<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
20549
___________________________________
FORM 10-Q
QUARTERLY REPORTS UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended February 28, 1995
Commission File No. 0-6936-3
WD-40 COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
California 95-1797918
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1061 Cudahy Place, San Diego, California 92110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 619/275-1400
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 X No
-------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock as of April 12, 1995 7,702,445
---------
<PAGE>
PART I Financial Information
---------------------
Item 1. Financial Statements
WD-40 COMPANY
CONSOLIDATED CONDENSED BALANCE SHEET
------------------------------------
(UNAUDITED)
ASSETS
------
<TABLE>
<CAPTION>
February 28, 1995 August 31, 1994
----------------- ---------------
<S> <C> <C>
Current assets: $10,228,000 $13,515,000
Cash and cash equivalents 11,693,000 9,156,000
Short-term investments
Trade accounts receivable, less
allowances for cash discounts and
doubtful accounts of $556,000
and $443,000 19,466,000 14,875,000
Product held at contract packagers 4,019,000 3,767,000
Inventories 2,234,000 2,470,000
Prepaid expenses 1,857,000 1,703,000
----------- -----------
Total current assets 49,497,000 45,486,000
Property, plant and equipment, net 3,471,000 3,159,000
Long-term investments 4,544,000 4,711,000
Other assets 1,649,000 1,516,000
----------- -----------
$59,161,000 $54,872,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable & accrued liabilities $ 6,045,000 $ 4,298,000
Accrued payroll & related expenses 1,592,000 2,372,000
Income taxes payable 2,390,000 902,000
Current portion of long-term debt 615,000 615,000
----------- -----------
Total current liabilities 10,642,000 8,187,000
----------- -----------
Long-term debt 3,176,000 3,791,000
Deferred employee benefits 862,000 799,000
----------- -----------
4,038,000 4,590,000
----------- -----------
Shareholders' equity:
Common stock, no par value, 9,000,000
shares authorized - shares issued
and outstanding of 7,702,445 and
7,692,975 6,055,000 5,720,000
Paid-in capital 321,000 321,000
Retained earnings 38,322,000 36,433,000
Deferred stock compensation (29,000)
Cumulative translation adjustment (217,000) (350,000)
----------- -----------
Total shareholders' equity 44,481,000 42,095,000
----------- -----------
Commitments and contingencies (Note 2)
$59,161,000 $54,872,000
=========== ===========
</TABLE>
(See accompanying notes to unaudited consolidated financial statements)
2
<PAGE>
WD-40 COMPANY
CONSOLIDATED CONDENSED STATEMENT OF INCOME AND RETAINED EARNINGS
----------------------------------------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28 February 28 February 28 February 28
----------- ----------- ----------- -----------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $29,389,000 $27,555,000 $59,158,000 $56,437,000
Cost of produce sold 12,297,000 11,405,000 24,933,000 23,616,000
----------- ----------- ----------- -----------
Gross profit 17,092,000 16,150,000 34,225,000 32,821,000
----------- ----------- ----------- -----------
Operating expenses:
Selling, general &
administrative 6,044,000 5,493,000 12,012,000 11,347,000
Advertising & sales
promotions 2,357,000 2,743,000 5,080,000 5,088,000
Legal provisions 12,500,000 12,500,000
----------- ----------- ----------- -----------
8,401,000 20,736,000 17,092,000 28,935,000
----------- ----------- ----------- -----------
Income (loss) from
operations 8,691,000 (4,586,000) 17,133,000 3,886,000
----------- ----------- ----------- -----------
Other income (expense):
Interest income, net 213,000 (44,000) 629,000 201,000
Other, net 4,000 41,000 (35,000) 88,000
----------- ----------- ----------- -----------
Income before
income taxes 8,908,000 (4,589,000) 17,727,000 4,175,000
Provision (benefit)
for income taxes 3,300,000 (1,880,000) 6,600,000 1,670,000
----------- ----------- ----------- -----------
Net income (loss) $ 5,608,000 $(2,709,000) $11,127,000 $ 2,505,000
=========== =========== =========== ===========
Earnings (loss)
per share $ .73 $ (.35) $ 1.45 $ .33
=========== =========== =========== ===========
Average Number of
Shares Outstanding 7,701,793 7,683,876 7,697,780 7,677,904
=========== =========== =========== ===========
</TABLE>
(See accompanying notes to consolidated condensed financial statements)
3
<PAGE>
WD-40 COMPANY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOW
---------------------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
February 28 February 28
----------- -----------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss) $ 5,608,000 $(2,709,000) $11,127,000 $ 2,505,000
Adjustments to recon-
cile net income to
net cash provided by
operating activities:
Depreciation 166,000 139,000 335,000 265,000
Amortization of tax
credit investment 83,000 167,000 166,000 167,000
Loss on sale of
equipment 61,000 31,000 92,000 39,000
Changes in assets and
liabilities:
Accounts receivable (4,168,000) (5,560,000) (4,537,000) (5,773,000)
Income taxes receivable (3,978,000) (3,978,000)
Product held at
contract packagers 291,000 (252,000)
Inventories 430,000 902,000 297,000 1,114,000
Prepaid expenses (128,000) 132,000 (143,000) 521,000
Deferred income taxes (46,000) (46,000)
Accounts payable and
accrued expenses 2,328,000 1,079,000 894,000 (934,000)
Income taxes payable (1,222,000) (2,406,000) 1,382,000 (8,000)
Legal judgment accrual 12,500,000 12,500,000
Long-term deferred
employee benefits 29,000 22,000 64,000 55,000
----------- ----------- ----------- -----------
Net cash proviced by
operating activities 3,432,000 319,000 9,379,000 6,473,000
----------- ----------- ----------- -----------
Cash flows from investing
activities:
(Increase) decrease in
short-term investments 1,947,000 1,388,000 (2,529,000) 1,876,000
Decrease in restricted
note 101,000 202,000
Proceeds from sale of
equipment 121,000 75,000 188,000 84,000
Capital expenditures (404,000) (303,000) (922,000) (525,000)
----------- ----------- ----------- -----------
Net cash
(used in) provided by
investing activities 1,664,000 1,261,000 (3,263,000) 1,637,000
----------- ----------- ----------- -----------
</TABLE>
(Continued on next page)
4
<PAGE>
WD-40 COMPANY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
----------------------------------------------
(UNAUDITED)
Continued
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Cash flows from financing
activities:
Proceeds from issuance
of common stock 280,000 413,000 335,000 463,000
Repayment of long term
debt (615,000) (594,000) (615,000) (594,000)
Deferred stock
compensation 29,000
Dividends paid (4,621,000) (4,611,000) (9,237,000) (8,447,000)
----------- ----------- ----------- -----------
Net cash used in
financing activities (4,956,000) (4,792,000) (9,488,000) (8,578,000)
----------- ----------- ----------- -----------
Effect of exchange rate
changes on cash (74,000) 10,000 85,000 17,000
----------- ----------- ----------- -----------
(Decrease) increase in
cash 66,000 (3,202,000) (3,287,000) (451,000)
Cash at begining
of period 10,162,000 13,633,000 13,515,000 10,882,000
----------- ----------- ----------- -----------
Cash at end of
period $10,228,000 $10,431,000 $10,228,000 $10,431,000
=========== =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Long-term investment $ 2,000,000 $ 2,000,000
Issuance of debt in
connection with the
long-term investment $ 2,000,000 $ 2,000,000
</TABLE>
(See accompanying notes to consolidated condensed financial statements)
5
<PAGE>
WD-40 COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FEBRUARY 28, 1995
-----------------
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
PRINCIPLES OF CONSOLIDATION
The consolidated condensed financial statements include the accounts of the
Company and its wholly owned subsidiaries, WD-40 Company Ltd. (U.K.), WD-40
Products (Canada) Ltd. and WD-40 Company (Australia) Pty. Ltd. All significant
intercompany transactions and balances have been eliminated.
The financial statements included herein have been prepared by the Company,
without audit, according to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of management, the unaudited financial information for the
interim periods shown reflects all adjustments (which include only normal,
recurring adjustments) necessary for a fair presentation thereof. These
financial statements and notes thereto should be used in conjunction with the
financial statements and notes thereto included in the Company's 1994 Annual
Report to Shareholders, which statements and notes are incorporated by reference
in the Company's Annual Report on Form 10-K for the year ended August 31, 1994.
SHORT-TERM INVESTMENTS
Effective September 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" prospectively. Short-term investments consist of debt
securities of high credit quality financial institutions, government agencies
and corporate entities which are recorded at amortized cost and classified as
"held-to-maturity". Unrealized gains and losses are not significant at February
28, 1995.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share are based upon the weighted average number of shares
outstanding during the period increased by the effect of dilutive stock options,
when applicable, using the treasury stock method.
RECLASSIFICATIONS
Certain prior period balances have been reclassified to conform to current year
presentation.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
The Company is party to various claims, legal actions and complaints arising in
the ordinary course of business. In the opinion of management, all such matters
are adequately covered by insurance or will not have a material adverse effect
on the Company's financial position or results of operations.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
SECOND QUARTER FISCAL YEAR 1995 VERSUS SECOND QUARTER FISCAL YEAR 1994
----------------------------------------------------------------------
Consolidated net sales for the second quarter were $29.4 million, an
increase of 6.7% or $1,834,000 over last year. International sales
accounted for most of this gain. Currency exchange was also favorable
during the quarter with an increase of 6% in the U.K. and 8% in
Australia. U.S. domestic sales were up less than 1%. Canadian sales
however, were down $928,000, reflecting a soft retail economy as well as
a 4.6% decrease in currency exchange.
Cost of product sold increased slightly to 41.8% of sales versus 41.4% a
year ago. Management continues to anticipate inflationary pressures that
may cause an increase in product costs during the coming months.
Selling, general and administrative expenses increased 10.0% or $551,000
for the quarter equating to 20.6% of net sales versus 19.9% of net sales
in 1994. This increase was a result of a combination of higher costs for
professional services, some relocation costs and inflationary increases
of period expenses.
Advertising and sales promotion expenses decreased 14.1% to 8.0% of net
sales versus 10.0% in 1994. This was strictly due to timing of promotions
and will increase to historic levels of apporximately 9.5% by fiscal year
end.
Interest income, net increased $257,000 due to higher interest bearing
balances combined with increasing interest rates and the effects of the
affordable housing interest expenses.
Income (loss) before taxes changed from a loss in the second quarter of
1994 of $4.6 million to a profit of $8.9 million. This was primarily due
to a $12.5 million charge recorded in the second quarter of 1994
representing the legal judgment against the Company relating to the
commissioned sales corporation lawsuit.
Net income increased $8.3 million as a result of the fact that the
Company did not have a legal judgment charge in 1995 as it did in 1994
combined with a lower provision for income taxes due to, among other
things, the favorable effects of tax credits generated by the Company's
investment in an affordable housing fund.
Cash and cash equivalents increased $66,000 during the three months ended
February 28, 1995 versus a decrease of $3,202,000 for the same period of
last year. The decrease in 1994 was primarily due to the net cash used in
operating activities.
7
<PAGE>
WD-40 COMPANY (U.S.)
--------------------
1995 vs. 1994 Net sales increased $1.5 million or 7.0% over 1994,
-------------
primarily from exports to the Pacific Rim and Latin America where net
sales gains were 25 -30%. Domestic net sales were up 0.6%. Cost of
product sold increased over 10% and were 42.7% of sales versus 41.3% in
1994. This increase was due to both inflationary costs of product
components and product size mix.
Selling, general and administrative expenses increased to 19.3% of net
sales versus 18.9% of net sales in fiscal year 1994, due to elements
discussed above. Advertising and sales promotion expenses decreased to
8.1% of net sales versus 9.7% of net sales in 1994 due to timing of
promotion activities. Overall, the above factors combined with the legal
settlement accrued in fiscal year 1994 yielded an increase in operating
income of $12.9 million. Net income increased by $8.1 million primarily
due to the after tax effect of the legal judgment accrual of $12.5
million recorded in second quarter of fiscal year 1994. The tax provision
was also reduced due to the tax credits from the Company's investment in
affordable housing.
WD-40 COMPANY LTD. (U.K.)
-------------------------
1995 vs. 1994 Net sales increased 26.5% or 1.3 million over 1994, due
-------------
to a 19.8% increase in net sales volume combined with a favorable
exchange rate on consolidation. Unit sales were up over 60% in Prime
Europe and 2% in the U.K., however Middle East was down 1% due to their
weak economy.
Cost of product sold dipped slightly to 37.5% of net sales versus 38.1%
of net sales in 1994. This was the result of a shift in sales to the
larger sizes which carry a higher gross margin.
Selling, general and administrative expenses also decreased to 23.6% of
net sales versus 25.3% of net sales last year as a result of selling,
general and administrative expense remaining relatively flat with
increased net sales.
Advertising and promotional expenses were down both in dollars and as
percentages of net sales due to timing. This will increase to historic
levels of approximately 10.0% by fiscal year end. Operating income
increased by $631,000 or 51% because of the above factors.
8
<PAGE>
OTHER FOREIGN SUBSIDIARIES
--------------------------
1995 vs. 1994 Net sales decreased $884,000 or 41.3% due entirely to lower
-------------
net sales volume in Canada combined with a decrease in the currency
translation. This reflects an ongoing soft retail economy in Canada.
Management expects this "soft" condition to persist throughout the year,
hence Canadian net sales are expected to be down for the entire fiscal
year.
Australia net sales, on the other hand, are ahead 9.2%, as a result of an
increase both in units sold and currency exchange.
Cost of product sold was down slightly to 48.1% versus 49.9% of net sales
in 1994 due to a shift in packaging size being sold.
Net income decreased $114,000 or 39.6% due entirely to the net sales
shortfall in Canada.
SIX MONTHS FISCAL YEAR 1995 VERSUS SIX MONTHS FISCAL YEAR 1994
--------------------------------------------------------------
Consolidated net sales were $59.2 million, an increase of $2,721,000 or
4.8%. All of this gain came from sales outside North America. Canada and
the Middle East are the only two major regions posting a sales decrease.
Cost of product sold as a percentage of net sales was 42.1% versus 41.8%
in fiscal year 1994. Increased cost of components and shifts in product
size mix in the U.S. contributed to this increase.
Selling, general and administrative expenses were up slightly at 20.3% of
net sales versus 20.1% of net sales last year. Most of this increase
occurred in the U.S. as described with regard to the quarterly
operations.
Advertising and sales promotion expenses were down as a percentage of net
sales coming in at 8.6% versus 9.0% in 1994. This is strictly a matter of
timing and will return to historic levels of appoximately 9.5% by fiscal
year end. Income before taxes was up $13.6 million due to the recording
of the $12.5 million legal judgment in 1994. The provision for income
taxes dropped to 37.2% of income before income taxes versus 40.0% in 1994
due primarily to the effects of the affordable housing tax credits. These
facts combined for net income of $11.1 million or 18.8% of net sales and
$1.45 earnings per share.
Cash and cash equivalents decreased by $3,287,000 during the six months
ended February 28, 1995 versus a decrease of $451,000 for the same period
of last year. The decrease was mainly due to the Company increasing its
investment in short-term investments.
9
<PAGE>
WD-40 COMPANY (U.S.)
--------------------
Net sales increased $2,162,000 or 5.3%, mostly from export sales to the
Pacific Rim and Latin America. Domestic net sales were up 1% and the
exports were up an average of almost 40%.
Cost of product sold as a percent of net sales increased to 42.8% versus
42.0% in 1994. Selling, general, and administrative expenses as a percent
of net sales decreased to 19.8% from 20.0% in 1994 due to elements
discussed with regard to the quarterly operations.
Advertising and promotion expenses were down 0.5%. Consequently,
operating income as a percentage of net sales was even with fiscal year
1994 at 28.8% versus 28.9%. Net income was up 8.3% due to the accrual of
the $12.5 million legal judgment charge in the second quarter of 1994.
WD-40 COMPANY LTD. (U.K.)
-------------------------
Net sales increased $2,013,000 or 18.5%, as a result of a 11.4% increase
in units and a favorable currency exchange movement of 6.4%. These gains
were across the board except the Middle East with Prime Europe posting
gains of almost 40%.
Cost of product sold remained stable at 38.0% of net sales versus 38.4%
last year.
Selling, general and administrative expenses as well as advertising and
promotion expenses also were equal year to year, hence operating income
was 31.5% this year versus 30.4% in 1994.
Net income increased $475,000 or 19.3% over the previous year.
OTHER FOREIGN SUBSIDIARIES
--------------------------
Net sales decreased $1,454,000 or 38.6% due entirely to the soft economy
in Canada.
Cost of product sold increased slightly to 49.0% of net sales versus
48.0% in 1994.
Selling, general and administrative expenses and advertising and
promotion expenses were comparable year to year, hence the income before
taxes was down 23.1% or $333,000.
It is anticipated that Canadian net sales will be down for the fiscal
year due to the slow economy.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The current ratio has decreased from 4.7 to one on February 28, 1995
compared to 5.6 to one as of August 31, 1994, mainly due to increases in
current liabilities due to timing of payments to suppliers and the prior
year legal settlement which reduced income taxes payable at August 31,
1994.
The Company's primary source of liquidity is funds provided by
operations. The Company's cash flows from operations are expected to
provide sufficient funds to meet both short and long-term operating
needs, as well as future dividends. Capital expenditures for the
remainder of fiscal year 1995 is expected to total $850,000 principally
for replacement of aged vehicles and updating of computer equipment.
11
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter
ended February 28, 1995.
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
WD-40 COMPANY
Registrant
Date: April 12, 1995 _______________________________________
Robert D. Gal,
Treasurer
(Principal Financial Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> FEB-28-1995
<CASH> 10,228,000
<SECURITIES> 11,693,000
<RECEIVABLES> 24,041,000
<ALLOWANCES> 556,000
<INVENTORY> 2,234,000
<CURRENT-ASSETS> 49,497,000
<PP&E> 6,308,000
<DEPRECIATION> 2,837,000
<TOTAL-ASSETS> 59,161,000
<CURRENT-LIABILITIES> 10,642,000
<BONDS> 4,038,000
<COMMON> 6,055,000
0
0
<OTHER-SE> 38,426,000
<TOTAL-LIABILITY-AND-EQUITY> 59,161,000
<SALES> 29,389,000
<TOTAL-REVENUES> 29,681,000
<CGS> 12,297,000
<TOTAL-COSTS> 8,401,000
<OTHER-EXPENSES> (4,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79,000
<INCOME-PRETAX> 89,080,000
<INCOME-TAX> 3,300,000
<INCOME-CONTINUING> 5,608,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,608,000
<EPS-PRIMARY> .73
<EPS-DILUTED> .73
</TABLE>
