. Limited in 1997. 17 Mr. Noble joined the Company’s Australia subsidiary, WD-40 Company (Australia) Pty. Limited, in 1993 as International Marketing Manager for the Asia Region. He was then promoted to his current position of Managing Director, EMEA and as a Director of the Company’s U.K. subsidiary, WD-40 Company Limited, in 1996. Mr. Sewitch joined the Company in 2012 as Vice President, Global Organization Development. Prior to joining the Company, Mr. Sewitch was a founder of four businesses, including a human resources and organizational consulting firm (HRG Inc.) which he led from 1989 until joining the Company. Mr. Clampitt joined the Company in 2014 as Vice President, General Counsel and Corporate Secretary. He was named as Corporate Secretary on October 15, 2013. He has been licensed to practice law in the State of California since 1981. Prior to joining the Company, Mr. Clampitt served as a partner at Gordon & Rees LLP from 2002 through 2013. All executive officers hold office at the discretion of the Board of Directors. Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of PART II Equity Securities Market Information The Company’s common stock is traded on the NASDAQ Global Select Market. The following table sets forth the high and low sales prices per share of the Company’s common stock for each of the quarterly periods indicated as reported by the NASDAQ Global Select Market. First Quarter Second Quarter Third Quarter Fourth Quarter High 76.29 79.31 78.88 76.99 $ $ $ $ Fiscal Year 2014 Low 58.21 66.75 69.78 66.06 $ $ $ $ Dividend $ $ $ $ 0.31 0.34 0.34 0.34 High 54.42 55.18 57.50 64.23 $ $ $ $ Fiscal Year 2013 Low 45.12 45.59 51.31 53.35 $ $ $ $ Dividend $ $ $ $ 0.29 0.31 0.31 0.31 On October 17, 2014, the last reported sales price of the Company’s common stock on the NASDAQ Global Select Market was $71.90 per share, and there were 14,631,670 shares of common stock outstanding held by approximately 822 holders of record. Dividends The Company has historically paid regular quarterly cash dividends on its common stock. In December 2013, the Board of Directors declared a 10% increase in the regular quarterly cash dividend, increasing it from $0.31 per share to $0.34 per share. On October 3, 2014, the Company’s Board of Directors declared a cash dividend of $0.34 per share payable on October 31, 2014 to shareholders of record on October 17, 2014. The Board of Directors of the Company presently intends to continue the payment of regular quarterly cash dividends on the Company’s common stock. The Company’s ability to pay dividends could be affected by future business performance, liquidity, capital needs, alternative investment opportunities and debt covenants. Purchases of Equity Securities By the Issuer and Affiliated Purchasers On June 18, 2013, the Company’s Board of Directors approved a share buy-back plan. Under the plan, which is in effect from August 1, 2013 through August 31, 2015, the Company is authorized to acquire up to $60.0 million of its outstanding shares on such terms and conditions as may be acceptable to the Company’s Chief Executive Officer or Chief Financial Officer and subject to present loan covenants and in compliance with all laws and regulations applicable thereto. During the period from August 1, 2013 through August 31, 2014, the Company repurchased 648,138 shares at a total cost of $45.4 million. 18 The following table provides information with respect to all purchases made by the Company during the three months ended August 31, 2014. All purchases listed below were made in the open market at prevailing market prices. Purchase transactions between June 2, 2014 and July 11, 2014 were executed pursuant to trading plans adopted by the Company pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934. Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs or Programs 57,632 83,041 33,646 174,319 $ $ $ $ 73.02 69.71 68.09 70.49 57,632 83,041 33,646 174,319 $ $ $ 22,632,934 16,842,297 14,550,756 Period June 1 - June 30 July 1 - July 31 August 1 - August 31 Total Item 6. Selected Financial Data The following data has been derived from the Company’s audited consolidated financial statements. The data should be read in conjunction with such consolidated financial statements and other financial information included elsewhere in this report (in thousands, except per share amounts): Net sales Cost of products sold Gross profit Operating expenses Income from operations Interest and other income (expense), net Income before income taxes Provision for income taxes Net income Earnings per common share: Basic Diluted Dividends per share Weighted-average shares outstanding - diluted Total assets Long-term obligations (1) As of and for the Fiscal Year Ended August 31, 2014 $ 382,997 184,144 198,853 135,116 63,737 (778) 62,959 19,213 $ 43,746 2013 $ 368,548 179,385 189,163 132,526 56,637 230 56,867 17,054 $ 39,813 2012 $ 342,784 174,302 168,482 116,753 51,729 (816) 50,913 15,428 $ 35,485 2011 $ 336,409 168,297 168,112 113,980 54,132 (601) 53,531 17,098 $ 36,433 2010 $ 321,516 156,210 165,306 110,108 55,198 (1,641) 53,557 17,462 $ 36,095 $ $ $ 2.89 2.87 1.33 $ $ $ 2.55 2.54 1.22 $ $ $ 2.22 2.20 1.14 $ $ $ 2.16 2.14 1.08 $ $ $ 2.17 2.15 1.00 15,148 $ 347,680 15,619 $ 323,064 16,046 $ 300,870 16,982 $ 279,777 16,725 $ 289,108 $ 26,354 $ 25,912 $ 25,963 $ 24,321 $ 32,764 (1) Long-term obligations include long-term debt, long-term deferred tax liabilities, net and other long-term liabilities. 19 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide the reader of the Company’s financial statements with a narrative from the perspective of management on the Company’s financial condition, results of operations, liquidity and certain other factors that may affect future results. This MD&A includes the following sections: Overview, Highlights, Results of Operations, Performance Measures and Non-GAAP Reconciliations, Liquidity and Capital Resources, Critical Accounting Policies, Recently Issued Accounting Standards and Related Parties. The MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s audited consolidated financial statements and the related notes included in Item 15 of this report. In order to show the impact of changes in foreign currency exchange rates on our results of operations, we have included constant currency disclosures, where necessary, in the Overview and Results of Operations sections which follow. Constant currency disclosures represent the translation of our current fiscal year revenues and expenses from the functional currencies of our subsidiaries to U.S. dollars using the exchange rates in effect for the corresponding period of the prior fiscal year. We use results on a constant currency basis as one of the measures to understand our operating results and evaluate our performance in comparison to prior periods. Results on a constant currency basis are not in accordance with accounting principles generally accepted in the United States of America (“non-GAAP”) and should be considered in addition to, not as a substitute for, results prepared in accordance with GAAP. Overview The Company WD-40 Company, based in San Diego, California, is a global marketing organization dedicated to creating positive lasting memories by developing and selling products which solve problems in workshops, factories and homes around the world. We market multi-purpose and specialty maintenance products under the WD-40® and 3-IN- ONE® brand names. Currently included in the WD-40 brand are the WD-40 multi-use product and the WD-40 Specialist® and WD-40 BikeTM product lines. We also market the following homecare and cleaning brands: X-14® mildew stain remover and automatic toilet bowl cleaners, 2000 Flushes® automatic toilet bowl cleaners, Carpet Fresh® and No Vac® rug and room deodorizers, Spot Shot® aerosol and liquid carpet stain removers, 1001® household cleaners and rug and room deodorizers and Lava® and Solvol® heavy-duty hand cleaners. Our brands are sold in various locations around the world. Multi-purpose maintenance products are sold worldwide in markets throughout North, Central and South America, Asia, Australia and the Pacific Rim, Europe, the Middle East and Africa. Homecare and cleaning products are sold primarily in North America, the U.K. and Australia. We sell our products primarily through mass retail and home center stores, warehouse club stores, grocery stores, hardware stores, automotive parts outlets, sport retailers, independent bike dealers and industrial distributors and suppliers. Highlights The following summarizes the financial and operational highlights for our business during the fiscal year ended August 31, 2014: (cid:120) Consolidated net sales increased $14.5 million, or 4%, for fiscal year 2014 compared to the prior fiscal year. Changes in foreign currency exchange rates had a favorable impact of $5.3 million on consolidated net sales for fiscal year 2014. Thus, on a constant currency basis, net sales would have increased by $9.2 million for fiscal year 2014 compared to the prior fiscal year. (cid:190) Multi-purpose maintenance products sales, which include the WD-40 and 3-IN-ONE brands, were $337.8 million, up 5% from the prior fiscal year. (cid:190) Homecare and cleaning products sales, which include all other brands, were $45.2 million, down 5% from the prior fiscal year. (cid:120) Americas segment sales remained relatively constant at $180.8 million and $180.5 million for fiscal years 2014 and 2013, respectively. EMEA segment sales were $151.4 million, up 10% for fiscal year 2014 compared to the prior fiscal year. Asia-Pacific segment sales remained relatively constant at $50.8 million and $50.6 million for fiscal years 2014 and 2013, respectively. 20 (cid:120) Gross profit as a percentage of net sales increased to 51.9% for fiscal year 2014 compared to 51.3% for the prior fiscal year. (cid:120) Consolidated net income increased $3.9 million, or 10%, for fiscal year 2014 compared to the prior fiscal year. Changes in foreign currency exchange rates had a favorable impact of $0.7 million on consolidated net income for fiscal year 2014. Thus, on a constant currency basis, net income would have increased by $3.2 million for fiscal year 2014 compared to the prior fiscal year. (cid:120) Diluted earnings per common share for fiscal year 2014 were $2.87 versus $2.54 in the prior fiscal year. (cid:120) Share repurchases continue to be executed under the current $60.0 million share buy-back plan, which was approved by the Company’s Board of Directors in June 2013. During the fiscal year ended August 31, 2014, the Company repurchased an additional 602,505 shares at an average price of $70.97 per share, bringing the total cost of the repurchases to $45.4 million under this plan. Our core strategic initiatives and the areas where we will continue to focus our time, talent and resources in future periods include: (i) maximizing the WD-40 multi-use product through geographic expansion and market penetration; (ii) leveraging the WD-40 brand by growing the WD-40 Specialist product line; (iii) expanding product and revenue base; (iv) attracting, developing and retaining people; and (v) operating with excellence. 21 Results of Operations Fiscal Year Ended August 31, 2014 Compared to Fiscal Year Ended August 31, 2013 Operating Items The following table summarizes operating data for our consolidated operations (in thousands, except percentages and per share amounts): Fiscal Year Ended August 31, Change from Prior Year 2014 2013 Dollars Percent $ $ $ $ 337,825 45,172 382,997 184,144 198,853 135,116 63,737 43,746 2.87 $ $ $ $ 320,883 47,665 368,548 179,385 189,163 132,526 56,637 39,813 2.54 $ $ $ $ 16,942 (2,493) 14,449 4,759 9,690 2,590 7,100 3,933 0.33 5% (5)% 4% 3% 5% 2% 13% 10% 13% Net sales: Multi-purpose maintenance products Homecare and cleaning products Total net sales Cost of products sold Gross profit Operating expenses Income from operations Net income Earnings per common share - diluted Net Sales by Segment Effective September 1, 2013, we transitioned the management of our India operations to the EMEA segment from the Asia-Pacific segment. As a result, the India financial results are now being included in the EMEA segment for both fiscal years 2014 and 2013 for comparison purposes. These amounts were previously included within the Asia- Pacific segment in the Company’s reported business segment information. The following table summarizes net sales by segment (in thousands, except percentages): The following table summarizes net sales by segment (in thousands, except percentages): Americas EMEA Asia-Pacific Total Fiscal Year Ended August 31, Change from Prior Year 2014 2013 Dollars Percent $ 180,806 $ 180,544 $ 262 151,368 50,823 382,997 $ 137,360 50,644 368,548 $ 14,008 179 14,449 $ - 10% - 4% 22 Americas The following table summarizes net sales by product line for the Americas segment (in thousands, except percentages): Fiscal Year Ended August 31, Multi-purpose maintenance products Homecare and cleaning products Total % of consolidated net sales $ $ 2014 149,899 30,907 180,806 47% $ $ 2013 147,312 33,232 180,544 49% Change from Prior Year Dollars Percent $ $ 2,587 (2,325) 262 2% (7)% - Sales in the Americas segment, which includes the U.S., Canada and Latin America, remained relatively constant at $180.8 million and $180.5 million for the fiscal years ended August 31, 2014 and 2013, respectively. Changes in foreign currency exchange rates did not have a material impact on sales for the fiscal year ended August 31, 2014 compared to the prior fiscal year. Sales of multi-purpose maintenance products in the Americas segment increased $2.6 million, or 2%, for the fiscal year ended August 31, 2014 compared to the prior fiscal year. This sales increase was primarily driven by higher sales of WD-40 multi-purpose maintenance products in Latin America and the U.S., which were up 7% and 2%, respectively, for the fiscal year ended August 31, 2014 compared to the prior fiscal year. The increase in Latin America was primarily due to the continued growth of the WD-40 multi-use products throughout the Latin America region, including in Ecuador, Mexico and Argentina, and a higher level of promotional activities from period to period, primarily those associated with the 2014 World Cup Tournament. The sales increase in the U.S. was primarily due to a higher level of promotional activities and increased distribution for the WD-40 multi-use products from period to period. Also contributing to the overall sales increase of the multi-purpose maintenance products in the Americas segment was higher sales of the WD-40 Specialist product line from period to period due to increased promotional activities and new distribution during the fiscal year ended August 31, 2014. The sales increases in the U.S. and Latin America were significantly offset by the sales decrease in Canada primarily due to changes in distribution within the mass retail channel, as well as a lower level of participation by our key customers in promotional programs from period to period. Sales of homecare and cleaning products in the Americas segment decreased $2.3 million, or 7%, for the fiscal year ended August 31, 2014 compared to the prior fiscal year. This sales decrease was driven primarily by lower sales of the Carpet Fresh and Spot Shot products, which were down 28% and 8%, respectively, in the U.S. for fiscal year 2014 compared to the prior fiscal year. While each of our homecare and cleaning products continue to generate positive cash flows, we have continued to experience decreased sales for most of these products primarily due to lost distribution, reduced product offerings, competition, category declines and the volatility of orders from and promotional programs with certain of our customers, particularly those in the warehouse club and mass retail channels. At August 31, 2014, the carrying value of definite-lived intangible assets associated with the Company’s trade names was $22.1 million, of which $1.7 million and $10.9 million were associated with the Carpet Fresh and Spot Shot trade names, respectively. For the Americas segment, 81% of sales came from the U.S. and 19% of sales came from Canada and Latin America combined for each of the fiscal years ended August 31, 2014 and 2013. 23 EMEA The following table summarizes net sales by product line for the EMEA segment (in thousands, except percentages): Fiscal Year Ended August 31, Multi-purpose maintenance products Homecare and cleaning products Total % of consolidated net sales $ $ 2014 144,255 7,113 151,368 40% $ $ 2013 130,116 7,244 137,360 37% Change from Prior Year Dollars Percent $ $ 14,139 (131) 14,008 11% (2)% 10% Sales in the EMEA segment, which includes Europe, the Middle East, Africa and India, increased to $151.4 million, up $14.0 million, or 10%, for the fiscal year ended August 31, 2014 compared to the prior fiscal year. Changes in foreign currency exchange rates for the fiscal year ended August 31, 2014 compared to the prior fiscal year had a favorable impact on sales. Sales for the fiscal year ended August 31, 2014 translated at the exchange rates in effect for the prior fiscal year would have been $143.5 million in the EMEA segment. Thus, on a constant currency basis, sales would have increased by $6.1 million, or 4%, for the fiscal year ended August 31, 2014 compared to the prior fiscal year. The countries in Europe where we sell through a direct sales force include the U.K., Italy, France, Iberia (which includes Spain and Portugal) and the Germanics sales region (which includes Germany, Austria, Denmark, Switzerland, Belgium and the Netherlands). Overall, sales from direct markets increased $5.9 million, or 7%, for the fiscal year ended August 31, 2014 compared to the prior fiscal year. The sales increase in the direct markets was mostly due to the favorable impact of changes in foreign currency exchange rates from period to period. In local currency, sales from the direct markets experienced an increase of 1%. We experienced sales increases throughout most of the Europe direct markets for fiscal year ended August 31, 2014 compared to the prior fiscal year, with percentage increases in sales as follows: Italy, 24%; Iberia, 14%; France, 11% and the U.K., 6%. The increased sales in these regions were slightly offset by the sales decrease of 3% in the Germanics region from period to period. The overall sales increase in the direct markets was also in part due to a higher level of promotional activities and increased sales of the WD-40 Specialist product line from period to period due to new distribution and the continued growth of the WD-40 multi-use products in the direct markets. Sales from direct markets accounted for 62% of the EMEA segment’s sales for fiscal year ended August 31, 2014 compared to 64% of the EMEA segment’s sales for the prior fiscal year. The regions in the EMEA segment where we sell through local distributors include the Middle East, Africa, India, Eastern and Northern Europe. Sales in the distributor markets increased $8.1 million, or 16%, for the fiscal year ended August 31, 2014 compared to the prior fiscal year due in part to the favorable impact of changes in foreign currency exchange rates from period to period. In local currency, sales from the distributor markets experienced an increase of 11%. Also contributing to the overall sales increase in the distributor markets was a higher sales volume of WD-40 multi-use products in Eastern Europe, particularly in Russia as a result of promotional programs, and the continued growth of our base business throughout the distributor markets. The distributor markets accounted for 38% of the total EMEA segment sales for the fiscal year ended August 31, 2014, compared to 36% for the prior fiscal year. 24 Asia-Pacific The following table summarizes net sales by product line for the Asia-Pacific segment (in thousands, except percentages): Fiscal Year Ended August 31, Multi-purpose maintenance products Homecare and cleaning products Total % of consolidated net sales $ $ 2014 43,670 7,153 50,823 13% $ $ 2013 43,455 7,189 50,644 14% Change from Prior Year Dollars Percent $ $ 215 (36) 179 - (1)% - Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region, remained relatively constant at $50.8 million and $50.6 million for the fiscal years ended August 31, 2014 and 2013, respectively. Changes in foreign currency exchange rates for the fiscal year ended August 31, 2014 compared to the prior fiscal year had an unfavorable impact on sales. Sales for the fiscal year ended August 31, 2014 translated at the exchange rates in effect for the prior fiscal year would have been $52.4 million in the Asia-Pacific segment. Thus, on a constant currency basis, sales would have increased by $1.8 million, or 4%, for the fiscal year ended August 31, 2014 compared to the prior fiscal year. Sales in Asia, which includes China and other countries in the Asia region, remained constant at $32.9 million for fiscal years 2014 and 2013. Sales in the Asia distributor markets decreased $0.5 million, or 3%, from period to period primarily due to decreased sales of the WD-40 multi-use product in the Indonesia market as a result of us transitioning to a new marketing distributor in this region in fiscal year 2014. Sales in China increased $0.5 million, or 5%, for the fiscal year ended August 31, 2014 compared to the prior fiscal year primarily due to a higher level of sales associated with promotional programs from period to period. Although sales in China increased from period to period, China has been negatively impacted in recent periods by a general slowdown of economic growth and the lower level of manufacturing and industrial activities that exist throughout the country. Sales in Asia represented 65% of the total sales in the Asia-Pacific segment for fiscal year 2014, compared to 66% for the prior fiscal year. Sales in Australia slightly increased by $0.2 million, or 1%, for the fiscal year ended August 31, 2014 compared to the prior fiscal year primarily due to the launch of the WD-40 Specialist product line during fiscal year 2014 and the overall growth of the base business. These were offset by the unfavorable impact of changes in foreign currency exchange rates from period to period. On a constant currency basis, sales would have increased by $2.0 million, or 11%, for the fiscal year ended August 31, 2014 compared to the prior fiscal year. Gross Profit Gross profit increased to $198.9 million for the fiscal year ended August 31, 2014 compared to $189.2 million for the prior fiscal year. As a percentage of net sales, gross profit increased to 51.9% for the fiscal year ended August 31, 2014 compared to 51.3% for the prior fiscal year. Gross margin was positively impacted by 0.3 percentage points from period to period due to sales price increases. These sales price increases were implemented in certain locations and markets in the EMEA and Asia-Pacific segments over the last twelve months. Advertising, promotional and other discounts, which are recorded as a reduction to sales, decreased from period to period, primarily in the Americas segment, positively impacting gross margin also by 0.2 percentage points. The decrease in such discounts was due to a lower percentage of sales, particularly those for our homecare and cleaning products, being subject to promotional allowances during the fiscal year ended August 31, 2014 compared to the prior fiscal year. In general, the timing of advertising, promotional and other discounts may cause fluctuations in gross margin from period to period. The costs associated with certain promotional activities are recorded as a reduction to sales while others are recorded as advertising and sales promotion expenses. Advertising, promotional and other discounts that are given to our customers are recorded as a reduction to sales, whereas advertising and sales promotional costs associated with promotional activities that we pay to third parties are recorded as advertising and sales promotion expenses. In addition, favorable net changes in the costs of petroleum-based materials and aerosol cans positively impacted gross margin by 0.8 percentage points from period to period, primarily in the EMEA and Asia-Pacific segments. There is often a delay of one quarter or 25 more before changes in raw material costs impact cost of products sold due to production and inventory life cycles. We expect that petroleum-based material costs will continue to be volatile and that volatility will impact our cost of products sold in future periods. Lower manufacturing costs in our Asia-Pacific segment also positively impacted gross margin by 0.1 percentage points from period to period. These favorable impacts to gross margin were partially offset by 0.4 percentage points due to the combined negative effects of sales mix changes and warehousing and in-bound freight costs as well as other miscellaneous costs which increased from period to period. Changes in foreign currency exchange rates negatively impacted gross margin by 0.3 percentage points primarily due to the fluctuations in the exchange rates for the U.S. Dollar and the Euro against the Pound Sterling in our EMEA segment from period to period. Increased raw material costs associated with certain of our homecare and cleaning products also negatively impacted gross margin by 0.1 percentage points from period to period. Note that our gross profit and gross margin may not be comparable to those of other consumer product companies, since some of these companies include all costs related to distribution of their products in cost of products sold, whereas we exclude the portion associated with amounts paid to third parties for shipment to our customers from our distribution centers and contract manufacturers and include these costs in selling, general and administrative expenses. These costs totaled $16.2 million and $15.7 million for the fiscal years ended August 31, 2014 and 2013, respectively. Selling, General and Administrative Expenses Selling, general and administrative (“SG&A”) expenses for the fiscal year ended August 31, 2014 increased $4.2 million, or 4%, to $108.6 million from $104.4 million for the prior fiscal year. As a percentage of net sales, SG&A expenses remained constant at 28.3% for each of the fiscal years ended August 31, 2014 and 2013. The increase in SG&A expenses was largely attributable to higher professional services costs, a higher level of expenses associated with travel and meeting expenses, increased freight costs, higher depreciation expense and the negative impacts of changes in foreign currency exchange rates from period to period. Professional services costs increased by $1.1 million period over period primarily due to higher legal fees associated with litigation activities and various regulatory compliance items as well as increases in general consulting services particularly in our EMEA segment. Travel and meeting expenses increased $0.6 million due to a higher level of travel expenses associated with various sales meetings and activities in support of our strategic initiatives. Freight costs increased $0.3 million primarily due to higher sales volumes, particularly in the EMEA segment, for the fiscal year ended August 31, 2014 compared to the prior fiscal year. Depreciation expense also increased by $0.3 million from period to period primarily due to our continued investment in computer system related assets and other capital assets which support our general business operations. Other miscellaneous expenses, which primarily include research and development costs, regulatory compliance costs and insurance, increased by $0.7 million for the fiscal year ended August 31, 2014 compared to the prior fiscal year. Changes in foreign currency exchange rates had an unfavorable impact of $1.4 million on SG&A expenses for the fiscal year ended August 31, 2014 compared to the prior fiscal year. The increases in SG&A expenses described above were slightly offset by a $0.2 million decrease in employee- related costs from period to period. Employee-related costs, which include salaries, bonuses, profit sharing, stock- based compensation and other fringe benefits, decreased in total by $0.2 million primarily due to lower incentive compensation earned in fiscal year 2014 as compared to the prior fiscal year. Based on our results for fiscal year 2014, we achieved a lower level of the profit performance metrics required under our earned incentive program, and as a result, bonus expense and the related fringe benefit expense were lower in fiscal year 2014 as compared to the prior fiscal year. This decrease in bonus expense was significantly offset by higher salary expenses due to annual compensation increases and increased headcount from period to period. We continued our research and development investment, the majority of which is associated with our multi-purpose maintenance products, in support of our focus on innovation and renovation of our products. Research and development costs for the fiscal years ended August 31, 2014 and 2013 were $6.9 million and $7.2 million, respectively. Our research and development team engages in consumer research, product development, current product improvement and testing activities. This team leverages its development capabilities by partnering with a network of outside resources including our current and prospective outsource suppliers. The level and types of expenses incurred within research and development can vary from period to period depending upon the types of activities being performed. 26 Advertising and Sales Promotion Expenses Advertising and sales promotion expenses for the fiscal year ended August 31, 2014 decreased $0.9 million, or 4%, to $23.9 million from $24.8 million for the prior fiscal year. As a percentage of net sales, these expenses decreased to 6.2% for the fiscal year ended August 31, 2014 from 6.7% for the prior fiscal year. The decrease in advertising and sales promotion expenses was primarily due to lower costs associated with promotional programs conducted in the Americas segment, particularly those for our homecare and cleaning products, from period to period. This decrease was partially offset by a higher level of promotional activities in the EMEA segment from period to period. Changes in foreign currency exchange rates did not have a material impact on advertising and sales promotion expenses for the fiscal year ended August 31, 2014 compared to the prior fiscal year. Investment in global advertising and sales promotion expenses for fiscal year 2015 is expected to be in the range of 6.0% to 7.0% of net sales. As a percentage of net sales, advertising and sales promotion expenses may fluctuate period to period based upon the type of marketing activities we employ and the period in which the costs are incurred. Total promotional costs recorded as a reduction to sales were $16.2 million and $17.7 million for the fiscal years ended August 31, 2014 and 2013, respectively. Therefore, our total investment in advertising and sales promotion activities totaled $40.1 million and $42.5 million for the fiscal years ended August 31, 2014 and 2013, respectively. Amortization of Definite-lived Intangible Assets Expense Amortization of our definite-lived intangible assets was $2.6 million and $2.3 million for the fiscal years ended August 31, 2014 and 2013, respectively. The increase in amortization for fiscal year August 31, 2014 as compared to fiscal year 2013 was due to increased amortization associated with the 2000 Flushes trade name. In May 2013, we reduced the remaining useful life of the 2000 Flushes trade name from fourteen years and ten months to seven years. In addition, amortization expense increased from period to period due to the customer list which we acquired in the second quarter of fiscal year 2014. Impairment of Definite-lived Intangible Assets Expense No impairments to our definite-lived intangible assets were identified and recorded during fiscal year 2014. During the fourth quarter of fiscal year 2013, we determined that indicators of impairment existed related to the 2000 Flushes trade name primarily due to management’s most current expectations for future growth and profitability for the 2000 Flushes trade name. As a result, we performed a second phase of the impairment test specific to the 2000 Flushes trade name and concluded that it was impaired by $1.1 million. Consequently, we recorded a non-cash, before tax impairment charge of $1.1 million in the fourth quarter of fiscal year 2013 to reduce the carrying value of the 2000 Flushes asset to its fair value. Income from Operations by Segment The following table summarizes income from operations by segment (in thousands, except percentages): Americas EMEA Asia-Pacific Unallocated corporate (1) Fiscal Year Ended August 31, Change from Prior Year 2014 2013 Dollars Percent $ 41,356 $ 39,383 $ 34,003 10,364 (21,986) 63,737 30,174 8,995 (21,915) 56,637 $ $ $ 1,973 3,829 1,369 (71) 7,100 5% 13% 15% - 13% (1) Unallocated corporate expenses are general corporate overhead expenses not directly attributable to any one of the operating segments. These expenses are reported separate from the Company’s identified segments and are included in Selling, General and Administrative expenses on the Company’s consolidated statements of operations. 27 Americas Income from operations for the Americas segment increased to $41.4 million, up $2.0 million, or 5%, for the fiscal year ended August 31, 2014 compared to the prior fiscal year, primarily due to a $0.3 million increase in sales, which was partially offset by a lower gross margin. As a percentage of net sales, gross profit for the Americas segment decreased slightly from 51.2% to 51.0% period over period. This decrease in the gross margin was primarily due to increased warehousing costs and unfavorable sales mix changes, both of which were significantly offset by a lower level of discounts offered to our customers from period to period. Operating expenses decreased $2.1 million primarily due to lower advertising and sales promotion costs associated with promotional programs conducted in the Americas segment from period to period. Operating income as a percentage of net sales increased from 21.8% to 22.9% period over period. EMEA Income from operations for the EMEA segment increased to $34.0 million, up $3.8 million, or 13%, for the fiscal year ended August 31, 2014 compared to the prior fiscal year, primarily due to an increase in sales of $14.0 million and a higher gross margin. As a percentage of net sales, gross profit for the EMEA segment increased from 53.1% to 54.0% period over period primarily due to the positive impacts of lower net costs associated with petroleum-based materials and aerosol cans and sales price increases. These favorable impacts to gross margin were partially offset by the unfavorable impact of changes in foreign currency exchange rates due to the fluctuations in both the U.S. Dollar and the Euro against the Pound Sterling. In the EMEA segment, the majority of our cost of goods sold are denominated in Pound Sterling whereas sales are generated in Pound Sterling, Euro and U.S. Dollar. The weakening of the Euro and the U.S. Dollar relative to the Pound Sterling has caused our sales to decrease, resulting in unfavorable impacts to the gross margin. The higher level of sales for the EMEA segment from period to period was accompanied by an increase in total operating expenses of $5.0 million. Operating income as a percentage of net sales increased from 22.0% to 22.5% period over period. Asia-Pacific Income from operations for the Asia-Pacific segment increased to $10.4 million, up $1.4 million, or 15%, for the fiscal year ended August 31, 2014 compared to the prior fiscal year, primarily due to an increase in sales of $0.2 million and a higher gross margin. As a percentage of net sales, gross profit for the Asia-Pacific segment increased from 47.0% to 48.9% from period to period primarily due to the combined effects sales price increases, lower manufacturing costs and decreased costs of aerosol cans in the Asia-Pacific segment, all of which were slightly offset by unfavorable sales mix changes. Operating expenses decreased by $0.3 million primarily due to decreased freight expenses and lower advertising and sales promotion costs from period to period. Operating income as a percentage of net sales increased from 17.8% to 20.4% period over period. Non-Operating Items The following table summarizes non-operating income and expenses for our consolidated operations (in thousands): Interest income Interest expense Other (expense) income, net Provision for income taxes Interest Income Fiscal Year Ended August 31, 2014 2013 Change $ $ $ $ 596 1,002 (372) 19,213 $ $ $ $ 506 693 417 17,054 $ $ $ $ 90 309 (789) 2,159 Interest income remained relatively constant for the fiscal year ended August 31, 2014 compared to the prior fiscal year. Interest Expense Interest expense increased $0.3 million for the fiscal year ended August 31, 2014 compared to the prior fiscal year primarily due to a higher outstanding balance on our revolving credit facility period over period. 28 Other (Expense) Income, Net Other (expense) income, net changed by $0.8 million for the fiscal year ended August 31, 2014 compared to the prior fiscal year primarily due to net foreign currency exchange losses which were recorded for the fiscal year ended August 31, 2014 compared to net foreign currency exchange gains which were recorded in the prior fiscal year. Provision for Income Taxes The provision for income taxes was 30.5% of income before income taxes for the fiscal year ended August 31, 2014 compared to 30.0% for the prior fiscal year. This slight increase in the effective income tax rate from period to period was primarily attributable to an increase in the U.S. income, which was taxed at a statutory rate of 35%, as compared to the income earned in various foreign jurisdictions, which was taxed at a lower statutory income tax rate. Net Income Net income was $43.7 million, or $2.87 per common share on a fully diluted basis, for fiscal year 2014 compared to $39.8 million, or $2.54 per common share on a fully diluted basis, for the prior fiscal year. Changes in foreign currency exchange rates year over year had a favorable impact of $0.7 million on net income for fiscal year 2014. Thus, on a constant currency basis, net income for fiscal year 2014 would have been $43.0 million. 29 Fiscal Year Ended August 31, 2013 Compared to Fiscal Year Ended August 31, 2012 Operating Items The following table summarizes operating data for our consolidated operations (in thousands, except percentages and per share amounts): Fiscal Year Ended August 31, Change from Prior Year 2013 2012 Dollars Percent $ $ $ $ 320,883 47,665 368,548 179,385 189,163 132,526 56,637 39,813 2.54 $ $ $ $ 286,480 56,304 342,784 174,302 168,482 116,753 51,729 35,485 2.20 $ $ $ $ 34,403 (8,639) 25,764 5,083 20,681 15,773 4,908 4,328 0.34 12% (15)% 8% 3% 12% 14% 9% 12% 15% Net sales: Multi-purpose maintenance products Homecare and cleaning products Total net sales Cost of products sold Gross profit Operating expenses Income from operations Net income Earnings per common share - diluted Net Sales by Segment The following table summarizes net sales by segment (in thousands, except percentages): Fiscal Year Ended August 31, Change from Prior Year 2013 2012 Dollars Percent $ 180,544 $ 177,394 $ 3,150 135,984 52,020 368,548 $ 116,936 48,454 342,784 $ 19,048 3,566 25,764 $ 2% 16% 7% 8% Americas EMEA Asia-Pacific Total Americas The following table summarizes net sales by product line for the Americas segment (in thousands, except percentages): Fiscal Year Ended August 31, Multi-purpose maintenance products Homecare and cleaning products Total % of consolidated net sales $ $ 2013 147,312 33,232 180,544 49% $ $ 2012 136,105 41,289 177,394 52% Change from Prior Year Dollars Percent $ $ 11,207 (8,057) 3,150 8% (20)% 2% Sales in the Americas segment, which includes the U.S., Canada and Latin America, increased to $180.5 million, up $3.1 million, or 2%, for the fiscal year ended August 31, 2013 compared to fiscal year 2012. Changes in foreign currency exchange rates did not have a material impact on sales for the fiscal year ended August 31, 2013 compared to fiscal year 2012. 30 Sales of multi-purpose maintenance products in the Americas segment increased $11.2 million, or 8%, for the fiscal year ended August 31, 2013 compared to fiscal year 2012. This sales increase was driven by higher sales of WD-40 multi-purpose maintenance products in the U.S. and Latin America, each of which were up 9% year over year. The sales increase in the U.S. was in part due to a higher overall level of promotional activities for the WD-40 multi-use products that were conducted throughout fiscal year 2013 as compared to fiscal year 2012. The increase in Latin America was primarily due to improved business conditions and a more stable economic environment throughout most of the Latin America countries in fiscal year 2013 as compared to fiscal year 2012. Also contributing to the overall sales increase of the multi-purpose maintenance products in the Americas segment was the sales increase of the WD-40 Specialist product line from period to period due to new distribution and product offerings in the U.S. and the launch of this product line in Canada and Latin America during fiscal year 2013. As a result of fluctuations in the promotional patterns with certain of our key customers, particularly those in the mass retail, home center and warehouse club channels in the U.S., it is common for our sales to vary period over period and year over year. Sales of homecare and cleaning products in the Americas segment decreased $8.1 million, or 20%, for the fiscal year ended August 31, 2013 compared to fiscal year 2012. This sales decrease was driven primarily by lower sales of the Carpet Fresh and Spot Shot products and the 2000 Flushes automatic toilet bowl cleaners, which were down 41%, 28% and 13%, respectively, in the U.S. for fiscal year 2013 compared to fiscal year 2012. For the Americas segment, 81% of sales came from the U.S. and 19% of sales came from Canada and Latin America combined for each of the fiscal years ended August 31, 2013 and 2012. EMEA The following table summarizes net sales by product line for the EMEA segment (in thousands, except percentages): Fiscal Year Ended August 31, Multi-purpose maintenance products Homecare and cleaning products Total % of consolidated net sales $ $ 2013 128,740 7,244 135,984 37% $ $ 2012 109,115 7,821 116,936 34% Change from Prior Year Dollars Percent $ $ 19,625 (577) 19,048 18% (7)% 16% Sales in the EMEA segment, which includes Europe, the Middle East and Africa, increased to $136.0 million, up $19.1 million, or 16%, for the fiscal year ended August 31, 2013 compared to fiscal year 2012. Changes in foreign currency exchange rates for the fiscal year ended August 31, 2013 compared to fiscal year 2012 had an unfavorable impact on sales. Sales for the fiscal year ended August 31, 2013 translated at the exchange rates in effect for fiscal year 2012 would have been $137.7 million in the EMEA segment. Thus, on a constant currency basis, sales would have increased by $20.8 million, or 18%, for the fiscal year ended August 31, 2013 compared to fiscal year 2012. The countries in Europe where we sell through a direct sales force include the U.K., Italy, France, Iberia (which includes Spain and Portugal) and the Germanics sales region (which includes Germany, Austria, Denmark, Switzerland and the Netherlands). Overall, sales from direct markets increased $13.1 million, or 18%, for the fiscal year ended August 31, 2013 compared to fiscal year 2012. We experienced sales increases throughout the Europe direct markets for the fiscal year ended August 31, 2013 compared to fiscal year 2012, with percentage increases in sales as follows: the Germanics sales region, 26%; Italy, 22%; France, 15%; the U.K., 12% and Iberia, 10%. The sales increase in the direct markets was primarily due to new distribution, continued growth of the base business and the positive impacts of sales price increases which were implemented in certain locations and markets throughout Europe during the second and third quarters of fiscal year 2013. Although sales in the direct markets increased significantly year over year, sales in these markets were negatively impacted throughout fiscal year 2012 primarily due to the particularly adverse economic conditions which existed in Europe during this time period. During our fiscal year 2013, the Europe economy started to stabilize and this has positively impacted our sales levels. Sales from direct markets accounted for 64% of the EMEA segment’s sales for the fiscal year ended August 31, 2013 compared to 63% of the EMEA segment’s sales for fiscal year 2012. 31 The regions in the EMEA segment where we sell through local distributors include the Middle East, Africa, Eastern and Northern Europe. Sales in the distributor markets increased $6.0 million, or 14%, for the fiscal year ended August 31, 2013 compared to fiscal year 2012 primarily due to increased sales of WD-40 multi-use products and initial sales of the WD-40 Specialist product line throughout the distributor markets. The sales increase from period to period was primarily due to the continued growth of the base business in key markets, particularly those in the Middle East and Eastern Europe. In general, the markets in which we sell through local distributors have remained more stable in recent years from an economic standpoint than other countries in Europe. The distributor markets accounted for 36% of the total EMEA segment sales for the fiscal year ended August 31, 2013, compared to 37% for fiscal year 2012. Asia-Pacific The following table summarizes net sales by product line for the Asia-Pacific segment (in thousands, except percentages): Fiscal Year Ended August 31, Multi-purpose maintenance products Homecare and cleaning products Total % of consolidated net sales $ $ 2013 44,831 7,189 52,020 14% $ $ 2012 41,260 7,194 48,454 14% Change from Prior Year Dollars Percent $ $ 3,571 (5) 3,566 9% - 7% Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region, increased to $52.0 million, up $3.5 million, or 7%, for the fiscal year ended August 31, 2013 compared to fiscal year 2012. Changes in foreign currency exchange rates did not have a material impact on sales for the fiscal year ended August 31, 2013 compared to fiscal year 2012. Sales in Asia, which represented 66% of the total sales in the Asia-Pacific segment, increased $3.6 million, or 12%, for the fiscal year ended August 31, 2013 compared to fiscal year 2012, primarily due to the stable economic conditions which existed throughout most of the Asia region during fiscal year 2013 and increased promotional activities from year to year. The distributor markets in the Asia region experienced a sales increase of $2.7 million, or 13%, for the fiscal year ended August 31, 2013 compared to fiscal year 2012, primarily due to the success of certain promotional programs, which were conducted in fiscal year 2013 throughout most of the Asia countries and the continued growth of the WD-40 multi-use products throughout the distributor markets, including those in Malaysia, South Korea and Taiwan. Sales in China increased $0.9 million, or 9%, for the fiscal year ended August 31, 2013 compared to fiscal year 2012 primarily due to a higher level of sales which resulted from a significant promotional program that was conducted in the fourth quarter of fiscal year 2013. Sales in Australia slightly decreased by $0.1 million, or 1%, for the fiscal year ended August 31, 2013 compared to fiscal year 2012 primarily due to the unfavorable impacts of changes in foreign currency exchange rates from period to period. On a constant currency basis, sales would have increased $0.3 million, or 2%, for the fiscal year ended August 31, 2013 compared to fiscal year 2012. Gross Profit Gross profit increased to $189.2 million for the fiscal year ended August 31, 2013 compared to $168.5 million for fiscal year 2012. As a percentage of net sales, gross profit increased to 51.3% for the fiscal year ended August 31, 2013 compared to 49.2% for fiscal year 2012. Gross margin was positively impacted by 1.1 percentage points from period to period due to sales price increases, which were implemented in certain locations and markets throughout most of fiscal year 2013 and 2012. There was also a decrease in discounts that were given to our customers, which positively impacted gross margin by 0.4 percentage points year over year. This decrease in such discounts was due to a lower percentage of sales, particularly those for our homecare and cleaning products in the Americas segment, being subject to promotional 32 allowances during the year ended August 31, 2013 compared to fiscal year 2012. Advertising, promotional and other discounts that are given to our customers are recorded as a reduction to sales, whereas advertising and sales promotional costs associated with promotional activities that we pay to third parties are recorded as advertising and sales promotional expenses. In addition, gross margin was positively impacted by 0.3 percentage points from period to period due to our North American supply chain restructure project. As a result of this restructure project, we were able to realize lower manufacturing fees from our third-party contract manufacturers in fiscal year 2013 compared to fiscal year 2012. These decreased costs were partially offset by higher warehousing costs, handling fees and in- bound freight costs, all of which are associated with the storage and movement of our product between our third- party contract manufacturers and distribution centers, which we incurred during much of fiscal year 2013 compared to fiscal year 2012. Gross margin was positively impacted by 0.2 percentage points due to the combined effects of changes in the costs of petroleum-based materials and aerosol cans from period to period, the majority of which came from a decrease in costs associated with petroleum-based materials. There is often a delay of one quarter or more before changes in raw material costs impact cost of products sold due to production and inventory life cycles. Lower manufacturing costs in our Asia-Pacific segment also positively impacted gross margin by 0.2 percentage points from period to period. We incurred higher costs associated with raw materials related to our homecare and cleaning products, as well as increased manufacturing costs in our EMEA segment, which when combined negatively impacted gross margin by 0.1 percentage points from period to period. Note that our gross profit and gross margin may not be comparable to those of other consumer product companies, since some of these companies include all costs related to distribution of their products in cost of products sold, whereas we exclude the portion associated with amounts paid to third parties for shipment to our customers from our distribution centers and contract manufacturers and include these costs in selling, general and administrative expenses. These costs totaled $15.7 million and $15.4 million for the fiscal years ended August 31, 2013 and 2012, respectively. Selling, General and Administrative Expenses Selling, general and administrative expenses for the fiscal year ended August 31, 2013 increased $15.5 million, or 17%, to $104.4 million from $88.9 million for fiscal year 2012. As a percentage of net sales, SG&A expenses increased to 28.3% for the fiscal year ended August 31, 2013 from 26.0% for fiscal year 2012. The increase in SG&A expenses was largely attributable to higher employee-related costs, a higher level of expenses associated with travel and meetings and increased freight costs. Employee-related costs, which include salaries, bonuses, profit sharing, stock-based compensation and other fringe benefits, increased $14.8 million for the fiscal year ended August 31, 2013 compared to fiscal year 2012, the majority of which was due to higher bonus expense. Based on our results for fiscal year 2013, we achieved a high level of the profit performance metrics at both the segment level and globally required to trigger payout of bonuses, and as a result, bonus expense and the related fringe benefit expense were significantly higher in fiscal year 2013 as compared to fiscal year 2012. Also contributing to the increase in employee-related costs was higher annual compensation increases and increased headcount from period to period. Travel and meeting expenses increased $0.9 million due to a higher level of travel expenses associated with various sales meetings and activities in support of our strategic initiatives. Freight costs increased $0.4 million primarily due to higher sales volumes, particularly in the EMEA segment, for the fiscal year ended August 31, 2013 compared to fiscal year 2012. Other miscellaneous expenses, which primarily include broker sales commissions, office overhead and bad debt expenses, increased by $0.3 million period over period. The increases in SG&A expenses described above were slightly offset by a decrease in expenses associated with new product exploration from period to period. The decrease in new product exploration expenses within research and development of $0.3 million was primarily due to the increased level of spending in this area during fiscal year 2012 related to the development of new product lines within the WD-40 brand, which were launched in fiscal year 2013. Professional service costs decreased by $0.2 million and changes in foreign currency exchange rates decreased SG&A expenses by $0.4 million for the fiscal year ended August 31, 2013 compared to fiscal year 2012. We continued our research and development investment, the majority of which is associated with our multi-purpose maintenance products, in support of our focus on innovation and renovation of our products. Research and development costs for the fiscal years ended August 31, 2013 and 2012 were $7.2 million and $5.1 million, respectively. 33 Advertising and Sales Promotion Expenses Advertising and sales promotion expenses for the fiscal year ended August 31, 2013 decreased $0.9 million, or 3%, to $24.8 million from $25.7 million for fiscal year 2012. As a percentage of net sales, these expenses decreased to 6.7% for the fiscal year ended August 31, 2013 from 7.5% for fiscal year 2012. The decrease in advertising and sales promotion expenses was primarily due to lower costs associated with promotional programs conducted in the Americas segment, particularly those for our homecare and cleaning products, from period to period. This decrease was partially offset by a higher level of promotional activities in the EMEA and Asia-Pacific segments from period to period. Changes in foreign currency exchange rates did not have a material impact on advertising and sales promotion expenses for the fiscal year ended August 31, 2013 compared to fiscal year 2012. As a percentage of net sales, advertising and sales promotion expenses may fluctuate period to period based upon the type of marketing activities we employ and the period in which the costs are incurred. Total promotional costs recorded as a reduction to sales were $17.7 million and $20.1 million for the fiscal years ended August 31, 2013 and 2012, respectively. Therefore, our total investment in advertising and sales promotion activities totaled $42.5 million and $45.8 million for the fiscal years ended August 31, 2013 and 2012, respectively. Amortization of Definite-lived Intangible Assets Expense Amortization of our definite-lived intangible assets remained relatively constant at $2.3 million and $2.1 million for the fiscal years ended August 31, 2013 and 2012, respectively. Impairment of Definite-lived Intangible Assets Expense During the fourth quarter of fiscal year 2013, we determined that indicators of impairment existed related to the 2000 Flushes trade name primarily due to management’s most current expectations for future growth and profitability for the 2000 Flushes trade name. As a result, we performed a second phase of the impairment test specific to the 2000 Flushes trade name and concluded that it was impaired by $1.1 million. Consequently, we recorded a non-cash, before tax impairment charge of $1.1 million in the fourth quarter of fiscal year 2013 to reduce the carrying value of the 2000 Flushes asset to its fair value. Income from Operations by Segment The following table summarizes income from operations by segment (in thousands, except percentages): Americas EMEA Asia-Pacific Unallocated corporate (1) Fiscal Year Ended August 31, Change from Prior Year 2013 2012 Dollars Percent $ 39,383 $ 39,455 $ 31,213 9,308 (23,267) 56,637 23,524 8,458 (19,708) 51,729 $ $ $ (72) 7,689 850 (3,559) 4,908 - 33% 10% 18% 9% (1) Unallocated corporate expenses are general corporate overhead expenses not directly attributable to any one of the operating segments. These expenses are reported separate from the Company’s identified segments and are included in Selling, General and Administrative expenses on the Company’s consolidated statements of operations. Americas Income from operations for the Americas segment remained relatively constant year over year. As a percentage of net sales, gross profit for the Americas segment increased from 48.8% in fiscal year 2012 to 51.2% in fiscal year 2013. This increase in the gross margin from period to period was primarily due to the positive impact of sales price increases, a lower level of discounts offered to our customers and the net lower costs associated with the restructure of our North American supply chain, all of which were partially offset by the negative impacts of sales mix changes and higher costs associated with raw materials related to our homecare and cleaning products. The higher level of 34 sales in the Americas segment from period to period was accompanied by a $6.0 million increase in total operating expenses, the majority of which relates to increased bonus expense from period to period. Operating income as a percentage of net sales decreased from 22.3% to 21.8% year over year. EMEA Income from operations for the EMEA segment increased to $31.2 million, up $7.7 million, or 33%, for the fiscal year ended August 31, 2013 compared to fiscal year 2012, primarily due to an increase in sales of $19.1 million and higher gross margin. As a percentage of net sales, gross profit for the EMEA segment increased from 51.3% to 53.3% year over year primarily due to the favorable impacts of sales price increases, sales mix changes within our distributor markets and decreased costs of petroleum-based materials in the EMEA segment, all of which were slightly offset by the unfavorable impact of higher costs associated with raw materials related to our homecare and cleaning products. The higher level of sales for the EMEA segment from period to period was accompanied by an increase in total operating expenses of $4.8 million, the majority of which was attributable to higher bonus expense from period to period. Operating income as a percentage of net sales increased from 20.1% to 23.0% year over year. Asia-Pacific Income from operations for the Asia-Pacific segment increased to $9.3 million, up $0.8 million, or 10%, for the fiscal year ended August 31, 2013 compared to fiscal year 2012, primarily due to an increase in sales of $3.5 million and higher gross margin. As a percentage of net sales, gross profit for the Asia-Pacific segment increased from 45.3% to 46.7% year over year primarily due to the combined effects of sales price increases, lower manufacturing costs and decreased costs of aerosol cans in the Asia-Pacific segment, which were partially offset by a higher level of discounts offered to certain customers and unfavorable sales mix changes. Operating income as a percentage of net sales remained relatively constant at 17.9% and 17.5% for the years ended August 31, 2013 and 2012, respectively. Non-Operating Items The following table summarizes non-operating income and expenses for our consolidated operations (in thousands): Interest income Interest expense Other income (expense), net Provision for income taxes Interest Income Fiscal Year Ended August 31, 2013 2012 Change $ $ $ $ 506 693 417 17,054 $ $ $ $ 261 729 (348) 15,428 $ $ $ $ 245 (36) 765 1,626 Interest income increased $0.2 million for the fiscal year ended August 31, 2013 compared to fiscal year 2012 primarily due to increased cash balances at our U.K. subsidiary which are being held in higher yielding accounts and short-term investments. Interest Expense Interest expense remained relatively constant for the fiscal year ended August 31, 2013 compared to fiscal year 2012. Other Income (Expense), Net Other income (expense), net changed by $0.8 million for the fiscal year ended August 31, 2013 compared to fiscal year 2012 primarily due to net foreign currency exchange gains which were recorded for the fiscal year ended August 31, 2013 compared to net foreign currency exchange losses which were recorded in fiscal year 2012. Provision for Income Taxes The provision for income taxes was 30.0% of income before income taxes for the fiscal year ended August 31, 2013 35 compared to 30.3% for fiscal year 2012. This slight decrease in the effective income tax rate was primarily driven by increasing foreign earnings generated in lower tax jurisdictions, which were offset by an increase in state taxes. Net Income Net income was $39.8 million, or $2.54 per common share on a fully diluted basis, for fiscal year 2013 compared to $35.5 million, or $2.20 per common share on a fully diluted basis, for fiscal year 2012. Changes in foreign currency exchange rates year over year had an unfavorable impact of $0.2 million on net income for fiscal year 2013. Thus, on a constant currency basis, net income for fiscal year 2013 would have been $40.0 million. Performance Measures and Non-GAAP Reconciliations In managing our business operations and assessing our financial performance, we supplement the information provided by our financial statements with certain non-GAAP performance measures. These performance measures are part of our 50/30/20 rule, which includes gross margin, cost of doing business, and earnings before income taxes, depreciation and amortization (“EBITDA”), the latter two of which are non-GAAP performance measures. Cost of doing business is defined as total operating expenses less amortization of definite-lived intangible assets, impairment of definite-lived intangible assets and depreciation in operating departments and EBITDA is defined as net income (loss) before interest, income taxes, depreciation and amortization. We target our gross margin to be at or above 50% of net sales, our cost of doing business to be at or below 30% of net sales, and our EBITDA to be at or above 20% of net sales. Although our results for these performance measures may vary from period to period depending on various factors, including economic conditions and our level of investment in activities for the future, we continue to focus on and work towards achievement of our 50/30/20 targets over the long-term. The following table summarizes the results of these performance measures: Gross margin Cost of doing business as a percentage of net sales EBITDA as a percentage of net sales Fiscal Year Ended August 31, 2014 2013 2012 52% 34% 18% 51% 35% 17% 49% 33% 16% We use the performance measures above to establish financial goals and to gain an understanding of the comparative performance of the Company from period to period. We believe that these measures provide our shareholders with additional insights into the Company’s results of operations and how we run our business. The non-GAAP financial measures are supplemental in nature and should not be considered in isolation or as alternatives to net income, income from operations or other financial information prepared in accordance with GAAP as indicators of the Company’s performance or operations. The use of any non-GAAP measure may produce results that vary from the GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies. Reconciliations of these non-GAAP financial measures to our financial statements as prepared in accordance with GAAP are as follows: Cost of Doing Business (in thousands, except percentages): Total operating expenses - GAAP Amortization of definite-lived intangible assets Impairment of definite-lived intangible assets Depreciation (in operating departments) Cost of doing business Net sales Cost of doing business as a percentage of net sales $ $ $ 36 2014 135,116 Fiscal Year Ended August 31, 2013 132,526 $ 2012 116,753 $ (2,617) (2,260) (2,133) - (2,218) 130,281 382,997 34% (1,077) (1,851) 127,338 368,548 35% - (1,597) 113,023 342,784 33% $ $ $ $ EBITDA (in thousands, except percentages): Net income - GAAP Provision for income taxes Interest income Interest expense Amortization of definite-lived intangible assets Depreciation EBITDA Net sales EBITDA as a percentage of net sales Liquidity and Capital Resources Overview 2014 Fiscal Year Ended August 31, 2013 2012 $ $ $ 43,746 19,213 (596) 1,002 2,617 3,243 69,225 382,997 18% $ $ $ 39,813 17,054 (506) 693 2,260 3,099 62,413 368,548 17% $ $ $ 35,485 15,428 (261) 729 2,133 2,736 56,250 342,784 16% The Company’s financial condition and liquidity remain strong. Net cash provided by operations was $38.7 million for fiscal year 2014 compared to $51.5 million for fiscal year 2013. We believe we continue to be well positioned to weather any uncertainty in the capital markets and global economy due to our strong balance sheet and efficient business model, along with our growing and diversified global revenues. We continue to manage all aspects of our business including, but not limited to, monitoring the financial health of our customers, suppliers and other third- party relationships, implementing gross margin enhancement strategies and developing new opportunities for growth. Our principal sources of liquidity are our existing cash and cash equivalents, short-term investments, cash generated from operations and cash available from our existing $125.0 million revolving credit facility with Bank of America, N.A. (“Bank of America”), which expires on January 7, 2018. To date, we have used the proceeds of the revolving credit facility for our stock repurchases and plan to continue using such proceeds for our general working capital needs and stock repurchases under any existing board approved share buy-back plans. During the fiscal year ended August 31, 2014, we borrowed an additional $35.0 million under the revolving credit facility. We regularly convert existing draws on our line of credit to new draws with new maturity dates and interest rates. The balances on these draws and conversions have remained within a short-term classification due to certain contractual clauses included in our line of credit agreement with Bank of America. As of August 31, 2014, we had a $98.0 million outstanding balance on the revolving credit facility. The revolving credit facility agreement requires us to maintain minimum consolidated EBITDA of $40.0 million, measured on a trailing twelve month basis, at each reporting period. At August 31, 2014, we were in compliance with all debt covenants as required by the revolving credit facility and believe it is unlikely we will fail to meet any of these covenants in the foreseeable future. We would need to have a significant decrease in sales and/or a significant increase in expenses in order for us to not meet the debt covenants. At August 31, 2014, we had a total of $57.8 million in cash and cash equivalents. Of this balance, $38.4 million was held in Europe, Australia and China in foreign currencies. It is our intention to indefinitely reinvest all current and future foreign earnings at these locations in order to ensure sufficient working capital, expand operations and fund foreign acquisitions in these locations. We believe that our future cash from domestic operations together with our access to funds available under our unsecured revolving credit facility will provide adequate resources to fund both short-term and long-term operating requirements, capital expenditures, share repurchases, dividend payments, acquisitions and new business development activities in the United States. Although we hold a significant amount of cash outside of the U.S. and the draws on the credit facility to date have been made by our entity in the U.S., we do not foresee any issues with repaying or refinancing these loans with domestically generated funds since we closely monitor the use of this credit facility. In the event that management elects for any reason in the future to repatriate some or all of the foreign earnings that were previously deemed to be indefinitely reinvested outside of the U.S., we would be required to record additional tax expense at the time when we determine that such foreign earnings are no 37 longer deemed to be indefinitely reinvested outside of the United States. As of August 31, 2014, we have not provided for U.S. federal and state income taxes and foreign withholding taxes on $106.4 million of undistributed earnings of certain foreign subsidiaries since these earnings are considered indefinitely reinvested outside of the United States. We believe that our existing consolidated cash and cash equivalents at August 31, 2014, the liquidity provided by our $125.0 million revolving credit facility and our anticipated cash flows from operations will be sufficient to meet our projected consolidated operating and capital requirements for at least the next twelve months. We consider various factors when reviewing liquidity needs and plans for available cash on hand including: future debt, principal and interest payments, future capital expenditure requirements, future share repurchases, future dividend payments (which are determined on a quarterly basis by the Company’s Board of Directors), alternative investment opportunities, debt covenants and any other relevant considerations currently facing our business. Cash Flows The following table summarizes our cash flows by category for the periods presented (in thousands): Net cash provided by operating activities Net cash used in investing activities Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Operating Activities Fiscal Year Ended August 31, 2014 38,730 (10,503) (25,842) 1,984 4,369 $ $ 2013 51,569 (39,534) (26,840) (1,480) (16,285) $ $ 2012 34,249 (3,113) (16,082) (1,728) 13,326 $ $ Net cash provided by operating activities decreased $12.8 million to $38.7 million for fiscal year 2014 from $51.5 million for fiscal year 2013. This decrease was primarily due to changes in operating assets and liabilities, which were slightly offset by increased net income from period to period. The most significant changes in operating assets and liabilities came from accrued payroll and related expenses and trade accounts receivable. Accrued payroll and related expenses decreased from period to period primarily due to the payment of fiscal year 2013 bonuses during fiscal year 2014 which were significantly higher than those paid in the corresponding period of the prior fiscal year. In addition, bonus accruals in fiscal year 2014 were lower than such accruals in fiscal year 2013. Based on our results for fiscal year 2014, we achieved a lower level of the profit performance metrics required to trigger payout of bonuses than we did in the prior fiscal year. The trade accounts receivable balance at August 31, 2014 was higher than the balance at August 31, 2013 primarily due to increased sales volumes and the timing of payments received from our customers from period to period. Net cash provided by operating activities increased $17.3 million to $51.5 million for fiscal year 2013 from $34.2 million for fiscal year 2012. This increase from period to period was due to higher net income and changes in operating assets and liabilities, the most significant of which were changes in accrued payroll and related expenses, trade accounts receivable, inventories and accounts payable and accrued liabilities. Accrued payroll and related expenses increased from period to period primarily due to significantly higher bonus accruals in fiscal year 2013. Trade accounts receivable balances increased for fiscal year 2013 whereas the balances decreased for fiscal year 2012 primarily due to increased sales and the timing of payments received from customers from period to period. Although inventory levels increased during both the fiscal years ended August 31, 2013 and 2012, the increase was much more significant during fiscal year 2012 when we started our North American supply chain restructure project. The significant increase in inventory during fiscal year 2012 was primarily attributable to increased purchases of product that we chose to make from our third-party contract manufacturers in support of this redesign of our supply chain architecture. As a result of this new supply chain structure in North America, we carry higher levels of inventory than we have held in periods prior to fiscal year 2012 since we are moving product more quickly into our third-party distribution centers which is company-owned inventory. Inventory balances at August 31, 2013 and 2012 included $1.8 million and $3.6 million, respectively, of product (including raw materials, components and finished products) that we are obligated to purchase from one of our third-party contract manufacturers, IQ Products Company, in conjunction with the unanticipated termination of our business relationship with them in the fourth quarter of fiscal year 2012 and which continues to be the subject of pending litigation. Accounts payable and accrued liabilities decreased from fiscal year 2012 to fiscal year 2013 primarily due to the increased inventory levels 38 in 2012 as a result of the supply chain restructure project, the termination of the business relationship with IQ Products Company in 2012 and the timing of payments to suppliers from period to period. Investing Activities Net cash used in investing activities decreased $29.0 million to $10.5 million for fiscal year 2014 from $39.5 million for fiscal year 2013 primarily due to the change in cash outflows related to the purchases of short-term investments that were made by our U.K. and Australia subsidiaries. During fiscal year 2014, we purchased $7.7 million of short- term investments whereas we purchased $38.8 million of such short-term investments in the prior fiscal year. This decrease was slightly offset by an increase of $1.2 million in purchases of property and equipment from period to period and the $1.8 million acquisition made by our U.K. subsidiary of a customer list intangible asset in the second quarter of fiscal year 2014. Net cash used in investing activities increased $36.4 million to $39.5 million for fiscal year 2013 from $3.1 million for fiscal year 2012 primarily due to the purchase of $36.8 million in short-term investments that was made by our U.K. subsidiary during fiscal year 2013 and the lower level of proceeds from the sales of property and equipment from period to period. Proceeds from the sales of property and equipment were unusually high for fiscal year 2012 due to the sale of our warehouse facility that was located in Memphis, Tennessee. These increases were slightly offset by a decrease of $0.9 million in purchases of property and equipment from period to period. In addition, there was a $1.5 million increase in cash provided by investing activities due to an increase in the amount of short-term investments maturing in our Australia subsidiary year over year. Financing Activities Net cash used in financing activities decreased $1.0 million to $25.8 million for fiscal year 2014 from $26.8 million for fiscal year 2013 primarily due to a $17.0 million increase in net cash inflows from our revolving credit facility, which was partially offset by an $11.3 million increase in treasury stock purchases. In addition, there was a $3.5 million decrease in proceeds from the issuance of common stock upon the exercise of stock options from period to period. Net cash used in financing activities increased $10.7 million to $26.8 million for fiscal year 2013 from $16.1 million for fiscal year 2012 primarily due to the change in the level of net cash inflows associated with our revolving line of credit and payments made on our debt balances. In fiscal year 2012, we drew $114.6 million on our line of credit and we used $80.3 million of these funds to pay off our term loan and to make repayments on the line of credit. In fiscal year 2013, we only drew $18.0 million on the line of credit and made no such repayments of debt. In addition, there was an $8.4 million decrease in treasury stock purchases during fiscal year 2013 compared to fiscal year 2012 and a $2.2 million decrease in the proceeds from the issuance of common stock upon the exercise of stock options from year to year. Effect of Exchange Rate Changes All of our foreign subsidiaries currently operate in currencies other than the U.S. dollar and a significant portion of our consolidated cash balance is denominated in these foreign currencies, particularly at our U.K. subsidiary which operates in Pound Sterling. As a result, our cash and cash equivalents balances are subject to the effects of the fluctuations in these currencies against the U.S. dollars at the end of each reporting period. The net effect of exchange rate changes on cash and cash equivalents, when expressed in U.S. dollar terms, was an increase in cash of $2.0 million for fiscal year 2014 and a decrease in cash of $1.5 million and $1.7 million for fiscal years 2013 and 2012, respectively. These changes from period to period are primarily due to the significant fluctuations in the foreign currency exchange rates for the Pound Sterling against the U.S. dollar and lower Pound Sterling cash and cash equivalent balances from period to period. The Pound Sterling to U.S. dollar average exchange rates were 1.6579, 1.5608 and 1.5765(cid:3)during fiscal years 2014, 2013 and 2012, respectively. Share Repurchase Plans On June 18, 2013, the Company’s Board of Directors approved a share buy-back plan. Under the plan, which is in effect from August 1, 2013 through August 31, 2015, the Company is authorized to acquire up to $60.0 million of its outstanding shares on such terms and conditions as may be acceptable to the Company’s Chief Executive Officer or Chief Financial Officer and subject to present loan covenants and in compliance with all laws and regulations 39 applicable thereto. During the period from August 1, 2013 through August 31, 2014, the Company repurchased 648,138 shares at a total cost of $45.4 million. Dividends The Company has historically paid regular quarterly cash dividends on its common stock. In December 2013, the Board of Directors declared a 10% increase in the regular quarterly cash dividend, increasing it from $0.31 per share to $0.34 per share. On October 3, 2014, the Company’s Board of Directors declared a cash dividend of $0.34 per share payable on October 31, 2014 to shareholders of record on October 17, 2014. Our ability to pay dividends could be affected by future business performance, liquidity, capital needs, alternative investment opportunities and loan covenants. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements as defined by Item 303(a)(4)(ii) of Regulation S-K. Contractual Obligations The following table sets forth our best estimates as to the amounts and timing of minimum contractual payments for our most significant contractual obligations and commitments as of August 31, 2014 for the next five years and thereafter (in thousands). Future events could cause actual payments to differ significantly from these amounts. Operating leases Total 4,431 $ 1 year 2-3 years 4-5 years $ 1,722 $ 1,997 $ 451 Thereafter 261 $ The following summarizes other commitments which are excluded from the contractual obligations table above as of August 31, 2014: (cid:404) We have ongoing relationships with various suppliers (contract manufacturers) who manufacture our products. The contract manufacturers maintain title and control of certain raw materials and components, materials utilized in finished products, and of the finished products themselves until shipment to our customers or third-party distribution centers in accordance with agreed upon shipment terms. Although we typically do not have definitive minimum purchase obligations included in the contract terms with our contract manufacturers, when such obligations have been included, they have been immaterial. In the ordinary course of business, supply needs are communicated by us to our contract manufacturers based on orders and short-term projections, ranging from two to five months. We are committed to purchase the products produced by the contract manufacturers based on the projections provided. Upon the termination of contracts with contract manufacturers, we obtain certain inventory control rights and are obligated to work with the contract manufacturer to sell through all product held by or manufactured by the contract manufacturer on our behalf during the termination notification period. If any inventory remains at the contract manufacturer at the termination date, we are obligated to purchase such inventory which may include raw materials, components and finished goods. Prior to fiscal year 2012, amounts for inventory purchased under termination commitments have been immaterial. As a result of the unanticipated termination of the IQ Products Company contract manufacturing agreement in the fourth quarter of fiscal year 2012, we are currently obligated to purchase $1.7 million of inventory which is included in inventories in the Company’s consolidated balance sheet as of August 31, 2014. (cid:404) Under the terms of the credit facility agreement with Bank of America, we may borrow funds in U.S. dollars or in foreign currencies from time to time during the five-year period commencing January 7, 2013 through January 7, 2018. As of August 31, 2014, we had $98.0 million outstanding on this credit facility. Based on our most recent cash projections and anticipated business activities, we expect to borrow additional amounts against this credit facility ranging from $12.0 million to $15.0 million in fiscal year 2015. We estimate that the interest associated with these borrowings will be approximately $0.4 million for fiscal year 2015 based on the applicable interest rates and the expected payment dates of such borrowings. For additional details on this revolving line of credit, refer to the information set forth in Note 7 – Debt. 40 (cid:404) At August 31, 2014, the liability recorded for uncertain tax positions, excluding associated interest and penalties, was approximately $1.2 million. We have estimated that up to $0.2 million of unrecognized tax benefits related to income tax positions may be affected by the resolution of tax examinations or expiring statutes of limitation within the next twelve months. Critical Accounting Policies Our results of operations and financial condition, as reflected in our consolidated financial statements, have been prepared in accordance with accounting principles generally accepted in the United States of America. Preparation of financial statements requires us to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues and expenses and the disclosures of contingent assets and liabilities. We use historical experience and other relevant factors when developing estimates and assumptions and these estimates and assumptions are continually evaluated. Note 2 to our consolidated financial statements included in Item 15 of this report includes a discussion of the Company’s significant accounting policies. The accounting policies discussed below are the ones we consider to be most critical to an understanding of our consolidated financial statements because their application places the most significant demands on our judgment. Our financial results may have varied from those reported had different assumptions been used or other conditions prevailed. Our critical accounting policies have been reviewed with the Audit Committee of the Board of Directors. Revenue Recognition and Sales Incentives Sales are recognized as revenue at the time of delivery to our customer when risks of loss and title have passed. Sales are recorded net of allowances for damaged goods and other sales returns, sales incentives, trade promotions and cash discounts. We must make judgments and certain assumptions in order to determine when delivery has occurred. Through an analysis of end-of-period shipments, we determine an average time of transit of product to our customers, and this is used to estimate the time of delivery and whether revenue should be recognized during the current reporting period for such shipments. Differences in judgments or estimates related to the lengthening or shortening of the estimated delivery time used could result in material differences in the timing of revenue recognition. Sales incentives are recorded as a reduction of sales in our consolidated statements of operations. Sales incentives include on-going trade promotion programs with customers and consumer coupon programs that require us to estimate and accrue for the expected costs of such programs. These programs include cooperative marketing programs, shelf price reductions, coupons, rebates, consideration and allowances given to retailers for shelf space and/or favorable display positions in their stores and other promotional activities. Costs related to these sales incentive programs, with the exception of coupon costs, are recorded as a reduction to sales upon delivery of products to customers. Coupon costs are based upon historical redemption rates and are recorded as a reduction to sales as incurred, which is when the coupons are circulated. Sales incentives are calculated based primarily on historical rates and consideration of recent promotional activities. The determination of sales incentive costs and the related liabilities require us to use judgment for estimates that include current and past trade promotion spending patterns, status of trade promotion activities and the interpretation of historical spending trends by customer and category. We review our assumptions and adjust our reserves accordingly on a quarterly basis. Our consolidated financial statements could be materially impacted if the actual promotion rates are different from the estimated rates. If our accrual estimates for sales incentives at August 31, 2014 were to differ by 10%, the impact on net sales would be approximately $0.7 million. Allowance for Doubtful Accounts The preparation of our financial statements requires us to make certain estimates and assumptions related to the collectibility of our accounts receivable balances. We specifically analyze historical bad debts, customer credit worthiness, current economic trends and conditions and changes in our customer payment terms and patterns when evaluating the adequacy of the allowance for doubtful accounts. We review our accounts receivable balances and our assumptions used to determine their collectibility on a periodic basis and adjust our allowance for doubtful accounts accordingly on a quarterly basis. 41 Accounting for Income Taxes Current income tax expense is the amount of income taxes expected to be payable for the current year. A deferred income tax liability or asset is established for the expected future tax consequences resulting from the differences in financial reporting and tax bases of assets and liabilities. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be realized. In addition to valuation allowances, we provide for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement standards prescribed by the authoritative guidance on income taxes. Amounts for uncertain tax positions are adjusted in periods when new information becomes available or when positions are effectively settled. We recognize accrued interest and penalties related to uncertain tax positions as a component of income tax expense. U.S. federal income tax expense is provided on remittances of foreign earnings and on unremitted foreign earnings that are not indefinitely reinvested. U.S. federal income taxes and foreign withholding taxes are not provided when foreign earnings are indefinitely reinvested. We determine whether our foreign subsidiaries will invest their undistributed earnings indefinitely based on the capital needs of the foreign subsidiaries. We reassess this determination each reporting period. Changes to this determination may be warranted based on our experience as well as plans regarding future international operations and expected remittances. Valuation of Goodwill The carrying value of goodwill is reviewed for possible impairment in accordance with the authoritative guidance on goodwill, intangibles and other. We assess for possible impairments to goodwill at least annually during our second fiscal quarter and otherwise when events or changes in circumstances indicate that an impairment condition may exist. Under current authoritative guidance, we are permitted to perform a qualitative assessment to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. If we conclude based on this qualitative assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we perform the first step of the goodwill impairment test and then, if needed, the second step, to determine whether goodwill is impaired. However, if it is more likely than not that the fair value of a reporting unit is more than its carrying amount, we do not need to perform the two-step quantitative goodwill impairment test. The first step of the impairment test involves comparing the fair values of the applicable reporting units with their carrying values, including goodwill. We determine the fair values of our reporting units using the income valuation approach or other generally accepted valuation methodologies. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, we perform the second step of the goodwill impairment test. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit’s goodwill with the carrying value of that goodwill. The amount by which the carrying value of the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss. Any impairment losses are recorded as a reduction in the carrying amount of the related asset and charged to results of operations. During the second quarter of fiscal year 2014, we performed a qualitative assessment of each of our reporting units to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In performing this qualitative assessment, we assessed relevant events and circumstances that may impact the fair value and the carrying amount of each of our reporting units. Factors that were considered included, but were not limited to, the following: (1) macroeconomic conditions; (2) industry and market conditions; (3) overall financial performance and expected financial performance; (4) other entity specific events, such as changes in management or key personnel; and (5) events affecting the Company’s reporting units, such as a change in the composition of net assets or any expected dispositions. Based on the results of this qualitative assessment, we determined that it is more likely than not that the carrying value of each of our reporting units is less than its fair value and, thus, the two-step quantitative analysis was not required. As a result, we concluded that no impairment of our goodwill existed as of February 28, 2014. We also did not identify or record any impairment losses related to our goodwill during our annual impairment tests performed in fiscal years 2013 and 2012. In addition, there were no indicators of impairment identified as a result of our review of events and circumstances related to our goodwill subsequent to February 28, 2014. 42 Impairment of Definite-Lived Intangible Assets We assess for potential impairments to our long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and/or its estimated remaining useful life may no longer be appropriate. Any required impairment loss would be measured as the amount by which the asset’s carrying amount exceeds its fair value, which is the amount at which the asset could be bought or sold in a current transaction between willing market participants and would be recorded as a reduction in the carrying amount of the related asset and a charge to results of operations. An impairment loss would be recognized when the sum of the expected future undiscounted net cash flows is less than the carrying amount of the asset. During the fourth quarter of fiscal year 2013, as part of the Company’s ongoing evaluation of potential strategic alternatives for certain of its homecare and cleaning products, the Company determined based on its review of events and circumstances that there were indicators of impairment for the Carpet Fresh and 2000 Flushes trade names. Management accordingly performed the Step 1 recoverability test for these two trade names and based on the results of this analysis, it was determined that the total of the undiscounted cash flows significantly exceeded the carrying value for the Carpet Fresh asset group and that no impairment existed for this trade name as of August 31, 2013. However, the Step 1 analysis indicated that the carrying value of the asset group for the 2000 Flushes trade name exceeded its undiscounted future cash flows, and consequently, a second phase of the impairment test (“Step 2”) was performed specific to the 2000 Flushes trade name to determine whether this trade name was impaired. The 2000 Flushes trade name failed Step 1 in the fourth quarter analysis primarily driven by changes in management’s current expectations for future growth and profitability for the 2000 Flushes trade name as compared to those used in the previous Step 1 analysis performed in the third quarter of fiscal year 2013. In performing the Step 2 analysis, the Company determined the fair value of the asset group utilizing the income approach, which is based on the present value of the estimated future cash flows. The calculation that is prepared in order to determine the estimated fair value of an asset group requires management to make assumptions about key inputs in the estimated cash flows, including long-term forecasts, discount rates and terminal growth rates. In estimating the fair value of the 2000 Flushes trade name, the Company applied a discount rate of 11.3%, annual revenue growth rates ranging from negative 13.6% to positive 1.5% and a long-term terminal growth rate of 1.5%. Cash flow projections used were based on management’s estimates of revenue growth rates, contribution margins and EBITDA. The discount rate used was based on the weighted-average cost of capital. The Company also considered the fair value concepts of a market participant and thus all amounts included in the long-term forecast reflect management’s best estimate of what a market participant could realize over the projection period. After taking all of these factors into consideration, the estimated fair value of the asset group was then compared to the carrying value of the 2000 Flushes trade name asset group to determine the amount of the impairment. The inputs used in the impairment fair value analysis fall within Level 3 of the fair value hierarchy due to the significant unobservable inputs used to determine fair value. Based on the results of this Step 2 analysis, the 2000 Flushes asset group’s estimated fair value was determined to be lower than its carrying value. Consequently, the Company recorded a non-cash, before tax impairment charge of $1.1 million in the fourth quarter of fiscal year 2013 to reduce the carrying value of the 2000 Flushes asset to its estimated fair value of $7.9 million. At August 31, 2014, the carrying value of the 2000 Flushes asset was $6.7 million. An intangible asset valuation is dependent on a number of significant estimates and assumptions, including macroeconomic conditions, overall category growth rates, sales growth rates, cost containment and margin expansion and expense levels for advertising and promotions and general overhead, all of which must be developed from a market participant standpoint. While we believe that the estimates and assumptions that we used in our analysis are reasonable, actual events and results could differ substantially from those included in the valuation. In the event that business conditions change in the future, we may be required to reassess and update our forecasts and estimates used in subsequent impairment analyses. If the results of these future analyses are lower than current estimates, an additional impairment charge may result at that time. Recently Issued Accounting Standards In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers”, which supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition”. The core principle of this updated guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new rule also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a 43 contract. This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Companies are permitted to adopt this new rule following either a full or modified retrospective approach. Early adoption is not permitted. The Company has not yet determined the potential impacts of this updated authoritative guidance on its consolidated financial statements. In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”, which is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The new rules require companies to present in the financial statements an unrecognized tax benefit as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward except to the extent such items are not available or not intended to be used at the reporting date to settle any additional income taxes that would result from the disallowance of a tax position. In such instances, the unrecognized tax benefit is required to be presented in the financial statements as a liability and not be combined with deferred tax assets. The Company has evaluated this updated authoritative guidance, and it does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures. Related Parties On October 11, 2011, the Company’s Board of Directors elected Mr. Gregory A. Sandfort as a director of WD-40 Company. Mr. Sandfort is President and Chief Executive Officer of Tractor Supply Company (“Tractor Supply”), which is a WD-40 Company customer that acquires products from the Company in the ordinary course of business. The consolidated financial statements include sales to Tractor Supply of $1.2 million and $0.8 million for fiscal years 2014 and 2013, respectively. Accounts receivable from Tractor Supply were $0.1 million as of August 31, 2014. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Foreign Currency Risk The Company is exposed to a variety of risks, including foreign currency exchange rate fluctuations. In the normal course of business, the Company employs established policies and procedures to manage its exposure to fluctuations in foreign currency values. All of the Company’s international subsidiaries operate in functional currencies other than the U.S. dollar. As a result, the Company is exposed to foreign currency related risk when the financial statements of its international subsidiaries are translated for consolidation purposes from functional currencies to U.S. dollars. This foreign currency risk can affect sales, expenses and profits as well as assets and liabilities that are denominated in currencies other than the U.S. dollar. The Company does not enter into any hedging activities to mitigate this foreign currency translation risk. The Company’s U.K. subsidiary, whose functional currency is Pound Sterling, utilizes foreign currency forward contracts to limit its exposure in converting forecasted cash balances denominated in non-functional currencies. The principal currency affected is the Euro. The Company regularly monitors its foreign exchange 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. The Company has performed a sensitivity analysis related to its foreign currency forward contracts outstanding at August 31, 2014. If the foreign currency exchange rates relevant to those contracts were to change unfavorably by 10%, the Company would incur a loss of approximately $0.3 million. Interest Rate Risk As of August 31, 2014, the Company had a $98.0 million outstanding balance on its existing $125.0 million revolving credit facility agreement with Bank of America. This $125.0 million revolving credit facility is subject to interest rate fluctuations. Under the terms of the credit facility agreement, the Company may borrow loans in U.S. dollars or in foreign currencies from time to time until January 7, 2018. All loans denominated in U.S. dollars will accrue interest at the bank’s Prime rate or at LIBOR plus a margin of 0.85 percent (together with any applicable 44 mandatory liquid asset costs imposed by non-U.S. banking regulatory authorities). All loans denominated in foreign currencies will accrue interest at LIBOR plus 0.85 percent. Any significant increase in the bank’s Prime rate and/or LIBOR rate could have a material effect on interest expense incurred on any borrowings outstanding under the credit facility. Item 8. Financial Statements and Supplementary Data The Company’s consolidated financial statements at August 31, 2014 and 2013 and for each of the three fiscal years in the period ended August 31, 2014, and the Report of Independent Registered Public Accounting Firm, are included in Item 15 of this report. Quarterly Financial Data (Unaudited) The following table sets forth certain unaudited quarterly consolidated financial data (in thousands, except per share data): Net sales Gross profit Net income Diluted earnings per common share Net sales Gross profit Net income Diluted earnings per common share Fiscal Year Ended August 31, 2014 1st $ 95,541 $ 49,673 $ 11,482 0.74 $ 2nd $ 94,184 $ 48,558 $ 10,317 0.67 $ 3rd $ 95,650 $ 49,139 $ 10,406 0.69 $ 4th $ 97,622 $ 51,483 $ 11,541 0.77 $ Total $ 382,997 $ 198,853 $ 43,746 2.87 $ Fiscal Year Ended August 31, 2013 1st $ 95,264 $ 47,727 $ 10,944 0.69 $ 2nd $ 86,712 $ 44,126 $ 10,461 0.66 $ 3rd $ 93,103 $ 47,784 $ 10,267 0.66 $ 4th $ 93,469 $ 49,526 8,141 $ 0.53 $ Total $ 368,548 $ 189,163 $ 39,813 2.54 $ Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (“Exchange Act”). The term disclosure controls and procedures means controls and other procedures of a Company that are designed to ensure the information required to be disclosed by the Company in the reports that it files or submits under the Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures. The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures as of August 31, 2014, the end of the period covered by this report (the Evaluation Date), and they have concluded that, as of the Evaluation Date, such controls and procedures were effective at ensuring that required information will be disclosed on a timely basis in the Company’s reports filed under the Exchange Act. Although management believes the Company’s existing disclosure controls and procedures are adequate to enable the Company to comply with its disclosure obligations, management continues to review and update such controls and procedures. The Company has a disclosure committee, which consists of certain members of the Company’s senior management. 45 Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of its internal control over financial reporting based upon the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 1992. Based on that evaluation, management concluded that its internal control over financial reporting is effective as of August 31, 2014. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. PricewaterhouseCoopers LLP, independent registered public accounting firm, who audited and reported on the consolidated financial statements of WD-40 Company included in Item 15 of this report, has audited the effectiveness of WD-40 Company’s internal control over financial reporting as of August 31, 2014, as stated in their report included in Item 15 of this report. Changes in Internal Control over Financial Reporting For the quarter ended August 31, 2014, there were no significant changes to the Company’s internal control over financial reporting that materially affected, or would be reasonably likely to materially affect, its internal control over financial reporting. Item 9B. Other Information None. 46 Item 10. Directors, Executive Officers and Corporate Governance PART III Certain information required by this item is set forth under the headings “Security Ownership of Directors and Executive Officers,” “Nominees for Election as Directors,” “Audit Committee” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s Proxy Statement to be filed with the Securities and Exchange Commission in connection with the 2014 Annual Meeting of Stockholders on December 9, 2014 (“Proxy Statement”), which information is incorporated by reference herein. Additional information concerning executive officers of the Registrant required by this item is included in this report following Item 4 of Part I under the heading, "Executive Officers of the Registrant." The Registrant has a financial reporting code of ethics applicable to its principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions. A copy of the financial reporting code of ethics applicable to such persons may be found on the Registrant’s internet website on the Officers and Directors link from the Investors page at www.wd40company.com. Item 11. Executive Compensation Information required by this item is incorporated by reference to the Proxy Statement under the headings “Board of Directors Compensation,” “Compensation Committee Interlocks and Insider Participation,” “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Executive Compensation,” “Supplemental Death Benefit Plans and Supplemental Insurance Benefits” and “Change of Control Severance Agreements.” Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain information required by this item is incorporated by reference to the Proxy Statement under the headings “Principal Security Holders” and “Security Ownership of Directors and Executive Officers.” Equity Compensation Plan Information The following table provides information regarding shares of the Company’s common stock authorized for issuance under equity compensation plans as of August 31, 2014: Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) 305,864 (1) $ n/a 305,864 (1) $ 33.07 (2) n/a 33.07 (2) 1,941,481 n/a 1,941,481 Plan category Equity compensation plans approved by security holders Equity compensation plans not approved by security holders (1) Includes 130,065 securities to be issued upon exercise of outstanding stock options; 135,930 securities to be issued pursuant to outstanding restricted stock units; and 39,869 securities to be issued pursuant to outstanding market share units (“MSUs”) based on 100% of the target number of MSU shares to be issued upon achievement of the applicable performance measure specified for such MSUs. (2) Weighted average exercise price only applies to stock options outstanding of 130,065, which is included as a component of the number of securities to be issued upon exercise of outstanding options, warrants and rights. 47 Item 13. Certain Relationships and Related Transactions, and Director Independence Information required by this item is incorporated by reference to the Proxy Statement under the headings “Director Independence”, “Audit Committee” and “Related Party Transactions Review and Oversight.” Item 14. Principal Accountant Fees and Services Information required by this item is incorporated by reference to the Proxy Statement under the heading “Ratification of Appointment of Independent Registered Public Accounting Firm.” 48 PART IV Item 15. Exhibits, Financial Statement Schedules (a) Documents filed as part of this report (1) Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Income Consolidated Statements of Shareholders’ Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Page F-1 F-2 F-3 F-4 F-5 F-6 F-7 (2) Financial statement schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. (3) Exhibits Exhibit No. Description Articles of Incorporation and Bylaws. 3(a) Certificate of Incorporation, incorporated by reference from the Registrant’s Form 10-K filed October 22, 2012, Exhibit 3(a) thereto. 3(b) Amended and Restated Bylaws of WD-40 Company, incorporated by reference from the Registrant’s Form 8-K filed June 25, 2012, Exhibit 3(b) thereto. Material Contracts. Executive Compensation Plans and Arrangements (Exhibits 10(a) through 10(o) are management contracts and compensatory plans or arrangements required to be filed as exhibits pursuant to Item 15(b)). 10(a) WD-40 Company 2007 Stock Incentive Plan, incorporated by reference from the Registrant’s Form 10-K filed October 22, 2012, Exhibit 10(a) thereto. 10(b) Fourth Amended and Restated WD-40 Company 1990 Incentive Stock Option Plan, incorporated by reference from the Registrant’s Form 10-K filed October 16, 2009, Exhibit 10(a) thereto. 10(c) WD-40 Directors’ Compensation Policy and Election Plan dated October 15, 2013, incorporated by reference from the Registrant’s Form 10-K filed October 22, 2013, Exhibit 10(c) thereto. 10(d) 10(e) Form of Indemnity Agreement between the Registrant and its executive officers and directors. Form of Market Share Unit Award Agreement, incorporated by reference from the Registrant’s Form 8-K filed October 25, 2012, Exhibit 10(a) thereto. 10(f) Amended and Restated of WD-40 Company’s Performance Incentive Compensation Plan, incorporated by reference from the Registrant’s Proxy Statement filed November 1, 2012, Appendix A thereto. 10(g) 10(h) 10(i) 10(j) Form of WD-40 Company Supplemental Death Benefit Plan applicable to certain executive officers of the Registrant, incorporated by reference from the Registrant’s Form 10-K filed October 18, 2010, Exhibit 10(f) thereto. Change of Control Severance Agreement between WD-40 Company and Jay W. Rembolt dated October 16, 2008. Change of Control Severance Agreement between WD-40 Company and Richard T. Clampitt dated October 15, 2014. Change of Control Severance Agreement between WD-40 Company and Stanley A. Sewitch dated October 15, 2014. 49 10(k) 10(l) 10(m) 10(n) 10(o) Change of Control Severance Agreement between WD-40 Company and Michael J. Irwin dated February 14, 2006, incorporated by reference from the Registrant’s Form 10-K filed October 20, 2011, Exhibit 10(i) thereto. Change of Control Severance Agreement between WD-40 Company and Michael L. Freeman dated February 14, 2006, incorporated by reference from the Registrant’s Form 10-K filed October 20, 2011, Exhibit 10(j) thereto. Change of Control Severance Agreement between WD-40 Company and Geoffrey J. Holdsworth dated February 14, 2006, incorporated by reference from the Registrant’s Form 10-K filed October 20, 2011, Exhibit 10(h) thereto. Change of Control Severance Agreement between WD-40 Company and Graham P. Milner dated February 14, 2006, incorporated by reference from the Registrant’s Form 10-K filed October 20, 2011, Exhibit 10(l) thereto. Change of Control Severance Agreement between WD-40 Company and William B. Noble dated February 14, 2006, incorporated by reference from the Registrant’s Form 10-K filed October 20, 2011, Exhibit 10(m) thereto. 10(p) Credit Agreement dated June 17, 2011 among WD-40 Company and Bank of America, N.A., incorporated by reference from the Registrant’s Form 8-K filed June 17, 2011, Exhibit 10(a) thereto. 10(q) 21 23 First Amendment to Credit Agreement dated January 7, 2013 among WD-40 Company and Bank of America, N.A., incorporated by reference from the Registrant’s Form 10-Q filed January 9, 2013, Exhibit 10(b) thereto. Subsidiaries of the Registrant. Consent of Independent Registered Public Accounting Firm dated October 21, 2014. 31(a) Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31(b) Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32(a) Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32(b) Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101. INS XBRL Instance Document 101. SCH XBRL Taxonomy Extension Schema Document 101. CAL XBRL Taxonomy Extension Calculation Linkbase Document 101. DEF XBRL Taxonomy Extension Definition Linkbase Document 101. LAB XBRL Taxonomy Extension Labels Linkbase Document 101. PRE XBRL Taxonomy Extension Presentation Linkbase Document 50 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES WD-40 COMPANY Registrant /s/ JAY W. REMBOLT JAY W. REMBOLT Vice President, Finance Treasurer and Chief Financial Officer Date: October 21, 2014 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ GARRY O. RIDGE GARRY O. RIDGE Chief Executive Officer and Director (Principal Executive Officer) Date: October 21, 2014 /s/ GILES H. BATEMAN GILES H. BATEMAN, Director Date: October 21, 2014 /s/ PETER D. BEWLEY PETER D. BEWLEY, Director Date: October 21, 2014 /s/ RICHARD A. COLLATO RICHARD A. COLLATO, Director Date: October 21, 2014 /s/ MARIO L. CRIVELLO MARIO L. CRIVELLO, Director Date: October 21, 2014 /s/ LINDA A. LANG LINDA A. LANG, Director Date: October 21, 2014 /s/ GREGORY A. SANDFORT GREGORY A. SANDFORT, Director Date: October 21, 2014 /s/ NEAL E. SCHMALE NEAL E. SCHMALE, Director Date: October 21, 2014 51 [THIS PAGE INTENTIONALLY LEFT BLANK] Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of WD-40 Company In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of comprehensive income, of shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of WD-40 Company and its subsidiaries at August 31, 2014 and August 31, 2013, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2014 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2014, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 1992. The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP San Diego, CA October 21, 2014 F-1 WD-40 COMPANY CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) Assets Current assets: Cash and cash equivalents Short-term investments Trade accounts receivable, less allowance for doubtful accounts of $406 and $540 at August 31, 2014 and 2013, respectively Inventories Current deferred tax assets, net Other current assets Total current assets Property and equipment, net Goodwill Other intangible assets, net Other assets Total assets Liabilities and Shareholders' Equity Current liabilities: Accounts payable Accrued liabilities Revolving credit facility Accrued payroll and related expenses Income taxes payable Total current liabilities Long-term deferred tax liabilities, net Other long-term liabilities Total liabilities Commitments and Contingencies (Note 11) August 31, 2014 August 31, 2013 $ 57,803 45,050 $ 53,434 37,516 63,618 34,989 5,855 8,339 215,654 9,702 95,499 23,671 3,154 347,680 18,031 18,382 98,000 15,969 1,529 151,911 24,253 2,101 178,265 $ $ 56,878 32,433 5,672 6,210 192,143 8,535 95,236 24,292 2,858 323,064 19,693 16,562 63,000 17,244 1,146 117,645 24,011 1,901 143,557 $ $ Shareholders' equity: (cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:650)(cid:3)(cid:68)(cid:88)(cid:87)(cid:75)(cid:82)(cid:85)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)36,000,000 shares, $0.001 par value; 19,464,310 and 19,392,979 shares issued at August 31, 2014 and 2013, respectively; and 14,754,362 and 15,285,536 shares outstanding at August 31, 2014 and 2013, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) (cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:75)(cid:72)(cid:79)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:85)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:92)(cid:15)(cid:3)(cid:68)(cid:87)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:650)(cid:3)4,709,948 and 4,107,443 19 136,212 237,596 1,103 19 133,239 214,034 (5,043) shares at August 31, 2014 and 2013, respectively Total shareholders' equity Total liabilities and shareholders' equity (205,515) 169,415 347,680 $ (162,742) 179,507 323,064 $ See accompanying notes to consolidated financial statements. F-2 WD-40 COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Fiscal Year Ended August 31, 2014 2013 2012 $ 382,997 184,144 198,853 $ 368,548 179,385 189,163 $ 342,784 174,302 168,482 Net sales Cost of products sold Gross profit Operating expenses: Selling, general and administrative Advertising and sales promotion Amortization of definite-lived intangible assets Impairment of definite-lived intangible assets Total operating expenses 108,577 23,922 2,617 - 135,116 104,378 24,811 2,260 1,077 132,526 88,918 25,702 2,133 - 116,753 Income from operations 63,737 56,637 51,729 Other income (expense): Interest income Interest expense Other (expense) income, net Income before income taxes Provision for income taxes Net income Earnings per common share: Basic Diluted Shares used in per share calculations: Basic Diluted 596 (1,002) (372) 62,959 19,213 43,746 2.89 2.87 15,072 15,148 $ $ $ 506 (693) 417 56,867 17,054 39,813 2.55 2.54 15,517 15,619 $ $ $ 261 (729) (348) 50,913 15,428 35,485 2.22 2.20 15,914 16,046 $ $ $ See accompanying notes to consolidated financial statements. F-3 WD-40 COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Fiscal Year Ended August 31, 2014 2013 2012 Net income Other comprehensive income (loss): Foreign currency translation adjustment Total comprehensive income $ $ 43,746 $ 39,813 $ 35,485 6,146 49,892 $ (2,316) 37,497 $ (2,369) 33,116 See accompanying notes to consolidated financial statements. F-4 l a t o T ' s r e d l o h e r a h S k c o t S y r u s a e r T y t i u q E t n u o m A s e r a h S d e t a l u m u c c A r e h t O e v i s n e h e r p m o C ) s s o L ( e m o c n I d e n i a t e R s g n i n r a E l a n o i t i d d A n i - d i a P l a t i p a C k c o t S n o m m o C t n u o m A s e r a h S 6 2 2 , 1 0 2 $ ) 5 6 4 , 1 9 ( $ 5 5 9 , 0 8 5 , 2 ) 8 5 3 ( $ 8 0 0 , 6 7 1 $ 2 2 0 , 7 1 1 $ 9 1 $ 8 6 8 , 8 4 9 8 1 , Y N A P M O C 0 4 - D W Y T I U Q E ' S R E D L O H E R A H S F O S T N E M E T A T S D E T A D I L O S N O C ) s t n u o m a e r a h s r e p d n a e r a h s t p e c x e , s d n a s u o h t n I ( d e s a b - e r a h s r e d n u k c o t s n o m m o c f o e c n a u s s I 1 1 0 2 , 1 3 t s u g u A t a e c n a l a B 7 7 9 , 9 5 2 s e x a t r o f d l e h h t i w s e r a h s f o t e n , n a l p n o i t a s n e p m o c 0 1 7 , 5 9 6 7 , 2 9 0 7 ) 8 2 2 , 8 1 ( ) 0 4 8 , 9 3 ( ) 9 6 3 , 2 ( 5 8 4 , 5 3 2 6 4 , 5 8 1 5 8 6 , 3 3 5 4 , 2 1 9 8 ) 4 4 0 , 9 1 ( ) 7 3 4 , 1 3 ( ) 6 1 3 , 2 ( 3 1 8 , 9 3 7 0 5 , 9 7 1 ) 9 2 1 ( 3 6 2 , 2 9 3 8 ) 4 8 1 , 0 2 ( ) 3 7 7 , 2 4 ( 6 4 1 , 6 6 4 7 , 3 4 5 1 4 , 9 6 1 ) 0 4 8 , 9 3 ( 6 5 3 , 0 3 9 ) 9 6 3 , 2 ( ) 8 2 2 , 8 1 ( 5 8 4 , 5 3 0 1 7 , 5 9 6 7 , 2 9 0 7 ) 7 3 4 , 1 3 ( 2 3 1 , 6 9 5 ) 6 1 3 , 2 ( ) 4 4 0 , 9 1 ( 3 1 8 , 9 3 5 8 6 , 3 3 5 4 , 2 1 9 8 ) 3 7 7 , 2 4 ( 5 0 5 , 2 0 6 6 4 1 , 6 ) 4 8 1 , 0 2 ( 6 4 7 , 3 4 ) 9 2 1 ( 3 6 2 , 2 9 3 8 $ ) 5 1 5 , 5 0 2 ( $ 8 4 9 , 9 0 7 , 4 3 0 1 , 1 $ 6 9 5 , 7 3 2 $ 2 1 2 , 6 3 1 $ 9 1 $ 0 1 3 , 4 6 4 9 1 , . s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c o t s e t o n g n i y n a p m o c c a e e S 5 - F d e s a b - e r a h s r e d n u k c o t s n o m m o c f o e c n a u s s I t n e m t s u j d a n o i t a l s n a r t y c n e r r u c n g i e r o F 2 1 0 2 , 1 3 t s u g u A t a e c n a l a B e m o c n i t e N f o s t n e m e l t t e s m o r f s t i f e n e b x a T n o i t a s n e p m o c d e s a b - k c o t S ) e r a h s r e p 4 1 . 1 $ ( s d n e d i v i d h s a C k c o t s y r u s a e r t f o n o i t i s i u q c A s d r a w a y t i u q e d e s a b - k c o t s d e s a b - e r a h s r e d n u k c o t s n o m m o c f o e c n a u s s I t n e m t s u j d a n o i t a l s n a r t y c n e r r u c n g i e r o F 3 1 0 2 , 1 3 t s u g u A t a e c n a l a B e m o c n i t e N f o s t n e m e l t t e s m o r f s t i f e n e b x a T n o i t a s n e p m o c d e s a b - k c o t S s d r a w a y t i u q e d e s a b - k c o t s ) e r a h s r e p 2 2 . 1 $ ( s d n e d i v i d h s a C k c o t s y r u s a e r t f o n o i t i s i u q c A f o s t n e m e l t t e s m o r f s t i f e n e b x a T s d r a w a y t i u q e d e s a b - k c o t s ) e r a h s r e p 3 3 . 1 $ ( s d n e d i v i d h s a C k c o t s y r u s a e r t f o n o i t i s i u q c A n o i t a s n e p m o c d e s a b - k c o t S t n e m t s u j d a n o i t a l s n a r t y c n e r r u c n g i e r o F 4 1 0 2 , 1 3 t s u g u A t a e c n a l a B e m o c n i t e N $ ) 5 0 3 , 1 3 1 ( $ 1 1 3 , 1 1 5 , 3 ) 7 2 7 , 2 ( $ 5 6 2 , 3 9 1 $ 0 1 2 , 6 2 1 $ 9 1 $ 5 4 8 , 8 0 2 9 1 , 4 3 1 , 4 8 1 s e x a t r o f d l e h h t i w s e r a h s f o t e n , n a l p n o i t a s n e p m o c $ ) 2 4 7 , 2 6 1 ( $ 3 4 4 , 7 0 1 , 4 ) 3 4 0 , 5 ( $ 4 3 0 , 4 1 2 $ 9 3 2 , 3 3 1 $ 9 1 $ 9 7 9 , 2 9 3 9 1 , 1 3 3 , 1 7 s e x a t r o f d l e h h t i w s e r a h s f o t e n , n a l p n o i t a s n e p m o c WD-40 COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Impairment of definite-lived intangible assets Net (gains) losses on sales and disposals of property and equipment Deferred income taxes Excess tax benefits from settlements of stock-based equity awards Stock-based compensation Unrealized foreign currency exchange (gains) losses, net Provision for bad debts Changes in assets and liabilities: Trade accounts receivable Inventories Other assets Accounts payable and accrued liabilities Accrued payroll and related expenses Income taxes payable Other long-term liabilities Net cash provided by operating activities Investing activities: Purchases of property and equipment Proceeds from sales of property and equipment Purchases of short-term investments Maturities of short-term investments Purchases of intangible assets Net cash used in investing activities Financing activities: Treasury stock purchases Dividends paid Proceeds from issuance of common stock Excess tax benefits from settlements of stock-based equity awards Proceeds from revolving credit facility Repayments of revolving credit facility Repayments of long-term debt Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental cash flow information: Cash paid for: Fiscal Year Ended August 31, 2014 2013 2012 $ 43,746 $ 39,813 $ 35,485 5,860 - (39) (736) (831) 2,263 (66) 218 (5,821) (2,237) (2,209) (560) (3,047) 2,001 188 38,730 (4,085) 331 (7,710) 2,760 (1,799) (10,503) (42,773) (20,184) 1,284 831 35,000 - - (25,842) 1,984 4,369 53,434 57,803 $ 5,359 1,077 3 (1,004) (850) 2,453 1,113 511 (3,800) (2,829) (1,998) (886) 10,362 2,284 (39) 51,569 (2,854) 158 (38,838) 2,000 - (39,534) (31,437) (19,044) 4,791 850 18,000 - - (26,840) (1,480) (16,285) 69,719 53,434 698 16,614 $ $ $ 4,869 - 67 367 (671) 2,769 2,112 157 226 (12,347) (64) 3,206 (2,794) 1,412 (545) 34,249 (3,765) 1,167 (1,029) 514 - (3,113) (39,840) (18,228) 7,030 671 114,550 (69,550) (10,715) (16,082) (1,728) 13,326 56,393 69,719 642 13,240 $ $ $ Interest Income taxes, net of tax refunds received $ $ 915 18,147 See accompanying notes to consolidated financial statements. F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. The Company WD-40 Company (“the Company”), based in San Diego, California, is a global marketing organization dedicated to creating positive lasting memories by developing and selling products which solve problems in workshops, factories and homes around the world. The Company markets multi-purpose and specialty maintenance products under the WD-40® and 3-IN-ONE® brand names. Currently included in the WD-40 brand are the WD-40 multi-use product and the WD-40 Specialist® and WD-40 BikeTM product lines. The Company also markets the following homecare and cleaning brands: X-14® mildew stain remover and automatic toilet bowl cleaners, 2000 Flushes® automatic toilet bowl cleaners, Carpet Fresh® and No Vac® rug and room deodorizers, Spot Shot® aerosol and liquid carpet stain removers, 1001® household cleaners and rug and room deodorizers and Lava® and Solvol® heavy-duty hand cleaners. The Company’s brands are sold in various locations around the world. Multi-purpose maintenance products are sold worldwide in markets throughout North, Central and South America, Asia, Australia and the Pacific Rim, Europe, the Middle East and Africa. Homecare and cleaning products are sold primarily in North America, the United Kingdom (“U.K.”) and Australia. The Company’s products are sold primarily through mass retail and home center stores, warehouse club stores, grocery stores, hardware stores, automotive parts outlets, sport retailers, independent bike dealers and industrial distributors and suppliers. Note 2. Basis of Presentation and Summary of Significant Accounting Policies Basis of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Supplier Risk The Company relies on a limited number of suppliers, including single or sole source suppliers for certain of its raw materials, packaging, product components and other necessary supplies. Where possible and where it makes business sense, the Company works with secondary or multiple suppliers to qualify additional supply sources. To date, the Company has been able to obtain adequate supplies of these materials which are used in the production of its multi-purpose maintenance products and homecare and cleaning products in a timely manner from existing sources. Cash and Cash Equivalents Cash equivalents are highly liquid investments purchased with an original maturity of three months or less. Short-term Investments The Company's short-term investments consisted of term deposits and callable time deposits with a carrying value of $45.0 million and $37.5 million at August 31, 2014 and 2013, respectively. These term deposits are subject to penalty for early redemption before their maturity. Trade Accounts Receivable and Allowance for Doubtful Accounts Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in existing accounts receivable. The Company determines the allowance for doubtful accounts based on historical write-off experience and the F-7 identification of specific balances deemed uncollectible. Trade accounts receivable are charged against the allowance when the Company believes it is probable that the trade accounts receivable will not be recovered. The Company does not have any off-balance sheet credit exposure related to its customers. Allowance for doubtful accounts related to the Company’s trade accounts receivable were not significant at August 31, 2014 and 2013. Inventories Inventories are stated at the lower of cost or market and cost is determined based on a first-in, first-out method or, for a portion of raw materials inventory, the average cost method. No changes have been made to the Company's inventory costing methods during the fiscal year; however, the Company has clarified its disclosure to more completely describe the different methods being used for various components of its inventory. When necessary, the Company adjusts the carrying value of its inventory to the lower of cost or market, including any costs to sell or dispose of such inventory. Appropriate consideration is given by the Company to obsolescence, excessive inventory levels, product deterioration and other factors when evaluating net realizable value for the purposes of determining the lower of cost or market. Included in inventories are amounts for certain raw materials and components that the Company has provided to its third-party contract manufacturers but that remain unpaid to the Company as of the balance sheet date. The Company’s contract manufacturers package products to the Company’s specifications and, upon order from the Company, ship ready-to-sell inventory to either the Company’s third-party distribution centers or directly to its customers. The Company transfers certain raw materials and components to these contract manufacturers for use in the manufacturing process. Contract manufacturers are obligated to pay the Company for these raw materials and components upon receipt. Amounts receivable from the contract manufacturers as of the balance sheet date related to transfers of these raw materials and components by the Company to its contract manufacturers are considered product held at third-party contract manufacturers and are included in inventories in the accompanying consolidated balance sheets. Property and Equipment Property and equipment is stated at cost. Depreciation is computed using the straight-line method based upon estimated useful lives of ten to forty years for buildings and improvements, three to fifteen years for machinery and equipment, three to five years for vehicles, three to ten years for furniture and fixtures and three to five years for software and computer equipment. Depreciation expense totaled $3.2 million, $3.1 million and $2.7 million for fiscal years 2014, 2013 and 2012, respectively. These amounts include factory depreciation expense which is recognized as cost of products sold and totaled $1.0 million, $1.2 million and $1.1 million for fiscal years 2014, 2013 and 2012, respectively. Software The Company capitalizes costs related to computer software obtained or developed for internal use. Software obtained for internal use has generally been enterprise-level business and finance software that the Company customizes to meet its specific operational needs. Costs incurred in the application development phase are capitalized and amortized over their useful lives, which are generally three to five years. Goodwill Goodwill represents the excess of the purchase price over the fair value of tangible and intangible assets acquired. The carrying value of goodwill is reviewed for possible impairment in accordance with the authoritative guidance on goodwill, intangibles and other. The Company assesses possible impairments to goodwill at least annually during its second fiscal quarter and otherwise when events or changes in circumstances indicate that an impairment condition may exist. In performing the annual impairment test of its goodwill, the Company considers the fair value concepts of a market participant and the highest and best use for its intangible assets. In addition to the annual impairment test, goodwill is evaluated each reporting period to determine whether events and circumstances would more likely than not reduce the fair value of a reporting unit below its carrying value. In accordance with Accounting Standards Update (“ASU”) No. 2011-08, “Testing Goodwill for Impairment”, companies are permitted to first assess qualitative factors to determine whether it is necessary to perform the two- step quantitative goodwill impairment test. If, after assessing qualitative factors, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. If deemed necessary, a two-step quantitative test is performed to identify the potential impairment and to measure the amount of goodwill impairment, if any. Any required impairment losses are F-8 recorded as a reduction in the carrying amount of the related asset and charged to results of operations. No impairments to its goodwill were idendified by the Company during fiscal years 2014, 2013 and 2012, Long-lived Assets The Company’s long-lived assets consist of property and equipment and definite-lived intangible assets. Long-lived assets are depreciated or amortized, as applicable, on a straight-line basis over their estimated useful lives. The Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and/or its remaining useful life may no longer be appropriate. Any required impairment loss would be measured as the amount by which the asset’s carrying amount exceeds its fair value, which is the amount at which the asset could be bought or sold in a current transaction between willing market participants and would be recorded as a reduction in the carrying amount of the related asset and a charge to results of operations. An impairment loss would be recognized when the sum of the expected future undiscounted net cash flows is less than the carrying amount of the asset. No impairments to its long-lived assets were identified by the Company during fiscal years 2014 or 2012. During the fourth quarter of fiscal year 2013, the Company recorded a non-cash, before tax impairment charge of $1.1 million to reduce the carrying value of the 2000 Flushes trade name intangible asset to its fair value. For additional details, refer to the information set forth in Note 5 – Goodwill and Other Intangible Assets. Fair Value of Financial Instruments Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures”, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company categorizes its financial assets and liabilities measured at fair value into a hierarchy that categorizes fair value measurements into the following three levels based on the types of inputs used in measuring their fair value: Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities; Level 2: Observable market-based inputs or observable inputs that are corroborated by market data; and Level 3: Unobservable inputs reflecting the Company’s own assumptions. Under fair value accounting, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. As of August 31, 2014, 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. The carrying values of cash equivalents, short-term investments and short-term borrowings are recorded at cost, which approximates their fair values primarily due to their short-term maturities and are classified as Level 2 within the fair value hierarchy. During the fiscal year ended August 31, 2014, the Company did not record any significant nonrecurring fair value measurements for assets or liabilities in periods subsequent to their initial recognition. During the fourth quarter of fiscal year 2013, the Company was required to make a nonrecurring fair value measurement related to the 2000 Flushes trade name intangible asset, for which an impairment charge of $1.1 million was recorded during that quarter. For additional details, refer to the information set forth in Note 5 – Goodwill and Other Intangible Assets. Concentration of Credit Risk Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents, short-term investments and trade accounts receivable. The Company’s policy is to place its cash in high credit quality financial institutions, in investments that include demand deposits, term deposits and callable time deposits. The Company’s trade accounts receivable are derived from customers located in North America, South America, Asia-Pacific, Europe, the Middle East, Africa and India. The Company limits its credit exposure from trade accounts receivable by performing on-going credit evaluations of customers, as well as insuring its trade accounts receivable in selected markets. Insurance Coverage The Company carries insurance policies to cover insurable risks such as property damage, business interruption, product liability, workers’ compensation and other risks, with coverage and other terms that it believes to be adequate and appropriate. These policies may be subject to applicable deductible or retention amounts, coverage F-9 limitations and exclusions. The Company does not maintain self-insurance with respect to its material risks; therefore, the Company has not provided for self-insurance reserves as of August 31, 2014 and 2013. Revenue Recognition and Sales Incentives Sales are recognized as revenue at the time of delivery to the customer when risks of loss and title have passed. Sales are recorded net of allowances for damaged goods and other sales returns, sales incentives, trade promotions and cash discounts. The Company records the costs of promotional activities such as sales incentives, trade promotions, coupon offers and cash discounts that are given to its customers as a reduction of sales in its consolidated statements of operations. The Company offers on-going trade promotion programs with customers and consumer coupon programs that require the Company to estimate and accrue the expected costs for such programs. Programs include cooperative marketing programs, shelf price reductions, coupons, rebates, consideration and allowances given to retailers for shelf space and/or favorable display positions in their stores and other promotional activities. Costs related to rebates, cooperative advertising and other promotional activities are recorded as a reduction to sales upon delivery of the Company’s products to its customers. Coupon costs are based upon historical redemption rates and are recorded as a reduction to sales as incurred, which is when the coupons are circulated. Cost of Products Sold Cost of products sold primarily includes the cost of products manufactured on the Company’s behalf by its third- party contract manufacturers, net of volume and other rebates. Cost of products sold also includes the costs to manufacture WD-40 concentrate, which is done at the Company’s own facilities or at third-party contract manufacturers. When the concentrate is manufactured by the Company, cost of products sold includes direct labor, direct materials and supplies; in-bound freight costs related to purchased raw materials and finished product; and depreciation of machinery and equipment used in the manufacturing process. Selling, General and Administrative Expenses Selling, general and administrative expenses include costs related to selling the Company’s products, such as the cost of the sales force and related sales and broker commissions; shipping and handling costs paid to third-party companies to distribute finished goods from the Company’s third-party contract manufacturers and distribution centers to its customers; other general and administrative costs related to the Company’s business such as general overhead, legal and accounting fees, insurance, and depreciation; and other employee-related costs to support marketing, human resources, finance, supply chain, information technology and research and development activities. Shipping and Handling Costs Shipping and handling costs associated with in-bound freight and movement of product from third-party contract manufacturers to the Company’s third-party warehouses are generally included in cost of sales, whereas shipping and handling costs associated with out-bound transportation are included in selling, general and administrative expenses and are recorded at the time of shipment of product to the Company’s customers. Out-bound shipping and handling costs were $16.2 million, $15.7 million and $15.4 million for fiscal years 2014, 2013 and 2012, respectively. Advertising and Sales Promotion Expenses Advertising and sales promotion expenses are expensed as incurred. Advertising and sales promotion expenses include costs associated with promotional activities that the Company pays to third parties, which include costs for advertising (television, print media and internet), administration of coupon programs, consumer promotions, product demonstrations, public relations, agency costs, package design expenses and market research costs. Total advertising and sales promotion expenses were $23.9 million, $24.8 million and $25.7 million for fiscal years 2014, 2013 and 2012, respectively. Research and Development The Company is involved in research and development efforts that include the ongoing development or innovation of new products and the improvement, extension or renovation of existing products or product lines. All research and development costs are expensed as incurred and are included in selling, general and administrative expenses. Research and development expenses were $6.9 million, $7.2 million and $5.1 million in fiscal years 2014, 2013 and F-10 2012, respectively. These expenses include costs associated with general research and development activities, as well as those associated with internal staff, overhead, design testing, market research and consultants. Income Taxes Current income tax expense is the amount of income taxes expected to be payable for the current year. A deferred income tax liability or asset is established for the expected future tax consequences resulting from the differences in financial reporting and tax bases of assets and liabilities. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be realized. In addition to valuation allowances, the Company provides for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement standards prescribed by the authoritative guidance on income taxes. Amounts for uncertain tax positions are adjusted in periods when new information becomes available or when positions are effectively settled. The Company recognizes accrued interest and penalties related to uncertain tax positions as a component of income tax expense. U.S. federal income tax expense is provided on remittances of foreign earnings and on unremitted foreign earnings that are not indefinitely reinvested. U.S. federal income taxes and foreign withholding taxes are not provided when foreign earnings are indefinitely reinvested. The Company determines whether its foreign subsidiaries will invest their undistributed earnings indefinitely based on the capital needs of the foreign subsidiaries and reassesses this determination each reporting period. Changes to the Company’s determination may be warranted based on the Company’s experience as well as its plans regarding future international operations and expected remittances. Foreign Currency Assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at the average exchange rates prevailing during each reporting period. Gains and losses from translation are included in accumulated other comprehensive income or loss. Gains or losses resulting from foreign currency transactions (transactions denominated in a currency other than the entity’s functional currency) are included as other income (expense) in the Company’s consolidated statements of operations. The Company had $0.1 million and $0.4 million of net gains, and $0.3 million of net losses in foreign currency transactions during fiscal years 2014, 2013 and 2012, respectively. In the normal course of business, the Company employs established policies and procedures to manage its exposure to fluctuations in foreign currency exchange rates. The Company’s U.K. subsidiary, whose functional currency is Pound Sterling, utilizes foreign currency forward contracts to limit its exposure in converting forecasted cash balances denominated in non-functional currencies. The principal currency affected is the Euro. The Company regularly monitors its foreign currency exchange rate exposures to ensure the overall effectiveness of its foreign currency hedge positions. While the Company engages in foreign currency hedging activity to reduce its risk, for accounting purposes, none of its foreign currency forward contracts are designated as hedges. Foreign currency forward contracts are carried at fair value, with net realized and unrealized gains and losses recognized currently in other income (expense) in the Company’s consolidated statements of operations. Cash flows from settlements of foreign currency forward contracts are included in operating activities in the consolidated statements of cash flows. Foreign currency forward contracts in an asset position at the end of the reporting period are included in other current assets, while foreign currency forward contracts in a liability position at the end of the reporting period are included in accrued liabilities in the Company’s consolidated balance sheets. At August 31, 2014, the Company had a notional amount of $3.8 million outstanding in foreign currency forward contracts, which mature from September 2014 through October 2014. Unrealized net gains related to foreign currency forward contracts were not significant at August 31, 2014 and 2013. Earnings per Common Share Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities that are required to be included in the computation of earnings per common share pursuant to the two-class method. Accordingly, the Company’s outstanding unvested, if any, and outstanding vested restricted stock units that provide such nonforfeitable rights to dividend equivalents are included as participating securities in the calculation of earnings per common share (“EPS”) pursuant to the two-class method. The Company calculates EPS using the two-class method, which provides for an allocation of net income between common stock and other participating securities based on their respective participation rights to share in dividends. Basic EPS is calculated by dividing net income available to common shareholders for the period by the weighted- F-11 average number of common shares outstanding during the period. Net income available to common shareholders for the period includes dividends paid to common shareholders during the period plus a proportionate share of undistributed net income allocable to common shareholders for the period; the proportionate share of undistributed net income allocable to common shareholders for the period is based on the proportionate share of total weighted- average common shares and participating securities outstanding during the period. Diluted EPS is calculated by dividing net income available to common shareholders for the period by the weighted- average number of common shares outstanding during the period increased by the weighted-average number of potentially dilutive common shares (dilutive securities) that were outstanding during the period if the effect is dilutive. Dilutive securities are comprised of stock options, restricted stock units, performance share units and market share units granted under the Company’s prior stock option plan and current equity incentive plan. Stock-based Compensation The Company accounts for stock-based equity awards exchanged for employee and non-employee director services in accordance with the authoritative guidance for share-based payments. Under such guidance, stock-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense, net of estimated forfeitures, over the requisite service period. Compensation expense is amortized on a straight-line basis over the requisite service period for the entire award, which is generally the maximum vesting period of the award. The fair value of stock options is determined using a Black-Scholes option pricing model. The fair values of restricted stock unit awards and performance share unit awards are based on the fair value of the Company’s common stock on the date that such awards are granted. The fair value of market share unit awards is determined using a Monte Carlo simulation model. For the performance share unit awards, the Company adjusts the compensation expense over the service period based upon the expected achievement level of the applicable performance conditions. As the grant date fair value of market share unit awards reflects the probabilities of the actual number of such awards expected to vest, compensation expense for such awards is not adjusted based on the expected achievement level of the applicable performance condition. An estimated forfeiture rate is applied and included in the calculation of stock-based compensation expense at the time that the stock-based equity awards are granted and revised, if necessary, in subsequent periods if actual forfeiture rates differ from those estimates. Compensation expense related to the Company’s stock-based equity awards is recorded as selling, general and administrative expenses in the Company’s consolidated statements of operations. The Company calculates its windfall tax benefits additional paid-in capital pool that is available to absorb tax deficiencies in accordance with the short-cut method provided for by the authoritative guidance for share-based payments. As of August 31, 2014, the Company determined that it has a remaining pool of windfall tax benefits. Segment Information The Company discloses certain information about its business segments, which are determined consistent with the way the Company’s Chief Operating Decision Maker organizes and evaluates financial information internally for making operating decisions and assessing performance. In addition, the Chief Operating Decision Maker assesses and measures revenue based on product groups. Recently Adopted Accounting Standards In December 2011, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2011-11, “Disclosures about Offsetting Assets and Liabilities”, which was effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. This authoritative guidance was issued to enhance disclosure requirements on offsetting financial assets and liabilities. The new rules require companies to disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position, as well as instruments and transactions subject to a netting arrangement. In January 2013, the FASB further issued ASU No. 2013-01, “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” to address implementation issues of ASU No. 2011-11 and to clarify the scope of the offsetting disclosures and address any unintended consequences. The adoption of this authoritative guidance did not have a material impact on the Company’s consolidated financial statement disclosures. F-12 Recently Issued Accounting Standards In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”, which supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition”. The core principle of this updated guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new rule also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Companies are permitted to adopt this new rule following either a full or modified retrospective approach. Early adoption is not permitted. The Company has not yet determined the potential impacts of this updated authoritative guidance on its consolidated financial statements. In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”, which is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The new rules require companies to present in the financial statements an unrecognized tax benefit as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward except to the extent such items are not available or not intended to be used at the reporting date to settle any additional income taxes that would result from the disallowance of a tax position. In such instances, the unrecognized tax benefit is required to be presented in the financial statements as a liability and not be combined with deferred tax assets. The Company has evaluated this updated authoritative guidance, and it does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures. Note 3. Inventories Inventories consisted of the following (in thousands): August 31, 2014 August 31, 2013 Product held at third-party contract manufacturers Raw materials and components Work-in-process Finished goods Total $ $ 3,945 3,670 261 27,113 34,989 Note 4. Property and Equipment Property and equipment, net, consisted of the following (in thousands): Machinery, equipment and vehicles Buildings and improvements Computer and office equipment Software Furniture and fixtures Land Subtotal Less: accumulated depreciation and amortization Total August 31, 2014 13,459 4,044 3,312 6,824 1,421 295 29,355 (19,653) 9,702 $ $ $ $ $ $ 3,790 4,597 18 24,028 32,433 August 31, 2013 12,035 3,781 3,389 5,997 1,285 283 26,770 (18,235) 8,535 F-13 Note 5. Goodwill and Other Intangible Assets Goodwill The following table summarizes the changes in the carrying amounts of goodwill by segment (in thousands): Balance as of August 31, 2012 Translation adjustments Balance as of August 31, 2013 Translation adjustments Balance as of August 31, 2014 Americas EMEA Asia-Pacific $ $ 85,558 (13) 85,545 36 85,581 $ $ 8,549 (69) 8,480 227 8,707 $ $ 1,211 - 1,211 - 1,211 Total 95,318 (82) 95,236 263 95,499 $ $ During the second quarter of fiscal year 2014, the Company performed its annual goodwill impairment test. The Company performed a qualitative assessment of all reporting units to estimate whether it is more likely than not that the fair value of each reporting unit was less than its carrying amount. In performing this qualitative assessment, the Company assessed relevant events and circumstances that may impact the fair value and the carrying amount of each of its reporting units. Factors that were considered included, but were not limited to, the following: (1) macroeconomic conditions; (2) industry and market conditions; (3) overall financial performance and expected financial performance; (4) other entity specific events, such as changes in management or key personnel; and (5) events affecting the Company’s reporting units, such as a change in the composition of net assets or any expected dispositions. Based on the results of this qualitative assessment, the Company determined that it is more likely than not that the carrying value of each of its reporting units is less than its fair value and, thus, the two-step quantitative analysis was not required. As a result, the Company concluded that no impairment of its goodwill existed as of February 28, 2014. In addition, there were no indicators of impairment identified as a result of the Company’s review of events and circumstances related to its goodwill subsequent to February 28, 2014. To date, there have been no impairment losses identified and recorded related to the Company’s goodwill. Definite-lived Intangible Assets The Company’s definite-lived intangible assets, which include the 2000 Flushes, Spot Shot, Carpet Fresh, X-14 and 1001 trade names, are included in other intangible assets, net in the Company’s consolidated balance sheets. The following table summarizes the definite-lived intangible assets and the related accumulated amortization and impairment (in thousands): Gross carrying amount Accumulated amortization Accumulated impairment of intangible assets Translation adjustments Net carrying amount August 31, 2014 $ $ 36,670 (12,021) (1,077) 99 23,671 August 31, 2013 $ $ 34,615 (9,124) (1,077) (122) 24,292 During the second quarter of fiscal year 2014, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) by and between Etablissements Decloedt SA/NV (“Etablissements”) and WD-40 Company Limited. Since January 1998, Etablissements has acted as one of the Company’s international marketing distributors located in Belgium where it markets and distributes certain of the WD-40 products. Pursuant to the Purchase Agreement, the Company acquired the list of customers and related information (the “customer list”) from Establissements for a purchase consideration of $1.8 million in cash. The Company intends to use this customer list to solicit and transact direct sales of its products in Belgium. The Company began to amortize this customer list definite-lived intangible asset on a straight-line basis over its estimated useful life of five years in the second quarter of fiscal year 2014. During the fourth quarter of fiscal year 2013, as part of the Company’s ongoing evaluation of potential strategic alternatives for certain of its homecare and cleaning products, the Company determined based on its review of events and circumstances that there were indicators of impairment for the Carpet Fresh and 2000 Flushes trade names. Management accordingly performed the Step 1 recoverability test for these two trade names and based on F-14 the results of this analysis, it was determined that the total of the undiscounted cash flows significantly exceeded the carrying value for the Carpet Fresh asset group and that no impairment existed for this trade name as of August 31, 2013. However, the Step 1 analysis indicated that the carrying value of the asset group for the 2000 Flushes trade name exceeded its undiscounted future cash flows, and consequently, a second phase of the impairment test (“Step 2”) was performed specific to the 2000 Flushes trade name to determine whether this trade name was impaired. The 2000 Flushes trade name failed Step 1 in the fourth quarter analysis primarily driven by changes in management’s current expectations for future growth and profitability for the 2000 Flushes trade name as compared to those used in the previous Step 1 analysis performed in the third quarter of fiscal year 2013. In performing the Step 2 analysis, the Company determined the fair value of the asset group utilizing the income approach, which is based on the present value of the estimated future cash flows. The calculation that is prepared in order to determine the estimated fair value of an asset group requires management to make assumptions about key inputs in the estimated cash flows, including long-term forecasts, discount rates and terminal growth rates. In estimating the fair value of the 2000 Flushes trade name, the Company applied a discount rate of 11.3%, annual revenue growth rates ranging from negative 13.6% to positive 1.5% and a long-term terminal growth rate of 1.5%. Cash flow projections used were based on management’s estimates of revenue growth rates, contribution margins and earnings before income taxes, depreciation and amortization (“EBITDA”). The discount rate used was based on the weighted-average cost of capital. The Company also considered the fair value concepts of a market participant and thus all amounts included in the long-term forecast reflect management’s best estimate of what a market participant could realize over the projection period. After taking all of these factors into consideration, the estimated fair value of the asset group was then compared to the carrying value of the 2000 Flushes trade name asset group to determine the amount of the impairment. The inputs used in the impairment fair value analysis fall within Level 3 of the fair value hierarchy due to the significant unobservable inputs used to determine fair value. Based on the results of this Step 2 analysis, the 2000 Flushes asset group’s estimated fair value was determined to be lower than its carrying value. Consequently, the Company recorded a non-cash, before tax impairment charge of $1.1 million in the fourth quarter of fiscal year 2013 to reduce the carrying value of the 2000 Flushes asset to its estimated fair value of $7.9 million. An intangible asset valuation is dependent on a number of significant estimates and assumptions, including macroeconomic conditions, overall category growth rates, sales growth rates, cost containment and margin expansion and expense levels for advertising and promotions and general overhead, all of which must be developed from a market participant standpoint. While the Company believes that the estimates and assumptions used in such analyses are reasonable, actual events and results could differ substantially from those included in the valuation. In the event that business conditions change in the future, the Company may be required to reassess and update its forecasts and estimates used in subsequent impairment analyses. If the results of these future analyses are lower than current estimates, an additional impairment charge may result at that time. In addition, there were no indicators of potential impairment identified as a result of the Company’s review of events and circumstances related to its existing definite-lived intangible assets for the quarter ended August 31, 2014. Changes in the carrying amounts of definite-lived intangible assets by segment are summarized below (in thousands): Balance as of August 31, 2012 Amortization expense Impairment of intangible assets Translation adjustments Balance as of August 31, 2013 Amortization expense Customer list Translation adjustments Balance as of August 31, 2014 Americas EMEA Asia-Pacific $ $ 24,714 (2,101) (1,077) - 21,536 (2,208) - - 19,328 $ $ 2,971 (159) - (56) 2,756 (409) 1,819 177 4,343 $ $ - - - - - - - - - Total 27,685 (2,260) (1,077) (56) 24,292 (2,617) 1,819 177 23,671 $ $ F-15 The estimated amortization expense for the Company’s definite-lived intangible assets in future fiscal years is as follows (in thousands): Fiscal year 2015 Fiscal year 2016 Fiscal year 2017 Fiscal year 2018 Fiscal year 2019 Thereafter Total Trade Names Customer List $ $ 2,381 2,376 2,376 2,376 2,376 10,226 22,111 $ $ 360 360 360 360 120 - 1,560 Included in the total estimated future amortization expense is the amortization expense for the 1001 trade name intangible asset, which is based on current foreign currency exchange rates, and as a result amounts in future periods may differ from those presented due to fluctuations in those rates. Note 6. Accrued and Other Liabilities Accrued liabilities consisted of the following (in thousands): August 31, 2014 August 31, 2013 Accrued advertising and sales promotion expenses Accrued professional services fees Accrued sales taxes Accrued other taxes Other Total $ $ 10,140 1,715 934 476 5,117 18,382 Accrued payroll and related expenses consisted of the following (in thousands): Accrued bonuses Accrued payroll Accrued profit sharing Accrued payroll taxes Other Total Other long-term liabilities consisted of the following (in thousands): Supplemental employee retirement plan benefits liability Other income taxes payable Other Total Note 7. Debt Revolving Credit Facility August 31, 2014 8,558 2,813 2,424 1,602 572 15,969 August 31, 2014 516 1,512 73 2,101 $ $ $ $ $ $ $ $ $ $ 9,986 1,358 1,494 368 3,356 16,562 August 31, 2013 9,847 2,048 2,739 1,991 619 17,244 August 31, 2013 548 1,243 110 1,901 On June 17, 2011, the Company entered into an unsecured credit agreement with Bank of America, N.A. (“Bank of America”). The agreement consisted of a $75.0 million three-year revolving credit facility. Under the terms of the credit facility agreement, the Company may initiate loans in U.S. dollars or in foreign currencies from time to time during the three-year period, which was set to expire on June 17, 2014. Per the terms of the agreement, all loans F-16 denominated in U.S. dollars will accrue interest at the bank’s Prime rate or at LIBOR plus a predetermined margin and all loans denominated in foreign currencies will accrue interest at LIBOR plus the same predetermined margin (together with any applicable mandatory liquid asset costs imposed by non-U.S. banking regulatory authorities). Interest on outstanding loans is due and payable on a quarterly basis through the credit facility maturity date. The Company may also borrow against the credit facility through the issuance of standby letters of credit. Outstanding letters of credit are subject to a fee equal to a predetermined percent per annum applied to amounts available to be drawn on outstanding letters of credit. The Company will also incur commitment fees for the credit facility at a predetermined annual rate which will be applied to the portion of the total credit facility commitment that has not been borrowed until outstanding loans and letters of credit exceed one half the total amount of the credit facility. On January 7, 2013, the Company entered into a first amendment (the “Amendment”) to this existing unsecured credit agreement with Bank of America. The Amendment extends the maturity date of the revolving credit facility for five years and increases the revolving commitment to an amount not to exceed $125.0 million. The new maturity date for the revolving credit facility per the Amendment is January 7, 2018. In addition, per the terms of the Amendment, the LIBOR margin decreased from 0.90 to 0.85 percent, the letter of credit fee decreased from 0.90 to 0.85 percent per annum and the commitment fee decreased from an annual rate of 0.15 percent to 0.12 percent. The Company incurs commitment fees applied to the portion of the total credit facility commitment that has not been borrowed until outstanding loans and letters of credit exceed $62.5 million. To date, the Company has used the proceeds of the revolving credit facility for its stock repurchases and plans to continue using such proceeds for its general working capital needs and stock repurchases under any existing board approved share buy-back plans. The agreement includes representations, warranties and covenants customary for credit facilities of this type, as well as customary events of default and remedies. The agreement also requires the Company to maintain minimum consolidated EBITDA of $40.0 million, measured on a trailing twelve month basis, at each reporting period. During the fiscal year ended August 31, 2014, the Company borrowed an additional $35.0 million U.S. dollars under the revolving credit facility. The Company regularly converts existing draws on its line of credit to new draws with new maturity dates and interest rates. The balances on these draws and conversions have remained within a short- term classification due to certain contractual clauses included in its line of credit agreement with Bank of America. As of August 31, 2014, the Company had a $98.0 million outstanding balance on the revolving credit facility and was in compliance with all debt covenants under this credit facility. Note 8. Share Repurchase Plans On June 18, 2013, the Company’s Board of Directors approved a new share buy-back plan. Under the plan, which is in effect from August 1, 2013 through August 31, 2015, the Company is authorized to acquire up to $60.0 million of its outstanding shares on such terms and conditions as may be acceptable to the Company’s Chief Executive Officer or Chief Financial Officer and subject to present loan covenants and in compliance with all laws and regulations applicable thereto. During the period from August 1, 2013 through August 31, 2014, the Company repurchased 648,138 shares at a total cost of $45.4 million. Note 9. Earnings per Common Share The table below reconciles net income to net income available to common shareholders (in thousands): Net income Less: Net income allocated to participating securities Net income available to common shareholders 2014 Fiscal Year Ended August 31, 2013 43,746 (238) 43,508 $ $ 39,813 (196) 39,617 $ $ $ $ 2012 35,485 (152) 35,333 F-17 The table below summarizes the weighted-average number of common shares outstanding included in the calculation of basic and diluted EPS (in thousands): Weighted-average common shares outstanding, basic Weighted-average dilutive securities Weighted-average common shares outstanding, diluted 2014 15,072 76 15,148 Fiscal Year Ended August 31, 2013 15,517 102 15,619 2012 15,914 132 16,046 For the fiscal year ended August 31, 2014, 4,454 weighted-average stock-based equity awards outstanding that are non-participating securities were excluded from the calculation of diluted EPS under the treasury stock method as they were anti-dilutive. There were no anti-dilutive stock-based equity awards outstanding for the fiscal years ended August 31, 2013 and 2012. Note 10. Related Parties On October 11, 2011, the Company’s Board of Directors elected Mr. Gregory A. Sandfort as a director of WD-40 Company. Mr. Sandfort is President and Chief Executive Officer of Tractor Supply Company (“Tractor Supply”), which is a WD-40 Company customer that acquires products from the Company in the ordinary course of business. The consolidated financial statements include sales to Tractor Supply of $1.2 million and $0.8 million for fiscal years 2014 and 2013, respectively. Accounts receivable from Tractor Supply were $0.1 million as of August 31, 2014 and 2013. Note 11. Commitments and Contingencies Leases The Company was committed under certain non-cancelable operating leases at August 31, 2014 which provide for the following future fiscal year minimum payments (in thousands): Operating leases 2015 1,722 $ 2016 1,254 $ 2017 2018 2019 $ 743 $ 343 $ 108 Thereafter 261 $ Rent expense was $2.1 million, $2.0 million and $1.8 million for the fiscal years ended August 31, 2014, 2013 and 2012, respectively. Purchase Commitments The Company has ongoing relationships with various suppliers (contract manufacturers) who manufacture the Company’s products. The contract manufacturers maintain title and control of certain raw materials and components, materials utilized in finished products, and of the finished products themselves until shipment to the Company’s customers or third-party distribution centers in accordance with agreed upon shipment terms. Although the Company typically does not have definitive minimum purchase obligations included in the contract terms with its contract manufacturers, when such obligations have been included, they have been immaterial. In the ordinary course of business, supply needs are communicated by the Company to its contract manufacturers based on orders and short-term projections, ranging from two to five months. The Company is committed to purchase the products produced by the contract manufacturers based on the projections provided. Upon the termination of contracts with contract manufacturers, the Company obtains certain inventory control rights and is obligated to work with the contract manufacturer to sell through all product held by or manufactured by the contract manufacturer on behalf of the Company during the termination notification period. If any inventory remains at the contract manufacturer at the termination date, the Company is obligated to purchase such inventory which may include raw materials, components and finished goods. Prior to the fourth quarter of fiscal year 2012, amounts for inventory purchased under termination commitments have been immaterial. As a result of the unanticipated termination of the IQ Products Company contract manufacturing agreement in the fourth quarter of fiscal year 2012, the Company is currently obligated to purchase $1.7 million of inventory which is included in inventories in the Company’s consolidated balance sheet as of August 31, 2014. F-18 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 initiatives and/or supply chain initiatives. As of August 31, 2014, no such commitments were outstanding. Litigation The Company is party to various claims, legal actions and complaints, including product liability litigation, arising in the ordinary course of business. On February 25, 2014, a legal action was filed against the Company in the Superior Court of California for San Diego County (David Wolf v. WD-40 Company). Mr. Wolf’s complaint seeks class action status and alleges that the Company violated California Penal Code Section 632.7 which prohibits the interception or reception and intentional recording of “a communication transmitted between two cellular radio telephones, a cellular radio telephone and a landline telephone, two cordless telephones, a cordless telephone and a landline telephone, or a cordless telephone and a cellular radio telephone” without the consent of both parties to the communication. Mr. Wolf alleges that he called a toll free number for the Company from his cellular radio telephone and that his call was recorded by the Company without his consent in violation of the statute. The California Penal Code provides for a private right of action to persons who are injured by a violation of the statute. If entitled to recover, the injured plaintiff may recover the greater of $5,000 or three times the amount of actual damages sustained by the plaintiff. The Company asserts that the Company has not violated the California Penal Code and the Company intends to vigorously defend this action. At the present time, the Company is unable to estimate the extent of possible loss or a range of possible loss that could result from this legal proceeding. On May 31, 2012, a legal action was filed against the Company in the United States District Court, Southern District of Texas, Houston Division (IQ Products Company v. WD-40 Company). IQ Products Company, a Texas corporation ("IQPC"), or an affiliate or a predecessor of IQPC, provided contract manufacturing services to the Company for many years. The allegations of IQPC’s complaint arose out of a pending termination of this business relationship. In 2011, the Company requested proposals for manufacturing services from all of its domestic contract manufacturers in conjunction with a project to redesign the Company’s supply chain architecture in North America. IQPC submitted a proposal as requested, and the Company tentatively awarded IQPC a new contract based on the information and pricing included in that proposal. IQPC subsequently sought to materially increase the quoted price for such manufacturing services. As a result, the Company chose to terminate its business relationship with IQPC. IOPC’s complaint alleged that the Company wrongfully terminated the business relationship. IQPC also raised alleged safety concerns regarding a long-standing manufacturing specification related to the Company’s products. The Company believes that IQPC’s safety concerns are unfounded. In its complaint, IQPC asserted that the Company is obligated to indemnify IQPC for prospective claims and losses based on a 1993 indemnity agreement and pursuant to common law. IQPC asserted that it was harmed by the Company's allegedly retaliatory conduct in seeking to terminate its relationship with IQPC, allegedly in response to the safety concerns identified by IQPC. IQPC seeks declaratory relief to establish that it is entitled to indemnification and also to establish that the Company is responsible for reporting the alleged safety concerns to the United States Consumer Products Safety Commission and to the United States Department of Transportation. On January 22, 2014, proceedings brought by the Company to require that all of IQPC’s claims be resolved by arbitration under the rules of the American Arbitration Association in accordance with an arbitration provision of the parties’ pre-existing 1996 Manufacturing License and Product Purchase Agreement were concluded. An Arbitration Panel of three Arbitrators selected by the parties tentatively confirmed that all claims arising out of the agreement are subject to arbitration. Although IQPC continues to contest this determination in the arbitration proceeding, the arbitration proceeding was commenced in August 2014 and is presently scheduled to be concluded in January 2015 in San Diego, California. In its claim for arbitration, the Company seeks damages from IQPC arising out of the termination of the relationship, specifically including damages arising out of IQPC’s failure to cooperate with the Company with respect to the required sale and shipment of finished goods inventory to the Company in conjunction with the termination of the relationship. In the arbitration proceedings, IQPC is asserting claims for breach of contract damages relating to IQPC’s production of the finished goods inventory prior to termination of the relationship, damages arising out of alleged negligent misrepresentations by the Company as to its product manufacturing specifications, and storage fees for materials and finished goods held at its facilities after termination of the relationship. F-19 Indemnifications As permitted under Delaware law, the Company has agreements whereby it indemnifies senior officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company maintains Director and Officer insurance coverage that mitigates the Company’s exposure with respect to such obligations. As a result of the Company’s insurance coverage, management believes that the estimated fair value of these indemnification agreements is minimal. Thus, no liabilities have been recorded for these agreements as of August 31, 2014. From time to time, the Company enters into indemnification agreements with certain contractual parties in the ordinary course of business, including agreements with lenders, lessors, contract manufacturers, marketing distributors, customers and certain vendors. All such indemnification agreements are entered into in the context of the particular agreements and are provided in an attempt to properly allocate risk of loss in connection with the consummation of the underlying contractual arrangements. Although the maximum amount of future payments that the Company could be required to make under these indemnification agreements is unlimited, management believes that the Company maintains adequate levels of insurance coverage to protect the Company with respect to most potential claims arising from such agreements and that such agreements do not otherwise have value separate and apart from the liabilities incurred in the ordinary course of the Company’s business. Thus, no liabilities have been recorded with respect to such indemnification agreements as of August 31, 2014. Note 12. Income Taxes Income before income taxes consisted of the following (in thousands): United States Foreign (1) Income before income taxes 2014 41,537 21,422 62,959 $ $ Fiscal Year Ended August 31, 2013 $ $ 36,302 20,565 56,867 $ $ 2012 36,666 14,247 50,913 (1) Included in these amounts are income before income taxes for the EMEA segment of $18.4 million, $17.5 million and $11.1 million for the fiscal years ended August 31, 2014, 2013 and 2012, respectively. The provision for income taxes consisted of the following (in thousands): Current: Federal State Foreign Total current Deferred: United States Foreign Total deferred Provision for income taxes 2014 Fiscal Year Ended August 31, 2013 2012 $ $ 12,663 972 5,489 19,124 (11) 100 89 19,213 $ $ 11,239 886 4,973 17,098 (157) 113 (44) 17,054 $ $ 10,100 3 3,820 13,923 1,449 56 1,505 15,428 F-20 Deferred tax assets and deferred tax liabilities consisted of the following (in thousands): Deferred tax assets: Accrued payroll and related expenses Accounts receivable Reserves and accruals Stock-based compensation expense Uniform capitalization Tax credit carryforwards Other Total gross deferred tax assets Valuation allowance Total net deferred tax assets Deferred tax liabilities: Property and equipment, net Amortization of tax goodwill and intangible assets Investments in partnerships Other Total deferred tax liabilities Net deferred tax liabilities August 31, 2014 August 31, 2013 $ $ 1,423 544 2,519 2,175 1,700 1,914 1,561 11,836 (2,130) 9,706 (749) (26,163) (1,099) (93) (28,104) (18,398) $ $ 1,367 675 2,584 2,023 1,623 1,631 1,584 11,487 (1,842) 9,645 (1,023) (25,331) (1,506) (124) (27,984) (18,339) The Company had state net operating loss (“NOL”) carryforwards of $6.4 million and $6.2 million as of August 31, 2014 and 2013, which generated a net deferred tax asset of $0.3 million for each of the fiscal years 2014 and 2013. The state NOL carryforwards for fiscal year ended August 31, 2014 will begin to expire in fiscal year 2019. The Company also had cumulative tax credit carryforwards of $1.9 million as of August 31, 2014 and $1.6 million as of August 31, 2013, of which $1.8 million and $1.5 million, respectively, is attributable to a U.K. tax credit carryforward, which does not expire. Future utilization of the tax credit carryforwards and certain state NOL carryovers is uncertain and is dependent upon several factors that may not occur, including the generation of future taxable income in certain jurisdictions. At this time, management cannot conclude that it is “more likely than not” that the related deferred tax assets will be realized. Accordingly, a full valuation allowance has been recorded against the related deferred tax asset associated with cumulative tax credit carryforwards. In addition, a valuation allowance has been recorded against the deferred tax asset associated with certain state NOL carryovers in the amount of $0.2 million as of both August 31, 2014 and 2013. A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows (in thousands): Amount computed at U.S. statutory federal tax rate State income taxes, net of federal tax benefits Effect of foreign operations Benefit from qualified domestic production deduction Other Provision for income taxes $ $ 2014 Fiscal Year Ended August 31, 2013 2012 22,036 674 (2,270) (1,048) (179) 19,213 $ $ 19,904 661 (2,353) (1,050) (108) 17,054 $ $ 17,820 (16) (1,377) (951) (48) 15,428 As of August 31, 2014, the Company has not provided for U.S. federal and state income taxes and foreign withholding taxes on $106.4 million of undistributed earnings of the U.K., Australia and China subsidiaries since these earnings are considered indefinitely reinvested outside of the United States. The amount of unrecognized deferred U.S. federal and state income tax liability, net of unrecognized foreign tax credits, is estimated to be approximately $11.0 million as of August 31, 2014. This net liability is impacted by changes in foreign currency exchange rates and, as a result, will fluctuate with any changes in such rates. If management decides to repatriate such foreign earnings in future periods, the Company would incur incremental U.S. federal and state income taxes as well as foreign withholding taxes. However, the Company’s intent is to keep these funds indefinitely reinvested F-21 outside the U.S. and its current plans do not demonstrate a need to repatriate them to fund the U.S. operations. Regarding certain foreign subsidiaries not indefinitely reinvested, the Company has provided for U.S. income taxes and foreign withholding taxes on the undistributed earnings. Reconciliations of the beginning and ending amounts of the Company’s gross unrecognized tax benefits, excluding interest and penalties, are as follows (in thousands): Unrecognized tax benefits - beginning of fiscal year Gross increases - tax positions in prior periods Gross increases - current period tax positions Expirations of statute of limitations for assessment Settlements Unrecognized tax benefits - end of fiscal year Fiscal Year Ended August 31, 2014 2013 $ $ 980 152 250 (134) - 1,248 $ $ 1,023 - 169 (173) (39) 980 There were no material interest or penalties included in income tax expense for the fiscal years ended August 31, 2014 and 2013. The total balance of accrued interest and penalties related to uncertain tax positions was also immaterial at August 31, 2014 and 2013. 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 2011 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 2010 are no longer subject to examination. The Company has estimated that up to $0.2 million of unrecognized tax benefits related to income tax positions may be affected by the resolution of tax examinations or expiring statutes of limitation within the next twelve months. Audit outcomes and the timing of settlements are subject to significant uncertainty. Note 13. Stock-based Compensation As of August 31, 2014, the Company had one stock incentive plan, the WD-40 Company 2007 Stock Incentive Plan (“2007 Plan”), which permits the granting of various stock-based equity awards, including non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and other stock-based awards to employees, directors and consultants. To date through August 31, 2014, the Company had granted awards of restricted stock units (“RSUs”), performance share units (“PSUs”) and market share units (“MSUs”) under the 2007 Plan. Additionally, as of August 31, 2014, there were still outstanding stock options which had been granted under the Company’s prior stock option plan. The 2007 Plan is administered by the Board of Directors (the “Board”) or the Compensation Committee or other designated committee of the Board (the “Committee”). All stock-based equity awards granted under the 2007 Plan are subject to the specific terms and conditions as determined by the Committee at the time of grant of such awards in accordance with the various terms and conditions specified for each award type per the 2007 Plan. The total number of shares of common stock authorized for issuance pursuant to grants of awards under the 2007 Plan is 2,957,830. As of August 31, 2014, 1,941,481 shares of common stock remained available for future issuance pursuant to grants of awards under the 2007 Plan. The shares of common stock to be issued pursuant to awards under the 2007 Plan may be authorized but unissued shares or treasury shares. The Company has historically issued new authorized but unissued shares upon the settlement of the various stock-based equity awards under the 2007 Plan. Vesting of the RSUs granted to directors is immediate, with shares to be issued pursuant to the vested RSUs upon termination of each director’s service as a director of the Company. Vesting of the one-time grant of RSUs granted to certain key executives of the Company in March 2008 in settlement of these key executives’ benefits under the Company’s supplemental employee retirement plan agreements was over a period of three years from the date of grant, with shares to be issued pursuant to the vested RSUs six months following the day after each executive officer’s termination of employment with the Company. Vesting of the RSUs granted to employees is over a period of three years from the date of grant, with shares to be issued pursuant to the vested RSUs at the time of vest. The director RSU holders and the executive officer March 2008 grant date RSU holders are entitled to receive dividend equivalents with respect to their RSUs, payable in cash as and when dividends are declared by the Company’s Board of Directors. F-22 Vesting of the PSUs granted to certain executive officers followed a performance measurement period of two full fiscal years ending as of the Company’s fiscal year end for the first full fiscal year following the date of grant (the “Measurement Year” for PSUs). No PSUs remained outstanding as of August 31, 2014. Vesting of the MSUs granted to certain high level employees follows a performance measurement period of three full fiscal years ending as of the Company’s fiscal year end for the second full fiscal year following the date of grant (the “Measurement Year” for MSUs). Shares will be issued pursuant to the vested MSUs following the conclusion of the applicable MSU Measurement Year after the Committee’s certification of achievement of the applicable performance measure for such MSUs and the vesting of the MSUs and the applicable percentage of the target number of MSU shares to be issued. Stock-based compensation expense is amortized on a straight-line basis over the requisite service period for the entire award. Stock-based compensation expense related to the Company’s stock-based equity awards totaled $2.3 million, $2.5 million and $2.8 million for the fiscal years ended August 31, 2014, 2013 and 2012, respectively. The Company recognized income tax benefits related to such stock-based compensation of $0.8 million for each of the fiscal years ended August 31, 2014 and 2013 and $0.9 million for the fiscal year ended August 31, 2012. As of August 31, 2014, the total unamortized compensation cost related to non-vested stock-based equity awards was $1.2 million and $1.1 million for RSUs and MSUs, respectively, which the Company expects to recognize over remaining weighted-average vesting periods of 1.7 years and 2 years for RSUs and MSUs, respectively. Stock Options No stock option awards were granted by the Company during the fiscal years ended August 31, 2014, 2013 and 2012. Fiscal year 2008 was the latest fiscal period in which the Company granted any stock options. The estimated fair value of each of the Company’s stock option awards granted in and prior to fiscal year 2008 was determined on the date of grant using the Black-Scholes option pricing model. A summary of the Company’s stock option award activity is as follows (in thousands, except share and per share amounts and contractual term in years data): Stock Options Outstanding at August 31, 2013 Granted Exercised Forfeited or expired Outstanding at August 31, 2014 Exercisable at August 31, 2014 Weighted-Average Remaining Weighted-Average Contractual Term Number of Shares Exercise Price Per Share Per Share (in years) Aggregate Intrinsic Value 168,591 - (38,526) - 130,065 130,065 $ $ $ $ $ $ 33.13 - 33.33 - 33.07 33.07 2.2 2.2 $ $ 4,634 4,634 The total intrinsic value of stock options exercised was $1.4 million, $3.2 million and $2.8 million for the fiscal years ended August 31, 2014, 2013 and 2012, respectively. The income tax benefits from stock options exercised totaled $0.4 million, $0.9 million and $0.7 million for the fiscal years ended August 31, 2014, 2013 and 2012, respectively. Restricted Stock Units The estimated fair value of each of the Company’s RSU awards was determined on the date of grant based on the closing market price of the Company’s common stock on the date of grant for those RSUs which are entitled to receive dividend equivalents with respect to the RSUs, or based on the closing market price of the Company’s common stock on the date of grant less the grant date present value of expected dividends during the vesting period for those RSUs which are not entitled to receive dividend equivalents with respect to the RSUs. F-23 A summary of the Company’s restricted stock unit activity is as follows (in thousands, except share and per share amounts): Restricted Stock Units Outstanding at August 31, 2013 Granted Converted to common shares Forfeited Outstanding at August 31, 2014 Vested at August 31, 2014 Number of Shares Weighted-Average Grant Date Fair Value Per Share Aggregate Intrinsic Value 151,728 25,019 (39,121) (1,696) 135,930 92,370 $ $ $ $ $ $ 38.25 66.82 39.24 41.94 43.18 39.26 $ $ 9,338 6,346 The weighted-average fair value of all RSUs granted during the fiscal years ended August 31, 2014, 2013 and 2012 was $66.82, $45.45 and $39.71, respectively. The total intrinsic value of all RSUs converted to common shares was $2.7 million, $2.4 million and $3.1 million for the fiscal years ended August 31, 2014, 2013 and 2012, respectively. The income tax benefits from RSUs converted to common shares totaled $0.9 million, $0.8 million and $0.9 million for the fiscal years ended August 31, 2014, 2013 and 2012, respectively. Performance Share Units The estimated fair value of each of the Company’s PSU awards was determined on the date of grant based on the closing market price of the Company’s common stock on the date of grant less the grant date present value of expected dividends during the vesting period for the PSUs, which were not entitled to receive dividend equivalents with respect to the PSUs. The PSUs vested with respect to the applicable percentage of the target number of PSU shares based on relative achievement of the applicable performance measures specified for such PSUs. A summary of the Company’s performance share unit activity is as follows (in thousands, except share and per share amounts): Performance Share Units Outstanding at August 31, 2013 Granted Converted to common shares Forfeited Outstanding at August 31, 2014 Number of Shares Weighted-Average Grant Date Fair Value Per Share 17,180 - (13,872) (3,308) - $ $ $ $ $ 39.61 - 39.61 39.61 - Aggregate Intrinsic Value $ - No PSUs were granted during the fiscal years ended August 31, 2014 and 2013. The weighted-average fair value of all PSUs granted during the fiscal year ended August 31, 2012 was $39.61. The total intrinsic value of all PSUs converted to common shares was $1.0 million for the fiscal year ended August 31, 2014 and $0.6 million for each of the fiscal years ended August 31, 2013 and 2012. The income tax benefits from PSUs converted to common shares totaled $0.3 million for the fiscal year ended August 31, 2014 and $0.2 million for each of the fiscal years ended August 31, 2013 and 2012. Market Share Units In October 2012, the Company began granting MSU awards to certain high level employees. The MSUs are market performance-based awards that shall vest with respect to the applicable percentage of the target number of MSU shares based on relative total stockholder return (“TSR”) for the Company as compared to the total return for the Russell 2000 Index (“Index”) over the performance measurement period. The ultimate number of MSUs that vest may range from 0% to 200% of the original target number of shares depending on the relative achievement of the TSR performance measure at the end of the measurement period. The probabilities of the actual number of MSUs expected to vest and resultant actual number of shares of common stock expected to be awarded are reflected in the F-24 grant date fair values of the various MSU awards; therefore, the compensation expense for the MSU awards will be recognized assuming the requisite service period is rendered and will not be adjusted based on the actual number of such MSU awards to ultimately vest. The estimated fair value of each of the Company’s MSU awards, which are not entitled to receive dividend equivalents with respect to the MSUs, was determined on the date of grant using the Monte Carlo simulation model, which utilizes multiple input variables to simulate a range of possible future stock prices for both the Company and the Index and estimates the probabilities of the potential payouts. The determination of the estimated grant date fair value of the MSUs is affected by the Company’s stock price and a number of assumptions including the expected volatilities of the Company’s stock and the Index, the Company’s risk-free interest rate and expected dividends. The following weighted-average assumptions for MSU grants were used in the Monte Carlo simulation model: Expected volatility Risk-free interest rate Expected dividend yield Fiscal Year Ended August 31, 2014 2013 25.2% 0.6% 0.0% 25.4% 0.4% 0.0% The expected volatility utilized was based on the historical volatilities of the Company’s common stock and the Index in order to model the stock price movements. The volatility used was calculated over the most recent 2.88- year and 2.85-year periods for MSUs granted during the fiscal years ended August 31, 2014 and 2013, respectively, which were the remaining terms of the performance measurement period at the dates of grant. The risk-free interest rates used were based on the implied yield available on a U.S. Treasury zero-coupon bill with a remaining term equivalent to the remaining performance measurement period. The MSU awards stipulate that, for purposes of computing the relative TSR for the Company as compared to the return for the Index, dividends paid with respect to both the Company’s stock and the Index are to be treated as being reinvested into the stock of each entity as of the ex-dividend date. Accordingly, an expected dividend yield of zero was used in the Monte Carlo simulation model, which is the mathematical equivalent to reinvesting dividends in the issuing entity over the performance measurement period. A summary of the Company’s market share unit activity is as follows (in thousands, except share and per share amounts): Market Share Units Outstanding at August 31, 2013 Granted Converted to common shares Forfeited Outstanding at August 31, 2014 Number of Shares Weighted-Average Grant Date Fair Value Per Share 24,231 16,890 - (1,252) 39,869 $ $ $ $ $ 37.20 69.58 - 34.16 51.01 Aggregate Intrinsic Value $ 2,739 The weighted-average fair value of all MSUs granted during the fiscal years ended August 31, 2014 and 2013 was $69.58 and $37.15, respectively. No MSUs were converted to common shares during the fiscal years ended August 31, 2014 and 2013. Note 14. Other Benefit Plans The Company has a WD-40 Company Profit Sharing/401(k) Plan and Trust (the “Profit Sharing/401(k) Plan”) whereby regular U.S. employees who have completed certain minimum service requirements can defer a portion of their income through contributions to a trust. The Profit Sharing/401(k) Plan provides for Company contributions to the trust, as approved by the Board of Directors, as follows: 1) matching contributions to each participant up to 50% of the first 6.6% of compensation contributed by the participant; 2) fixed non-elective contributions in the amount equal to 10% of eligible compensation; and 3) a discretionary non-elective contribution in an amount to be determined by the Board of Directors up to 5% of eligible compensation. The Company’s contributions are subject to overall employer contribution limits and may not exceed the amount deductible for income tax purposes. The Profit Sharing/401(k) Plan may be amended or discontinued at any time by the Company. The Company’s F-25 contribution expense for the Profit Sharing/401(k) Plan was $2.6 million, $2.7 million and $2.6 million for the fiscal years ended August 31, 2014, 2013 and 2012, respectively. The Company’s international subsidiaries have similar benefit plan arrangements, dependent upon the local applicable laws and regulations. The plans provide for Company contributions to an appropriate third-party plan, as approved by the subsidiary’s Board of Directors. The Company’s contribution expense related to the international plans for the fiscal years ended August 31, 2014, 2013 and 2012 was $1.4 million, $1.3 million and $1.1 million, respectively. Note 15. Business Segments and Foreign Operations The Company evaluates the performance of its segments and allocates resources to them based on sales and operating income. The Company is organized on the basis of geographical area into the following three segments: the Americas; EMEA; and Asia-Pacific. Segment data does not include inter-segment revenues. Unallocated corporate expenses are general corporate overhead expenses not directly attributable to the operating segments and are reported separate from the Company’s identified segments. The corporate overhead costs include expenses for the Company’s accounting and finance, information technology, human resources, research and development, quality control and executive management functions, as well as all direct costs associated with public company compliance matters including legal, audit and other professional services costs. Effective September 1, 2013, the Company transitioned the management of the India operations to the EMEA segment from the Asia-Pacific segment. As a result, the India financial results were included in the EMEA segment information below for fiscal years 2014 and 2013 for comparison purposes. Summary information about reportable segments is as follows (in thousands): Fiscal Year Ended August 31, 2014 Net sales Income from operations Depreciation and amortization expense Interest income Interest expense Fiscal Year Ended August 31, 2013 Net sales Income from operations Depreciation and amortization expense Interest income Interest expense Fiscal Year Ended August 31, 2012 Net sales Income from operations Depreciation and amortization expense Interest income Interest expense Americas EMEA Asia-Pacific Unallocated Corporate (1) Total $ 180,806 41,356 $ $ 151,368 34,003 $ $ $ $ 4,229 7 994 $ $ $ 1,363 417 - $ 180,544 39,383 $ $ 137,360 30,174 $ $ $ $ 4,189 1 684 $ $ $ 960 348 - $ 177,394 39,455 $ $ 116,936 23,524 $ $ $ $ 3,458 1 721 $ $ $ 1,224 122 - $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 50,823 10,364 - $ $ (21,986) $ 382,997 63,737 $ 244 172 8 $ $ $ 24 - - $ $ $ 5,860 596 1,002 50,644 8,995 - $ $ (21,915) $ 368,548 56,637 $ 200 157 9 $ $ $ 10 - - $ $ $ 5,359 506 693 48,454 8,458 - $ $ (19,708) $ 342,784 51,729 $ 177 138 8 $ $ $ 10 - - $ $ $ 4,869 261 729 (1) Unallocated corporate expenses are general corporate overhead expenses not directly attributable to any one of the operating segments. These expenses are reported separate from the Company’s identified segments and are included in Selling, General and Administrative expenses on the Company’s consolidated statements of operations. The Company’s Chief Operating Decision Maker does not review assets by segment as part of the financial information provided and therefore, no asset information is provided in the above table. F-26 Net sales by product group are as follows (in thousands): Multi-purpose maintenance products Homecare and cleaning products Total 2014 337,825 45,172 382,997 $ $ Fiscal Year Ended August 31, 2013 320,883 47,665 368,548 $ $ $ $ 2012 286,480 56,304 342,784 Net sales and long-lived assets by geographic area are as follows (in thousands): Net Sales by Geography: United States International Total Long-lived Assets by Geography (2) : United States International Total 2014 Fiscal Year Ended August 31, 2013 2012 $ $ $ $ 147,033 235,964 382,997 4,470 5,232 9,702 $ $ $ $ 145,233 223,315 368,548 4,223 4,312 8,535 $ $ $ $ 144,052 198,732 342,784 5,297 3,766 9,063 (2) Includes tangible assets and property and equipment, net, attributed to the geographic location in which such assets are located. Note 16. Subsequent Events On October 3, 2014, the Company’s Board of Directors declared a cash dividend of $0.34 per share payable on October 31, 2014 to shareholders of record on October 17, 2014. On October 14, 2014, the Company’s Board of Directors also approved a new share buy-back plan. Under the plan, which will not be effective until the Company’s existing plan is exhausted, the Company is authorized to acquire up to $75.0 million of its outstanding shares through August 31, 2016. The timing and amount of repurchases will be based on terms and conditions as may be acceptable to the Company’s Chief Executive Officer and Chief Financial Officer and in compliance with all laws and regulations applicable thereto. F-27 [THIS PAGE INTENTIONALLY LEFT BLANK] CORPORATE INFORMATION BOARD OF DIRECTORS INDEPENDENT ACCOUNTANTS STOCK INFORMATION Neal E. Schmale Chairman of the Board Former President and COO Sempra Energy Giles H. Bateman Audit Committee Chair Former CFO and Director Price Club Peter D. Bewley Governance Committee Chair Former Senior Vice President, General Counsel and Corporate Secretary The Clorox Company Richard A. Collato Compensation Committee Chair Former President and CEO YMCA of San Diego County Mario L. Crivello Investor Linda A. Lang Finance Committee Chair Former Chairman and CEO Jack in the Box, Inc. Garry O. Ridge President and Chief Executive Officer WD-40 Company Gregory A. Sandfort President and Chief Executive Officer Tractor Supply Company EXECUTIVE OFFICERS Garry O. Ridge President and Chief Executive Officer Richard T. Clampitt Vice President, General Counsel and Corporate Secretary Michael L. Freeman Division President, Americas Geoffrey J. Holdsworth Managing Director, Asia-Pacific William B. Noble Managing Director, EMEA Jay W. Rembolt Vice President, Finance, Treasurer and Chief Financial Officer Stanley A. Sewitch Vice President, Global Organization Development PricewaterhouseCoopers LLP San Diego, California TRANSFER AGENT Computershare P.O. Box 30170 College Station, Texas 77842-3170 Phone: 312-588-4180 https://www-us.computershare.com/ investor/contact ANNUAL MEETING December 9, 2014, 2:00 PM Joan B. Kroc Institute for Peace & Justice University of San Diego 5998 Alcala Park San Diego, California 92110 INVESTOR RELATIONS Wendy D. Kelley Director, Investor Relations and Corporate Communications Phone: 619-275-9304 investorrelations@wd40.com GLOBAL CORPORATE HEADQUARTERS WD-40 Company 1061 Cudahy Place San Diego, California 92110 Phone: 619-275-1400 OPERATING SUBSIDIARIES WD-40 Company Ltd. Milton Keynes, United Kingdom WD-40 Company (Canada) Ltd. Etobicoke, Canada WD-40 Company (Australia) Pty. Ltd. Epping, Australia Wu Di (Shanghai) Industrial Co., Ltd. Shanghai, China WD-40 Company (Malaysia) SDN. BHD. Selangor, Malaysia WD-40 BIKE Company LLC San Diego, United States The common stock of the Company is traded on the NASDAQ® Global Select Market under the symbol “WDFC.” The Company’s publicly filed reports, including financial statements and supporting exhibits, are available on the Securities and Exchange Commission’s EDGAR system, on the Company’s website at www.wd40company.com, or by writing to the Corporate Secretary, WD-40 Company, P.O. Box 80607, San Diego, California 92138-0607 LEGAL DISCLAIMERS This annual report contains “forward- looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements reflect management’s current expectations for the Company’s future performance but are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those anticipated in or implied by the forward-looking statements. The Company’s expectations, beliefs and projections are expressed in good faith but there can be no assurance that they will be achieved or accomplished. Our forward-looking statements are generally identified with words such as “believe,” “expect,” “intend,” “plan,” “could,” “may” and similar expressions. Actual events or results can differ materially from those expressed or implied. Please refer to the information set forth under the captions “Risk Factors” and “Forward-Looking Statements” in our Annual Report on Form 10-K for the year ended August 31, 2014 and other reports and documents that we file from time to time with the Securities and Exchange Commission for some of the factors that may cause actual results to differ materially from the forward-looking statements. Except as required by law, we undertake no obligation to update any forward-looking statement. Copyrighted © 2014 WD-40 Company. All rights reserved. WD-40®, 3-IN-ONE®, Solvol®, Lava®, X-14®, 2000 Flushes®, Carpet Fresh®, Spot Shot®, 1001® and no vac® are registered trademarks of WD-40 Company. Corporate information as of October 15, 2014 On the back cover: (from left to right) Elizabeth Espiritu, Donna Wainwright, Juli Munroe, Nancy Vukovich, Patrick Ingram, Lisa Wright, and Jo Ann Egypt; Customer Relations, Winners of the 2014 Dream Team Award, Americas i D e s g n e d a n d p r o d u c e d b y M e n t u s www.wd40company.com WD-40 Company 1061 Cudahy Place San Diego, CA 92110 619-275-1400 W e val u e succ e e ding as a t r i be w hil e exc elling as individuals . 

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