<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
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FORM 10-Q
QUARTERLY REPORTS UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended November 30, 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 January 10, 1996 7,706,655
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PART I Financial Information
---------------------
Item 1. Financial Statements
WD-40 COMPANY
CONSOLIDATED CONDENSED BALANCE SHEET
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ASSETS
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<TABLE>
<CAPTION>
(Unaudited)
November 30, 1995 August 31, 1995
----------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $20,259,000 $11,090,000
Short-term investments 4,420,000 13,227,000
Trade accounts receivable, less
allowance for cash discounts
and doubtful accounts of
$533,000 and $476,000 15,591,000 17,088,000
Product held at contract packagers 1,868,000 2,307,000
Inventories 2,347,000 2,570,000
Other current assets 4,428,000 3,298,000
----------- -----------
Total current assets 48,913,000 49,580,000
Property, plant and equipment, net 3,544,000 3,467,000
Long-term investments 4,294,000 4,378,000
Other assets 2,247,000 2,154,000
----------- -----------
$58,998,000 $59,579,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable & accrued liabilities $ 3,195,000 $ 4,749,000
Accrued payroll & related expenses 1,410,000 2,619,000
Income taxes payable 4,301,000 3,053,000
Current portion of long-term debt 659,000 659,000
----------- -----------
Total current liabilities 9,565,000 11,080,000
----------- -----------
Long-term debt 3,132,000 3,132,000
Deferred income tax 193,000
Deferred employee benefits 865,000 862,000
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4,190,000 3,994,000
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Shareholders' equity:
Common stock, no par value, 9,000,000
shares authorized - shares issued
and outstanding of 7,706,655 and
7,703,155 6,191,000 6,083,000
Paid-in capital 321,000 321,000
Retained earnings 38,739,000 38,251,000
Cumulative translation adjustment (8,000) (150,000)
----------- -----------
Total shareholders' equity 45,243,000 44,505,000
----------- -----------
Commitments and contingencies (Note 2)
$58,998,000 $59,579,000
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</TABLE>
(See accompanying notes to consolidated condensed financial statements)
2
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WD-40 COMPANY
CONSOLIDATED CONDENSED STATEMENT OF INCOME
------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
November 30
-----------
1995 1994
---- ----
<S> <C> <C>
Net sales $27,612,000 $29,769,000
Cost of product sold 11,686,000 12,636,000
----------- -----------
Gross profit 15,926,000 17,133,000
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Operating expenses:
Selling, general & administrative 5,772,000 5,968,000
Advertising & sales promotion 2,038,000 2,723,000
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Income from operations 8,116,000 8,442,000
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Other income (expense):
Interest income, net 238,000 416,000
Other, net 42,000 (39,000)
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Income before income taxes 8,396,000 8,819,000
Provision for income taxes 3,130,000 3,300,000
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Net income $ 5,266,000 $ 5,519,000
=========== ===========
Earnings per share $ .68 $ .72
=========== ===========
Average number of shares
outstanding 7,704,477 7,693,767
=========== ===========
</TABLE>
(See accompanying notes to consolidated condensed financial statements)
3
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WD-40 COMPANY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
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(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
November 30
-------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,266,000 $ 5,519,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 165,000 169,000
Amortization of tax credit investment 83,000 83,000
Loss on sale of equipment 16,000 31,000
Changes in assets and liabilities:
Trade accounts receivable 1,427,000 (369,000)
Product held at contract packagers 440,000 (543,000)
Inventories 205,000 (133,000)
Other assets 747,000 (15,000)
Accounts payable and accrued expenses (2,746,000) (1,434,000)
Income taxes payable 1,379,000 2,604,000
Long-term deferred employee benefits 4,000 35,000
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Net cash provided by operating
activities 6,986,000 5,947,000
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Cash flows from investing activities:
Decrease (increase) in short-term
investments 8,807,000 (4,476,000)
Increase in deposits (1,600,000)
Proceeds from sale of equipment 26,000 67,000
Capital expenditures (294,000) (518,000)
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Net cash provided by (used in)
investing activities 6,939,000 (4,927,000)
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Cash flows from financing activities:
Proceeds from issuance of common stock 108,000 55,000
Deferred stock compensation 29,000
Dividends paid (4,776,000) (4,616,000)
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Net cash used in financing
activities (4,668,000) (4,532,000)
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Effect of exchange rate changes on cash (88,000) 159,000
----------- -----------
Increase (decrease) in cash 9,169,000 (3,353,000)
Cash at beginning of period 11,090,000 13,515,000
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Cash at end of period $20,259,000 $10,162,000
=========== ===========
</TABLE>
(See accompanying notes to consolidated condensed financial statements)
4
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WD-40 COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1995
-----------------
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
Principles of Consolidation
The consolidated 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 1995 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, 1995.
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 November
30, 1995.
Earnings per Share
Earnings 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.
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.
The Company signed a definitive agreement in November of 1995 for the
acquisition of the 3-IN-ONE oil brand from affiliates of Reckitt & Colman plc.
Upon signing the agreement, the Company made a $1,600,000 deposit which is
included in the purchase price of approximately $15,000,000. The acquisition is
expected to be completed in early December of 1995.
5
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
- ---------------------
First Quarter of Fiscal Year 1996 compared to First Quarter of Fiscal Year 1995
- -------------------------------------------------------------------------------
Consolidated net sales for the quarter were $27,612,000, a decrease of 7.2% or
$2,157,000 from a year ago. The soft retail economy and the timing of some
promotional activity in North America accounted for the decline in sales. The
currency exchange was neutral for the quarter. Management anticipates sales
improving in the subsequent quarters.
Cost of product sold remained relatively flat at 42.3% of net sales this quarter
versus 42.4% a year ago. Management believes that costs have stabilized and that
there will be minimal inflationary impact for the remainder of fiscal year 1996.
Selling, general and administrative expenses decreased $196,000 or 3.3% in the
first quarter of fiscal year 1996 as compared to the same period in 1995. Such
expenses as a percentage of net sales increased this quarter to 20.9% versus
20.0% last year.
Advertising and sales promotion expenses decreased $685,000 or 25.2% due
entirely to the timing of the overall promotional activities. Management
believes that these expenses will return to the historical level of 9-10% of net
sales by fiscal year end.
Net income decreased $254,000 or 4.6% due primarily to lower net sales. Net
income as a percentage of net sales this quarter was 19.1% versus 18.5% in
fiscal year 1995.
WD-40 Company (U.S.)
- --------------------
Net sales decreased $1,900,000 or 9.3%. Export sales to Latin America and the
Pacific Rim increased approximately 40%; however, this was offset by very soft
domestic sales. The lagging retail economy and timing of promotional activities
were the cause of the lower net sales.
Cost of product sold was flat at 43.1% of net sales this quarter as compared to
43.0% in fiscal year 1995.
Selling, general and administrative expenses decreased $103,000 or 2.5% but
increased as a percentage of net sales to 21.9% versus 20.4% last year.
Advertising and sales promotion expenses decreased $326,000 or 1.7% and
decreased as a percentage of net sales to 8.3% versus 9.1% in 1995.
As a result, net income was down by $574,000 or 16.6%.
6
<PAGE>
WD-40 Company Ltd. (U.K.)
- -------------------------
Net sales for the quarter decreased $59,000 or 0.9% due to reduced net sales in
the U.K.; however, this was partially offset by increased sales to Europe and
the Middle East.
Cost of product sold increased slightly to 38.9% of net sales versus 38.4% in
fiscal year 1995.
As a percentage of net sales, selling, general and administrative expenses were
20.0% versus 21.3% last year and advertising and sales promotion expenses were
also down to 4.6% versus 8.4% in 1995. This decrease is due solely to the timing
of promotional activities.
As a result of the factors described above, net income increased $452,000 or
28.8%.
Other Foreign Subsidiaries
- --------------------------
Net sales decreased $186,000 or 7.8% due to the retail economy in Canada.
Cost of product sold as a percentage of net sales was 46.6% versus 49.6% last
year reflecting a slight improvement in Canada.
Net income was down 24.6% or $132,000 due primarily to the decrease in net
sales.
Price increases
- ---------------
The Company did not initiate any price increases during this quarter.
Cash and Cash Equivalents
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Cash and cash equivalents increased $9,169,000 during the three months ended
November 30, 1995 versus a decrease of $3,353,000 for the same period of last
year.
Interest and Other Income, Net
- ------------------------------
Net interest income decreased by $178,000 due to lower interest rates and
reduced short-term investments. Other income, net increased by $81,000 primarily
due to the increase of exchange gains in the U.K.
7
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Liquidity and Capital Resources
- -------------------------------
The current ratio of 5.1 to one on November 30, 1995 was greater than the
current ratio of 4.5 to one on August 31, 1995 due mainly to decreases of
accrued payroll and related liabilities.
The Company's primary source of liquidity are 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 fiscal year 1996 are expected to total approximately
$1,525,000 principally for replacement of aged vehicles and updating of computer
equipment.
On December 8, 1995, the Company acquired all of the worldwide 3-IN-ONE brand
trademarks and other intangible assets relating to the sale of 3-IN-ONE brand
lubricating products from affiliates of Reckitt & Colman plc. The Company paid
cash in the amount of $15,000,000 for the trademarks and other intangible
assets. None of the funds required for the acquisition were borrowed.
8
<PAGE>
PART II Other Information
Item 5. Subsequent Event
On December 8, 1995 the acquisition of the 3-IN-ONE oil brand from affiliates of
Reckitt & Colman plc was completed. 3-IN-ONE is sold in more than 15 countries
throughout the world with sales of approximately $13 million. Management feels
this acquisition will provide synergetic growth opportunities for both the
3-IN-ONE and WD-40 brands.
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 November 30,
1995; however, a Form 8-K was filed on December 22, 1995 regarding the
3-IN-ONE acquisition.
SIGNATURES
- ----------
Pursuant to the requirements of the Securities 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: January 11, 1996 /s/ ROBERT D. GAL
-----------------------------
Robert D. Gal,
Treasurer
(Principal Financial Officer)
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> NOV-30-1995
<CASH> 20,259,000
<SECURITIES> 4,420,000
<RECEIVABLES> 17,992,000
<ALLOWANCES> 533,000
<INVENTORY> 2,347,000
<CURRENT-ASSETS> 48,913,000
<PP&E> 6,687,000
<DEPRECIATION> 3,143,000
<TOTAL-ASSETS> 58,998,000
<CURRENT-LIABILITIES> 9,565,000
<BONDS> 3,132,000
0
0
<COMMON> 6,191,000
<OTHER-SE> 39,052,000
<TOTAL-LIABILITY-AND-EQUITY> 58,998,000
<SALES> 27,612,000
<TOTAL-REVENUES> 27,943,000
<CGS> 11,686,000
<TOTAL-COSTS> 7,810,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93,000
<INCOME-PRETAX> 8,396,000
<INCOME-TAX> 3,130,000
<INCOME-CONTINUING> 5,266,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,266,000
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0.68
</TABLE>
