<PAGE>
FORM 10-K
----------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------------------
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File No.
August 31, 1996 0-6936-3
--------------- --------
WD-40 COMPANY
-------------
(Exact Name of Registrant as specified in Charter)
California 95-1797918
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1061 Cudahy Place, San Diego, California 92110
- ---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 275-1400
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Class: None
----
Securities registered pursuant to Section 12(g) of the Act:
Title of Class: Common Stock, no par value
--------------------------
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 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: [ X ]
---
The aggregate market value (closing price) of the voting stock held by non-
affiliates of the Registrant as of October 10, 1996 was $319,060,000.
As of October 10, 1996 the Registrant had 7,725,653 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
- -----------------------------------
The Proxy Statement for the annual meeting of shareholders on November 26, 1996
is incorporated by reference into PART III, Items 10-13. The Annual Report to
Shareholders for the fiscal year ended August 31, 1996 is incorporated by
reference into PART I, ITEM 1, PART II, ITEMS 5-8, and PART IV.
-1-
<PAGE>
PART I
------
ITEM 1 - Business
- ------ --------
(a) General Development of Business.
For more than four decades, WD-40 Company sold only one petroleum-based
product, known as "WD-40". WD-40 is a multi-purpose product which acts as a
lubricant, rust preventative, penetrant and moisture displacer. In December
1995 the Company acquired the 3-IN-ONE Oil brand from affiliates of Reckitt &
Colman, P.L.C. 3-IN-ONE Oil is a lower cost general purpose lubricant. During
the fiscal year ended August 31, 1996, the Company developed a third product,
T.A.L 5, to be introduced to the market in fiscal year 1997. T.A.L 5 is an
extra-strength synthetic lubricant for heavy-duty applications.
The acquisition of the 3-IN-ONE Oil brand was completed on December 8,
1995. WD-40 company acquired all of the worldwide trademarks and other
intangible assets relating to the sale of 3-IN-ONE Oil brand lubricating oil
products from Reckitt & Colman, Inc., a Delaware corporation, Reckitt & Colman
(Overseas) Limited, an English corporation, and other affiliates of Reckitt &
Colman P.L.C., an English corporation. The acquisition of assets included
inventory and the rights to manufacture, sell and distribute this product line.
No other physical property, plant or equipment was acquired. The Company paid
cash in the amount of $15,047,000 for the trademarks and other intangible assets
and approximately $400,000 for inventory.
The Company's objective is to dominate the entire category of lubrication
products by combining the smaller niche markets targeted by 3-IN-ONE Oil and
T.A.L 5 with the broad-based market held by the WD-40 brand. The three brands
complement each other, providing the Company with a complete line of lubricants
that is intended to obviate the need for distributors to stock, and consumers to
buy, other brands.
The acquisition of the 3-IN-ONE Oil brand and the introduction of T.A.L 5
will allow the Company to pursue a comprehensive and targeted marketing
strategy. The acquisition of the 3-IN-ONE Oil brand provided the Company with
an existing network of distribution in 17 countries, including several markets
in which the WD-40 brand had not been sold. The Company will be using this
distribution network to introduce the WD-40 brand to these markets and to add
distribution channels to markets that have been previously established.
At the same time, the 3-IN-ONE Oil brand will be introduced to the
Company's existing distribution system on a targeted basis. The 3-IN-ONE Oil
brand will offer the greatest potential in developing economies worldwide where
it can be sold in small, affordable units that may provide people in these
markets with an introduction to lubricants.
In maturing, industrial markets, including North America, the U.K. and
Australia, the Company will focus on growth in sales of the WD-40 brand and the
introduction of the T.A.L 5 brand to the distribution system. T.A.L 5 will be
offered to industrial users and other consumers in need of an extra-strength
lubricant.
-2-
<PAGE>
(b) Financial Information About Industry Segments. Not applicable.
(c) Narrative Description of Business.
WD-40 Company manufactures and markets three multi-purpose lubricant
products known as "WD-40", "3-IN-ONE Oil", and "T.A.L 5". WD-40 is sold
primarily in aerosol cans through chain stores, hardware and sporting goods
stores, automotive parts outlets as well as through industrial distributors and
suppliers. It has a wide variety of consumer uses (including household use, the
care and protection of sporting goods, and marine and automotive equipment) as
well as numerous industrial applications.
3-IN-ONE Oil is a drip oil lubricant, sold primarily through the same
distribution channels as the WD-40 brand. It is a low-cost, entry-level
lubricant. The unique drip tip allows precise application for small mechanisms
and assemblies, tool maintenance and threads on screws and bolts. 3-IN-ONE Oil
is a 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. The product's high quality and
the established distribution network that was acquired with the brand trademarks
have enabled the product to gain international acceptance.
T.A.L 5 was developed during the Company's last fiscal year as an extra-
strength synthetic spray lubricant for heavy-duty applications. Marketing for
T.A.L 5, commencing in fiscal year 1997, will be targeted at specialized users
in the trades and general industry, especially manufacturing. T.A.L 5, which
stands for "Triple Additive Lubricant / 5 functions", resists breakdown due to
corrosion, friction, temperature, load and motion. It provides long-lasting
film strength and durability which can ultimately help prolong the life of
equipment. There are numerous competing heavy-duty spray lubricant products,
none of which are seen as being dominant. T.A.L 5 is designed be competitive as
a high quality multi-application product that can be funneled into the Company's
existing distribution network.
WD-40 Company is subject to competition from many similar products which
perform some or all of the functions of WD-40, 3-IN-ONE Oil and T.A.L 5. The
Company is aware of at least 250 competing products, some of which sell for
lower prices. Competition in international markets varies by country. The
Company has no way of estimating the total size of the market or the proportion
of the market held by the Company.
With the ongoing consolidation in the marketplace, many of the major
retailers are aggressively pursuing additional trade allowances. These demands
could produce a long-term negative impact on both sales and profits.
Alternate sources of constituent chemicals are readily available and there
are no current or anticipated shortages of any raw materials essential to the
business. There are no environmental laws or regulations currently affecting
capital expenditures. Recent focus on environmental regulations relating to
VOC's (Volatile Organic Compounds) have resulted in a change in the formulation
of the WD-40 brand product resulting in increases in product cost and product
pricing. Such increases could have an adverse affect on the Company's
competitive position.
-3-
<PAGE>
The Company has no patents, but relies upon its established trademarks,
brand names and marketing efforts, including advertising and sales promotion, to
compete effectively. The WD-40, 3-IN-ONE Oil and T.A.L 5 trademarks are
registered in the United States and in various foreign countries.
Ninety-eight (98) persons are employed by the United States parent
corporation, nine (9) by the Company's Canadian subsidiary, thirty-six (36) by
the United Kingdom subsidiary and six (6) by the Australian subsidiary.
The Company operates in one business segment - the manufacture and sale of
multi-purpose lubricants.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales.
The information required by this item is incorporated by reference from
Pages 11 and 12 of the Annual Report to Shareholders for the fiscal year ended
August 31, 1996 under Note 4 - Business Segment and Foreign Operations. There
are no material risks attendant to the Registrant's foreign operations.
ITEM 2 - Properties
- ------ ----------
The Company owns and occupies an office and plant facility at 1061 Cudahy
Place, San Diego, California 92110. The building consists of approximately
11,000 square feet of office space and 4,000 square feet of plant and storage
area.
The Company owns and occupies an office and plant facility at Kiln Farm,
Milton Keynes, MKll 3LF, England. The building consists of approximately 7,000
square feet of office space and 4,400 square feet of plant and storage area.
The Company leases approximately 1,300 square feet of office space for
sales offices in each of the following cities: Atlanta, Georgia; Northbrook,
Illinois; Philadelphia, Pennsylvania; and Thousand Oaks, California.
The Company leases approximately 1,900 square feet of office space in
Etobicoke, Ontario, Canada.
The Company leases approximately 2,000 square feet of office space in
Epping, New South Wales, Australia.
The Company leases approximately 1,800 square feet of office space in Kuala
Lumpur, Malaysia.
The Company believes that these properties should be sufficient to meet the
Company's needs for office and plant facilities for several years.
-4-
<PAGE>
ITEM 3 - Legal Proceedings
- ------ -----------------
Not Applicable.
ITEM 4 - Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
Not applicable.
Executive Officers of the Registrant
- ------------------------------------
The following table sets forth the names and ages of, and the positions and
offices held by, all executive officers within the Company:
Name Age Position
--- --------
Gerald C. Schleif 61 President and Chief Executive Officer; Mr. Schleif
joined the Company in 1969 and has held the elected
offices of Vice President-Marketing, Executive Vice
President, Chief Operating Officer and Treasurer. He
has been President since 1990 and Chief Executive
Officer since September 1992. Mr. Schleif has been a
Director since 1989.
Paul A. Thompsen 60 Vice President-Sales; Mr. Thompsen joined the
Company in 1982 as National Sales Manager and was
elected Vice President-Sales in 1987.
Garry O. Ridge 40 Vice President-International; Mr. Ridge joined the
Company's Australian subsidiary, WD-40 Company
(Australia) Pty. Limited, in 1987 as Managing Director
and was elected Vice President-International in June
1995.
Robert D. Gal 62 Former Treasurer and Assistant Secretary; Mr. Gal
joined the Company in 1986 as Controller and Assistant
Secretary. He was named Treasurer in 1993. Mr. Gal
retired as of October 9, 1996.
Peter E. Williams 53 Treasurer; Mr. Williams joined the Company in August,
1996 as Controller and was named Treasurer on
September 25, 1996.
All officers hold office at the pleasure of the Board of Directors.
-5-
<PAGE>
PART II
-------
ITEM 5 - Market For Registrant's Common Equity and Related Stockholder
- ------ -------------------------------------------------------------
Matters
-------
The Company's common stock is traded in the over-the-counter market (Nasdaq
National Market System). As of August 31, 1996, the approximate number of
holders of record of the Company's common stock was 2,280. Other information
required in this item is incorporated by reference from Page 16 of the Annual
Report to Shareholders for the year ended August 31, 1996 under the heading,
"Stock Information".
ITEM 6 - Selected Financial Data
- ------ -----------------------
See ITEM 7.
ITEM 7 - Management's Discussion and Analysis of Financial Condition and
- ------ ---------------------------------------------------------------
Results of Operations
---------------------
The information required in ITEMS 6 and 7 is incorporated by reference from
Pages 19 and 20 and Pages 17 and 18, respectively, of the Annual Report to
Shareholders for the fiscal year ended August 31, 1996.
ITEM 8 - Financial Statements and Supplementary Data
- ------ -------------------------------------------
See the Index to Consolidated Financial Statements and Financial Statement
Schedule on Page 7 of this report (ITEM 14(a)). Other information required by
this item is incorporated by reference from Page 16 of the Annual Report to
Shareholders for the fiscal year ended August 31, 1996.
ITEM 9 - Changes in and Disagreements With Accountants on Accounting and
- ------ ---------------------------------------------------------------
Financial Disclosure
--------------------
Not applicable.
PART III
--------
ITEM 10 - Directors and Executive Officers of the Registrant
- ------- --------------------------------------------------
See ITEM 13.
ITEM 11 - Executive Compensation
- ------- ----------------------
See ITEM 13.
ITEM 12 - Security Ownership of Certain Beneficial Owners and Management
- ------- --------------------------------------------------------------
See ITEM 13.
-6-
<PAGE>
ITEM 13 - Certain Relationships and Related Transactions
- ------- ----------------------------------------------
The information required in ITEMS 10, 11, 12 and 13 is incorporated by
reference from Pages 3, 4 and 5, Pages 5, 6, 7, 8 and 9, Pages 2 and 3, and Page
5, respectively, of the Proxy Statement for the annual meeting of shareholders,
November 26, 1996.
PART IV
-------
ITEM 14 - Exhibits, Financial Statement Schedule, and Reports on
- ------- ------------------------------------------------------
Form 8-K
--------
(a) Documents filed as part of this report
WD-40 COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements of WD-40 Company and its
subsidiaries, included in PART II, ITEM 8, are incorporated by reference from
Pages 6-16 of the Annual Report to Shareholders for the fiscal year ended August
31, 1996:
1. Financial Statements
Report of Independent Accountants
Consolidated Statement of Income for the three years
ended August 31, 1996
Consolidated Balance Sheet at August 31, 1996 and 1995
Consolidated Statement of Shareholders' Equity for the
three years ended August 31, 1996
Consolidated Statement of Cash Flows for the three
years ended August 31, 1996
Notes to Consolidated Financial Statements
The following financial statement schedule of WD-40 Company for the three
years ended August 31, 1996 is included in PART II, ITEM 8:
Page
----
2. Financial Statement Schedule
Report of Independent Accountants on
Financial Statement Schedule 11
II - Consolidated Valuation and Qualifying Accounts and Reserves 12
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
-7-
<PAGE>
3. Exhibits
Exhibit No. Description
- ---------- -----------
Articles of Incorporation and By-Laws.
Articles of Incorporation.
3(a) Restated Articles of Incorporation are incorporated by reference
from the Form 10-K Annual Report dated November 9, 1995, Exhibit
3(a) thereto.
3(b) Restated By-Laws are incorporated by reference from the Form 10-K
Annual Report dated November 9, 1995, Exhibit 3(b) thereto.
Material contracts.
Executive Compensation Plans and Arrangements (Exhibits 10(a)
through 10(d) are management contracts and compensatory plans or
arrangements required to be filed as exhibits pursuant to ITEM
14(c)).
10(a) The Restated WD-40 Company Incentive Stock Option Plan is
incorporated by reference from the Form 10-K Annual Report dated
November 9, 1995, Exhibit 10(a) thereto.
10(b) The WD-40 Company Supplemental Death Benefit Plan is incorporated
by reference from the Form 10-K Annual Report dated November 9,
1995, Exhibit 10(b) thereto.
10(c) The WD-40 Company Supplemental Retirement Benefit Plan is
incorporated by reference from the Form 10-K Annual Report dated
November 9, 1995, Exhibit 10(c) thereto.
10(d) The Restated WD-40 Company 1990 Incentive Stock Option Plan is
incorporated by reference from the Form 10-K Annual Report dated
November 9, 1995, Exhibit 10(d) thereto.
13 Annual Report to Shareholders for the fiscal year ended August
31, 1996; incorporated by reference in this report.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule (electronic filing only).
-8-
<PAGE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the
Registrant's fiscal year ended August 31, 1996.
SIGNATURES
- ----------
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.
WD-40 COMPANY
Registrant
By /s/ Peter E. Williams
--------------------------------
PETER E. WILLIAMS, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
November 26, 1996
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/ Gerald C. Schleif
------------------------------------
GERALD C. SCHLEIF
Chief Executive Officer and Director
(Principal Executive Officer)
November 26, 1996
/s/ John S. Barry
------------------------------------
JOHN S. BARRY, Director
November 26, 1996
/s/ Harlan E. Harmsen
------------------------------------
HARLAN F. HARMSEN, Director
November 26, 1996
-9-
<PAGE>
/s/ Mario L. Crivello
------------------------------------
MARIO L. CRIVELLO, Director
November 26, 1996
/s/ Margaret L. Roulette
------------------------------------
MARGARET L. ROULETTE, Director
November 26, 1996
/s/ C. Fredrick Sehnert
------------------------------------
C. FREDRICK SEHNERT, Director
November 26, 1996
/s/ Daniel W. Derbes
------------------------------------
DANIEL W. DERBES, Director
November 26, 1996
/s/ Jack L. Heckel
------------------------------------
JACK L. HECKEL, Director
November 26, 1996
/s/ Edward J. Walsh
------------------------------------
EDWARD J. WALSH, Director
November 26, 1996
-10-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of WD-40 Company
Our audits of the consolidated financial statements referred to in our report
dated October 4, 1996 appearing on Page 6 of the 1996 Annual Report to
Shareholders of WD-40 Company (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
San Diego, California
October 4, 1996
-11-
<PAGE>
SCHEDULE II
WD-40 COMPANY
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
OF PERIOD EXPENSES DEDUCTIONS* PERIOD
<S> <C> <C> <C> <C>
Reserve for bad debts and sales
discounts:
Year ended August 31, 1994 $ 553,000 $ 1,116,000 $ 1,226,000 $ 443,000
========== =========== =========== ==========
Year ended August 31, 1995 $ 443,000 $ 984,000 $ 951,000 $ 476,000
========== =========== =========== ==========
Year ended August 31, 1996 $ 476,000 $ 1,085,000 $ 1,141,000 $ 420,000
========== =========== =========== ==========
* Write-off of doubtful accounts and sales discounts taken.
</TABLE>
-12-
<PAGE>
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION> Incorporated
By Reference
No. Exhibit Page
- -- ------- ------------
<S> <C>
3(a) Restated Articles of Incorporation 8
3(b) Restated By-Laws 8
10(a) Restated WD-40 Company Incentive
Stock Option Plan 8
10(b) WD-40 Company Supplemental Death Benefit Plan 8
10(c) WD-40 Company Supplemental Retirement Benefit
Plan 8
10(d) Restated WD-40 Company 1990 Incentive
Stock Option Plan 8
13 Annual Report to Shareholders
for the fiscal year ended
August 31, 1996
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
27 Financial Data Schedule (electronic filing only).
</TABLE>
-13-
<PAGE>
EXHIBIT 13
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
PRICE WATERHOUSE LLP
To the Board of Directors and
Shareholders of WD-40 Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of 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, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended August 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes 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.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
San Diego, California
October 4, 1996
<TABLE>
<CAPTION>
WD-40 COMPANY CONSOLIDATED STATEMENT OF INCOME
- ------------------------------------------------------------------------------------------------
Year ended August 31,
---------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Net sales ................................. $ 130,912,000 $ 116,776,000 $ 112,166,000
Cost of product sold ...................... 57,925,000 50,229,000 47,028,000
------------- ------------- -------------
Gross profit .............................. 72,987,000 66,547,000 65,138,000
------------- ------------- -------------
Operating expenses:
Selling, general and administrative .. 27,027,000 23,759,000 21,896,000
Advertising and sales promotion ...... 12,219,000 10,973,000 10,570,000
Amortization expense ................. 1,065,000 333,000 289,000
Litigation settlement (Note 11) ...... 12,628,000
------------- ------------- -------------
40,311,000 35,065,000 45,383,000
------------- ------------- -------------
Income from operations .................... 32,676,000 31,482,000 19,755,000
------------- ------------- -------------
Interest income, net ...................... 398,000 1,118,000 621,000
Other income, net ......................... 338,000 53,000 107,000
------------- ------------- -------------
Income before income taxes ................ 33,412,000 32,653,000 20,483,000
Provision for income taxes ................ 12,115,000 12,200,000 7,800,000
------------- ------------- -------------
Net income ................................ $ 21,297,000 $ 20,453,000 $ 12,683,000
============= ============= =============
Earnings per share ........................ $ 2.76 $ 2.66 $ 1.65
============= ============= =============
Average number of shares outstanding ...... 7,711,864 7,700,239 7,686,124
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
WD-40 COMPANY ANNUAL REPORT
Page 6
<PAGE>
WD-40 COMPANY CONSOLIDATED BALANCE SHEET
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
August 31,
---------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................. $ 6,748,000 $11,090,000
Short-term investments................................................ 104,000 13,227,000
Trade accounts receivable, less allowance for cash discounts
and doubtful accounts of $420,000 and $476,000.................... 21,440,000 17,088,000
Product held at contract packagers.................................... 2,304,000 2,307,000
Inventories........................................................... 3,867,000 2,570,000
Other current assets.................................................. 3,170,000 3,298,000
----------- -----------
Total current assets.............................................. 37,633,000 49,580,000
Property, plant and equipment, net....................................... 3,938,000 3,467,000
Long-term investments.................................................... 4,044,000 4,378,000
Goodwill, net............................................................ 14,392,000
Other assets............................................................. 1,651,000 2,154,000
----------- -----------
$61,658,000 $59,579,000
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities.............................. $ 5,784,000 $ 4,749,000
Accrued payroll and related expenses.................................. 2,737,000 2,619,000
Income taxes payable.................................................. 1,879,000 3,053,000
Current portion of long-term debt..................................... 706,000 659,000
----------- -----------
Total current liabilities....................................... 11,106,00 11,080,000
Long-term debt........................................................... 2,427,000 3,132,000
Deferred employee benefits............................................... 954,000 862,000
----------- -----------
3,381,000 3,994,000
Shareholders' equity:
Common stock, no par value, 9,000,000 shares authorized -
7,720,953 and 7,703,155 shares issued and outstanding.............. 6,603,000 6,083,000
Paid-in capital....................................................... 321,000 321,000
Retained earnings..................................................... 40,425,000 38,251,000
Cumulative translation adjustment..................................... (178,000) (150,000)
----------- -----------
Total shareholders' equity...................................... 47,171,000 44,505,000
Commitments and contingencies (Note 12)
----------- -----------
$61,658,000 $59,579,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
WD-40 COMPANY ANNUAL REPORT
PAGE 7
<PAGE>
WD-40 COMPANY CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Cumulative
----------------------------- Paid-in Retained translation
Shares Amount capital earnings adjustment
------ ------ ------- -------- ----------
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1993 7,670,781 $5,180,000 $221,000 $41,428,000 $(1,136,000)
Issuance of common stock
upon exercise of options 30,965 961,000
Repurchase of common stock
upon exercise of options (8,771) (421,000)
Cash dividends (17,678,000)
Compensatory stock options 71,000
Change in cumulative translation
adjustment 786,000
Net income 12,683,000
--------- ---------- -------- ----------- -----------
Balance at August 31, 1994 7,692,975 5,720,000 292,000 36,433,000 (350,000)
Issuance of common stock
upon exercise of options 10,180 363,000
Cash dividends (18,635,000)
Compensatory stock options 29,000
Change in cumulative translation
adjustment 200,000
Net income 20,453,000
--------- ---------- -------- ----------- -----------
Balance at August 31, 1995 7,703,155 6,083,000 321,000 38,251,000 (150,000)
Issuance of common stock
upon exercise of options 22,696 747,000
Repurchase of common stock
upon exercise of options (4,898) (227,000)
Cash dividends (19,123,000)
Change in cumulative translation
adjustment (28,000)
Net income 21,297,000
--------- ---------- -------- ----------- -----------
Balance at August 31, 1996 7,720,953 $6,603,000 $321,000 $40,425,000 $ (178,000)
========= ========== ======== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
WD-40 COMPANY ANNUAL REPORT
PAGE 8
<PAGE>
WD-40 COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended August 31,
---------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .................................................... $ 21,297,000 $ 20,453,000 $ 12,683,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization .............................. 1,760,000 996,000 844,000
Loss on sale of equipment .................................. 32,000 124,000 39,000
Non-cash compensation ...................................... 29,000 71,000
Decrease (increase) in long-term deferred income taxes ..... 585,000 (639,000) (37,000)
Changes in assets and liabilities:
Trade accounts receivable ............................. (4,276,000) (2,205,000) (838,000)
Product held at contract packagers .................... 3,000 1,460,000 (3,767,000)
Inventories ........................................... (1,270,000) (78,000) 3,103,000
Other assets .......................................... (308,000) (1,585,000) 47,000
Accounts payable and accrued expenses ................. 1,109,000 650,000 (427,000)
Income taxes payable .................................. (832,000) 2,166,000 (1,483,000)
Long-term deferred employee benefits .................. 92,000 63,000 98,000
------------- ------------- -------------
Net cash provided by operating activities .......... 18,192,000 21,434,000 10,333,000
------------- ------------- -------------
Cash flows from investing activities:
Decrease (increase) in short-term investments .............. 13,123,000 (4,077,000) 1,739,000
Non-cash intangible assets of business acquired ............ (15,047,000)
Decrease in investment with bonding agency ................. 8,117,000
Proceeds from sale of equipment ............................ 163,000 307,000 170,000
Capital expenditures ....................................... (1,353,000) (1,371,000) (796,000)
------------- ------------- -------------
Net cash (used in) provided by
investing activities ........................... (3,114,000) (5,141,000) 9,230,000
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of common stock ........................ 520,000 363,000 540,000
Repayments of long-term debt .................................. (658,000) (615,000) (594,000)
Dividends paid ................................................ (19,123,000) (18,635,000) (17,678,000)
------------- ------------- -------------
Net cash used in financing activities .............. (19,261,000) (18,887,000) (17,732,000)
------------- ------------- -------------
Effect of exchange rate changes on cash ............................ (159,000) 169,000 802,000
------------- ------------- -------------
(Decrease) increase in cash and cash equivalents ................... (4,342,000) (2,425,000) 2,633,000
Cash and cash equivalents at beginning of year ..................... 11,090,000 13,515,000 10,882,000
------------- ------------- -------------
Cash and cash equivalents at end of year ........................... $ 6,748,000 $ 11,090,000 $ 13,515,000
============= ============= =============
Non-cash investing and financing activities:
Repurchase of common stock upon exercise
of options ................................................. $ 227,000 $ -0- $ 421,000
============= ============= =============
Long-term investment in low income
housing (Note 9) ........................................... $ -0- $ -0- $ 2,000,000
============= ============= =============
Long-term debt related to low income
housing investment (Note 9) ................................ $ -0- $ -0- $ 2,000,000
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
WD-40 COMPANY ANNUAL REPORT
PAGE 9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, WD-40 Products (Canada) Ltd., WD-40 Company Ltd.
(U.K.), and WD-40 Company (Australia) Pty. Ltd. All significant intercompany
transactions and balances have been eliminated.
Cash and Cash Equivalents
Cash equivalents are highly liquid investments purchased with an original
maturity of three months or less.
Diversification of Credit Risk
The Company's policy is to place its cash, cash equivalents and investments in
high credit quality financial institutions, government agencies and corporate
entities and to limit the amount of credit exposure.
Use of Estimates
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
Revenue Recognition
Revenues are recognized upon the shipment of product to third party wholesalers.
Product Held at Contract Packagers
Product held at contract packagers represents the inventory held at United
States, Australian, and Canadian contract packagers underlying their obligation
to pay the Company for the inventory acquired.
These contract packagers will continue to package WD-40 products to rigid
specifications, and upon order from WD-40 Company, ship ready-to-sell inventory
to the Company's customers. The United States contract packagers, rather than
the Company, are responsible for inventory control. The Company does not record
a sale of the inventory until such inventory is purchased by third party
wholesalers.
Inventories
Inventories are stated at the lower of average cost or market. The inventory
balance primarily represents inventory owned by WD-40 Company Ltd. (U.K.) and
concentrate owned by WD-40 Company (U.S.).
Property, Plant and Equipment
Property, plant, and equipment are stated at cost. Depreciation has been
computed principally using the straight-line method based upon estimated useful
lives of thirty to forty years for buildings and improvements and three to
fifteen years for machinery and equipment.
Goodwill
Goodwill represents the excess of purchase cost over the fair value of
identifiable assets at the date of acquisition (Note 2) and is amortized on a
straight-line basis over its estimated useful life of fifteen years. The
Company evaluates the carrying value of goodwill at each balance sheet date as
well as the amortization period to determine whether adjustments are required.
No such adjustments have been recorded by the Company.
Advertising Costs
The Company expenses advertising costs when the liabilities arise.
Fair Value of Financial Instruments
At August 31, 1996, the carrying amounts of the Company's financial instruments,
including cash equivalents, short-term investments, trade receivables and
accounts payable, approximated their fair values due to their short-term
maturities. Management believes that the estimated fair value of the Company's
long-term investments and debt approximated their carrying values at August 31,
1996.
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. Deferred income
tax expense is the change during the year in the deferred income tax liability
or asset.
Foreign Currency
The accounts of the Company's foreign subsidiaries have been translated into
United States dollars at appropriate rates of exchange. Cumulative translation
gains or losses are recorded as a separate component of shareholders' equity.
Gains or losses resulting from foreign currency transactions (transactions
denominated in a currency other than the entity's local currency) are included
in the consolidated statement of income and are not material.
Earnings Per Share
Earnings per share are based upon the weighted average number of shares
outstanding during each year increased by the effect of dilutive stock
options, when applicable, using the treasury stock method.
WD-40 COMPANY ANNUAL REPORT
PAGE 10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." SFAS 123 will be adopted by the Company as required for its
fiscal 1997 financial statements. Upon adoption of SFAS 123, the Company will
continue to measure compensation expense for its stock-based employee
compensation plans using the intrinsic value method prescribed by APB Opinion
No. 25, "Accounting for Stock Issued to Employees," and will provide pro forma
disclosure of net income and earnings per share as if the fair value-based
method prescribed by SFAS 123 had been applied in measuring compensation
expense. Accordingly, the adoption of SFAS 123 will not impact the Company's
financial position or results of operations.
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board Issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which the
Company will adopt prospectively as required in fiscal 1997. Pursuant to this
Statement, companies are required to investigate potential impairments of long-
lived assets, certain identifiable intangibles, and associated goodwill, on an
exception basis, when there is evidence that events or changes in circumstances
have made recovery of an asset's carrying value unlikely. An impairment loss
would be recognized when the sum of the undiscounted expected future net cash
flows is less than the carrying amount of the asset. The adoption of SFAS 121 is
not expected to have a significant impact on the Company's financial position or
results of operations.
Reclassifications
Certain 1995 and 1994 balances have been classified to conform to the 1996
presentation.
NOTE 2 - ACQUISITION
On December 8, 1995, the Company acquired all of the worldwide trademarks and
other intangible assets relating to the sale of 3-IN-ONE brand lubricating oil
products from Reckitt & Colman, Inc., a Delaware corporation, Reckitt & Colman
(Overseas) Limited, an English corporation, and other affiliates of Reckitt &
Colman P.L.C., an English corporation, (collectively, Reckitt & Colman) under an
asset purchase and sale agreement. The acquisition of assets included inventory
and the rights to manufacture, sell and distribute this product line. No other
physical property, plant or equipment was acquired. The Company paid cash in the
amount of $15,047,000 for the trademarks and other intangible assets and
approximately $400,000 for inventory. None of the funds required for the
acquisition were borrowed. Accumulated amortization of goodwill at August 31,
1996 and the related amortization expense for the year then ended was $732,000.
NOTE 3 - SELECTED FINANCIAL STATEMENT INFORMATION
<TABLE>
<CAPTION>
August 31,
--------------------------------
1996 1995
---------- -----------
<S> <C> <C>
Inventories:
Raw materials..................... $ 333,000 $ 373,000
Finished goods.................... 3,534,000 2,197,000
---------- ----------
$3,867,000 $2,570,000
========== ==========
Property, plant and equipment:
Land.............................. $ 254,000 $ 254,000
Building and improvements......... 1,746,000 1,721,000
Machinery and equipment........... 5,141,000 4,529,000
---------- ----------
7,141,000 6,504,000
Accumulated depreciation................. (3,203,000) (3,037,000)
---------- ----------
$3,938,000 $3,467,000
========== ==========
</TABLE>
NOTE 4 - BUSINESS SEGMENT AND FOREIGN OPERATIONS
The Company operates in one business segment - the manufacture and sale of
multi-purpose lubricants principally through retail chain stores, automotive
parts outlets, and industrial distributors and suppliers.
Information regarding the Company's operations in different geographic areas is
summarized below. WD-40 Company (U.S.) includes all domestic and intercompany
sales, as well as sales to the Caribbean, Mexico, South America, and the Pacific
Rim, except for Australia and New Zealand. WD-40 Company (U.S.) export sales
were $18,163,000, $13,413,000, and $10,663,000 in fiscal 1996, 1995, and 1994,
respectively. WD-40 Company Ltd. (U.K.) includes sales to Europe, the Middle
East, and Africa. WD-40 Products (Canada) Ltd. and WD-40 Company (Australia)
Pty. Ltd. are included in other foreign subsidaries. Substantially all sales by
these operations are to customers within Canada, Australia, and New Zealand.
WD-40 COMPANY ANNUAL REPORT
PAGE 11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended August 31,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales:
WD-40 Company (U.S.) ............................. $ 93,487,000 $ 86,547,000 $ 83,550,000
WD-40 Company Ltd. (U.K.) ........................ 29,949,000 24,116,000 20,129,000
Other foreign subsidiaries ....................... 8,751,000 6,978,000 9,577,000
Intercompany ..................................... (1,275,000) (865,000) (1,090,000)
------------ ------------ ------------
$130,912,000 $116,776,000 $112,166,000
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Year ended August 31,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Operating profit:
WD-40 Company (U.S.) ............................. $ 22,352,000 $ 23,391,000 $ 24,480,000
WD-40 Company Ltd. (U.K.) ........................ 8,134,000 6,693,000 5,462,000
Other foreign subsidiaries ....................... 2,190,000 1,398,000 2,441,000
Interest income, net ............................. 398,000 1,118,000 621,000
Other income, net ................................ 338,000 53,000 107,000
Litigation settlement ............................ (12,628,000)
------------ ------------ ------------
Income before income taxes ............................ $ 33,412,000 $ 32,653,000 $ 20,483,000
============ ============ ============
<CAPTION>
August 31,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Identifiable assets:
WD-40 Company (U.S.) ............................. $ 44,876,000 $ 45,587,000 $ 42,421,000
WD-40 Company Ltd. (U.K.) ........................ 14,949,000 12,443,000 8,810,000
Other foreign subsidiaries ....................... 1,833,000 1,549,000 3,641,000
------------ ------------ ------------
$ 61,658,000 $ 59,579,000 $ 54,872,000
============ ============ ============
</TABLE>
NOTE 5 - INCOME TAXES
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
Year ended August 31,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Current tax provision:
United States .................................... $ 6,812,000 $ 8,021,000 $ 3,531,000
State ............................................ 1,818,000 1,971,000 1,600,000
Foreign .......................................... 2,866,000 2,995,000 2,796,000
------------ ------------ ------------
Total current ............................... 11,496,000 12,987,000 7,927,000
------------ ------------ ------------
Deferred tax provision (benefit):
United States .................................... 563,000 (792,000) (131,000)
Foreign .......................................... 56,000 5,000 4,000
------------ ------------ ------------
Total deferred .............................. 619,000 (787,000) (127,000)
------------ ------------ ------------
$ 12,115,000 $ 12,200,000 $ 7,800,000
============ ============ ============
</TABLE>
WD-40 COMPANY ANNUAL REPORT
PAGE 12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Deferred tax assets included in other current assets are comprised of the
following:
<TABLE>
<CAPTION>
August 31, 1996 August 31, 1995
--------------- ---------------
<S> <C> <C>
Accrued employee benefits ......................................................... $ 375,000 $ 329,000
State income taxes ................................................................ 273,000 275,000
Reserves and allowances ........................................................... 104,000 180,000
--------------- ---------------
$ 752,000 $ 784,000
=============== ===============
</TABLE>
Long-term deferred tax assets and (liabilities) included in other assets are
comprised of the following:
<TABLE>
<CAPTION>
August 31, 1996 August 31, 1995
--------------- ---------------
<S> <C> <C>
Depreciation ...................................................................... $ (283,000) $ (216,000)
Foreign tax credit ................................................................ 586,000
Deferred compensation ............................................................. 395,000 362,000
Other ............................................................................. 118,000 85,000
--------------- ---------------
$ 230,000 $ 817,000
=============== ===============
</TABLE>
A reconciliation of the provision for income taxes to the amount computed by
applying the statutory federal income tax rate to income before income taxes
follows:
<TABLE>
<CAPTION>
Year ended August 31,
-------------------------------------------------------
1996 1995 1994
----------------- ------------------ ----------------
<S> <C> <C> <C>
Amount computed at U.S. statutory
federal rate ............................................ $ 11,694,000 $ 11,429,000 $ 7,169,000
State income taxes, net of federal
benefit ................................................. 1,182,000 1,235,000 1,040,000
Affordable housing credits ................................... (499,000) (111,000) (85,000)
Competent authority refund ................................... (345,000)
Other ........................................................ (262,000) (353,000) 21,000
----------------- ------------------ ----------------
$ 12,115,000 $ 12,200,000 $ 7,800,000
================= ================== ================
</TABLE>
Income taxes paid in fiscal 1996, 1995, and 1994 amounted to $12,329,000,
$11,643,000 and $9,221,000, respectively.
NOTE 6 - STOCK OPTIONS
The Company has an incentive stock option plan whereby the Board of Directors
may grant officers and key employees options to purchase an aggregate of not
more than 440,000 shares of the Company's common stock at a price not less than
100 percent of the fair market value of the stock at the date of grant. Options
are generally exercisable one year after grant and may not be granted for terms
in excess of ten years. At August 31, 1996 options for 148,453 shares were
exercisable and options for 140,700 shares were available for future grants.
A summary of the changes in options outstanding under the Company's Stock
Option Plan during the three years ended August 31, 1996 is as follows:
WD-40 COMPANY ANNUAL REPORT
PAGE 13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Option price
shares per share
--------- ------------
<S> <C> <C>
Outstanding at August 31, 1993................................... 132,596 $24.50 - $40.00
Options granted............................................. 54,700 $47.50
Options exercised........................................... (30,965) $24.50 - $40.00
Options canceled............................................ (7,011) $30.88 - $47.50
------- ---------------
Outstanding at August 31, 1994................................... 149,320 $24.50 - $47.50
Options granted............................................. 58,900 $42.50
Options exercised........................................... (10,180) $30.68 - $40.00
Options canceled............................................ (5,381) $40.00 - $47.50
------- ---------------
Outstanding at August 31, 1995................................... 192,659 $24.50 - $47.50
Options granted............................................. 62,400 $42.38
Options exercised........................................... (22,696) $24.50 - $42.50
Options canceled............................................ (11,497) $42.38 - $47.50
------- ---------------
Outstanding at August 31, 1996................................... 220,866 $24.50 - $47.50
======= ===============
</TABLE>
NOTE 7 - EMPLOYEE BENEFIT PLANS
The Company has a combined Money Purchase Pension Plan and Profit Sharing Plan
for the benefit of its regular full-time employees who meet certain minimum
criteria. The Plans provide for annual contributions into a trust to the extent
of 10% of covered employee compensation for the Money Purchase Pension Plan and
as approved by the Board of Directors for the Profit Sharing Plan, but which may
not exceed the amount deductible for income tax purposes. The Plans may be
amended or discontinued at any time by the Company. Contributions charged
to income under the plans for fiscal 1996, 1995, and 1994 approximated
$1,029,000, $1,029,000 and $987,000, respectively.
The Company has a Salary Deferral Employee Stock Ownership Plan whereby regular
full-time employees who have completed at least one year of service can defer a
portion of their income through contributions to a trust. The Plan provides for
Company contributions to the trust, as approved by the Board of Directors, equal
to fifty percent or more of the compensation deferred by employees, but not in
excess of the amount deductible for income tax purposes. Company contributions
to the trust are invested in the Company's common stock. The Plan may be amended
or discontinued at any time by the Company. Company contribution expense for
fiscal 1996, 1995, and 1994 was approximately $118,000, $104,000, and $118,000,
respectively.
The Company has agreed to provide fixed retirement benefits to certain of its
key executives. The Company's gross liability related to these agreements
approximates $2,461,000 of which $954,000, representing the present value of
these obligations to employees for service through August 31, 1996, has been
accrued.
The Company has life insurance policies on certain of its key executives. As of
August 31, 1996, the aggregate cash surrender value of these policies is
$1,421,000 which is included in other assets. Keyman Life Insurance Premiums
paid by the Company in fiscal 1996, 1995, and 1994 were $46,000, $91,000,
and $91,000, respectively.
NOTE 8 - INVESTMENTS
Effective September 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Investments subject to the standard are required to be
carried at fair value, unless they are held-to-maturity. Adoption of this
accounting treatment had no effect on the Company's financial position or
results of operations as all of the Company's investments that are subject to
this standard are classified as held-to-maturity and are carried at amortized
cost.
Following is a summary of held-to-maturity securities all of which mature in one
year or less:
WD-40 COMPANY ANNUAL REPORT
PAGE 14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Held-to-Maturity Securities
------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Values
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
August 31, 1996
U.S. Corporate Securities..................... $ 104,000 $ -0- $ -0- $ 104,000
=========== ======== ======= ===========
<CAPTION>
Held-to-Maturity Securities
------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Values
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
August 31, 1995
U.S. Treasury Securities...................... $ 5,883,000 $171,000 $ 1,000 $ 6,053,000
State and local government securities......... 5,045,000 1,000 13,000 5,033,000
U.S. Corporate securities..................... 2,299,000 42,000 2,341,000
----------- -------- ------- -----------
$13,227,000 $214,000 $14,000 $13,427,000
=========== ======== ======= ===========
</TABLE>
NOTE 9 - LONG-TERM INVESTMENT AND RELATED DEBT
On August 31, 1993 and December 13, 1994, the Company purchased partnership
units in an affordable housing tax credit fund for $3,000,000 and $2,000,000,
respectively. The Company's decision to invest in the fund was due to the
favorable tax credits that are available over the investment period of 15 years,
subject to certain tax restrictions. The investment is accounted for at
historical cost, amortized on a straight-line basis over 15 years. Amortization
expense for the years ended August 31, 1996, 1995, and 1994 was $333,000,
$333,000, and $289,000, respectively.
The Company entered into seven-year promissory notes to fund its investments in
the affordable housing tax credit fund. Each note is secured by the
corresponding investment and bears interest at 7.0%. Interest and principal
payments on each note are $559,000 and $370,000, respectively, due annually each
January through 2000. Interest paid in fiscal 1996, 1995, and 1994 was $270,000,
$314,000, and $98,000, respectively.
NOTE 10 - BANK LINE OF CREDIT
In April of 1996, the Company obtained an unsecured line of credit with a
commercial bank which is subject to renegotiation on an annual basis and expires
on February 1, 1997. Under the terms of the credit agreement, the Company may
borrow up to $5,000,000 at the bank's prime rate (8.25% at August 31, 1996), or
LIBOR plus 2.5% if a minimum of $100,000 is borrowed. The credit agreement
requires the Company to maintain certain minimum income levels and meet certain
other restrictive covenants. There were no borrowing on this line at August 31,
1996 and the Company was in compliance with all covenants of the credit
agreement at August 31, 1996.
NOTE 11 - SETTLEMENT OF LITIGATION
In February 1989, an action was filed against the Company in the Superior Court
of California by eight former commissioned sales representatives. The plaintiffs
alleged that their contracts were wrongfully terminated when the Company
replaced all of its United States commissioned sales representatives with an
in-house sales force. In January 1992, a jury awarded the plaintiffs damages for
breach of contract in the amount of $10,291,000. Subsequent to the California
Supreme Court's denial of the Company's petition for review in April 1994, the
Company paid the original judgment, accrued interest and court costs of
$12,628,000 in final settlement of this matter.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
The Company is party to various claims, legal actions and complaints, including
product liability litigation, 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.
WD-40 COMPANY ANNUAL REPORT
PAGE 15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company was committed under certain noncancelable operating leases at August
31, 1996 which provide for the following future minimum lease payments: 1997,
$143,000; 1998, $83,000; 1999, $37,000; 2000, $2,000. Rent expense for the
years ended August 31, 1996, 1995, and 1994 was $273,000, $192,000, and
$154,000, respectively.
NOTE 13 - SUBSEQUENT EVENT
On September 23, 1996, the Company declared a cash dividend of $.62 per share
payable on October 30, 1996 to shareholders of record on October 10, 1996.
- --------------------------------------------------------------------------------
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
The following table sets forth certain unaudited quarterly financial information
for each of the two years in the period ended August 31, 1996.
<TABLE>
<CAPTION>
Net Gross Net Earnings
Quarter ended: sales profit income per share
------------ ------------ ------------ ---------
<S> <C> <C> <C> <C>
November 30, 1994 ............................. $ 29,769,000 $ 17,133,000 $ 5,519,000 $ .72
February 28, 1995 ............................. 29,389,000 17,092,000 5,608,000 .73
May 31, 1995 .................................. 29,916,000 16,696,000 4,896,000 .63
August 31, 1995 ............................... 27,702,000 15,626,000 4,430,000 .58
------------ ------------ ------------ ---------
$116,776,000 $ 66,547,000 $ 20,453,000 $ 2.66
============ ============ ============ =========
November 30, 1995 ............................. $ 27,612,000 $ 15,926,000 $ 5,266,000 $ .68
February 28, 1996 ............................. 35,080,000 19,980,000 5,883,000 .77
May 31, 1996 .................................. 34,228,000 18,744,000 5,036,000 .65
August 31, 1996 ............................... 33,992,000 18,337,000 5,112,000 .66
------------ ------------ ------------ ---------
$130,912,000 $ 72,987,000 $ 21,297,000 $ 2.76
============ ============ ============ =========
</TABLE>
STOCK INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995
-------------------------- --------------------------
Period: High Low Dividend High Low Dividend
------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
First Quarter ......................... 42 3/4 38 3/4 .62 43 5/8 41 1/2 .60
Second Quarter ........................ 49 40 1/2 .62 44 3/4 39 .60
Third Quarter ......................... 49 1/2 45 3/4 .62 44 1/4 39 .60
Fourth Quarter ........................ 48 1/2 41 3/4 .62 44 3/4 41 1/4 .62
</TABLE>
The high and low closing prices are as quoted in the Wall Street Journal.
WD-40 COMPANY ANNUAL REPORT
PAGE 16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
WD-40 Company (US)
1996 vs 1995
Net sales reached yet another record high of $92.2 million, an increase of
$6.5 million or 7.6% over the previous year. Domestic net sales increased a
modest $2.5 million or 3.4% due to the ebb and flow of business in our retail
environment. Export sales to Latin America and the Pacific Rim continue to grow
at a very rapid rate. Sales to these areas are now $18.2 million, up 36% from
last year. These export sales now account for approximately 20% of the U.S.
total. 3-IN-ONE sales accounted for $2.5 million of this gain.
Cost of product sold continues to escalate as a percentage of sales and was
46.1% versus 43.9% in fiscal 1995. Increase in raw material and component costs
and higher costs for promotional packaging, combined with an increase in export
sales which carry a lower gross margin accounts for the increase.
Selling, general, and administrative expenses as a percentage of net sales
were 20.2% versus 19.7% in fiscal year 1995. A general increase in overheads,
higher legal costs, and the establishment of our national computer network and
disaster recovery plans were the reasons for these higher expenses.
Advertising expenses as a percentage of net sales were stable at 8.8%
versus 9.1% last year.
1995 vs 1994
Net sales reached another record high of $85.7 million, an increase of
$3.2 million or 3.9% over the previous year. Domestic net sales showed a modest
gain of $485,000 or 0.7% as the retail segment of the marketplace continued to
be sluggish. Export sales to the Pacific Rim and Latin America, on the other
hand, hit $13.4 million, up almost 26% over fiscal 1994.
Cost of product sold as a percentage of net sales increased significantly
to 43.9% versus 42.0% in fiscal 1994. Inflationary pressures and higher costs
associated with promotional packaging accounted for this steep rise.
Selling, general, and administrative expenses increased by $1.1 million,
and as a percentage of net sales was 19.7% versus 19.1% the prior year. This
increase is also primarily attributable to inflation which impacted many of our
overhead items including compensation and shipping charges.
Advertising and sales promotion expenses increased $254 thousand over
fiscal 1994, equating to 9.1% of net sales versus 9.2% in the prior year.
Primarily as a result of the inflationary trend in operating expenses,
operating income was off $1.1 million or 4.5% compared to fiscal 1994. However,
net income increased more than 100% because of the $12.6 million legal expense
incurred in fiscal 1994. (See Note 11.)
WD-40 Company Ltd. (UK)
1996 vs 1995
Net sales increased across all of the subsidiary's territories by $5.8
million, or 24.2%, even though the currency exchange rate was a negative 3% for
the year. Prime European sales increased 53%, Eastern European sales were up
43%, and sales in the Middle East increased 10%. 3-IN-ONE sales were $2.5
million of this gain.
Cost of sales increased to 39.8% of net sales versus 38.3% in fiscal 1995
due to a shift in the product range.
Selling, general, and administrative expenses as a percentage of net sales
decreased to 22.5% versus 23.9% in fiscal year 1995 due to the increased sales.
Advertising was on budget at 10.1% of net sales versus 10.1% a year ago.
Operating income increased $1.4 million or 21.5% primarily due to increased
sales and controlled overheads.
1995 vs 1994
Net sales for the subsidiary increased $4.0 million or 19.8% over fiscal
1994. This increase was comprised of higher net sales across the subsidiary's
entire territory with Prime Europe up 47%, Eastern Europe up 100%, and the
Middle East up 15%. These increases included a positive currency exchange
effect of 5.5%.
Cost of products sold remained stable at 38.3% of net sales versus 38.2% in
fiscal 1994.
Selling, general, and administrative expenses also decreased as a percent
of net sales to 23.9% versus 24.3% in fiscal 1994. This decrease reflected
increased productivity.
Advertising and sales promotion expenses also decreased slightly as a
percentage of net sales to 10.1% versus 10.4% in fiscal 1994. This reflected our
ongoing effort to focus advertising expenditures on only the most cost
beneficial promotional opportunities.
Operating income increased $1.2 million or 22.5% over fiscal 1994 as a
result of the increased net sales and stable operating costs described above.
WD-40 COMPANY ANNUAL REPORT
PAGE 17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Other Subsidiaries
1996 vs 1995
Net sales increased $1.8 million or 25% due mainly to the rebound of the
retail economy in Canada.
Cost of product sold as a percentage of sales was down slightly to 48.4%
versus 49.1% last year.
Selling, general, and administrative expenses along with advertising and
promotion as a cost of sales was down significantly to 15.8% versus 20.5% in
fiscal 1995 due to the strong rebound in the Canadian sales.
1995 vs 1994
Net sales were down $2.6 million or 27.1% due entirely to Canada where
retail sales were extremely soft.
Cost of product sold was stable at 49.1% of net sales versus 49.0% in
fiscal 1994.
Selling, general and administrative expenses increased to 20.5% of net
sales versus 15.8% in the prior year due entirely to the shortfall of net sales
in Canada.
Advertising and sales promotion expenses were also up slightly as a
percentage of net sales at 10.3% versus 9.7% again due to the lower net sales in
Canada.
Operating income was down $1.0 million or 42.7% primarily due to the soft
retail economy in Canada.
Price Increases
The introduction of CO\2\ propellant did increase the cost of product sold
and as a result the pricing to our customers was adjusted accordingly.
This will impact our sales revenue in North America by approximately 9%,
however it will have only a minor effect on net income.
Cash and Cash Equivalents
Cash and cash equivalents decreased $4.3 million during fiscal 1996 versus
a decrease of $2.4 million in the prior year. Cash provided by operations was
$18.2 million in fiscal 1996. The decrease of $3.2 million from fiscal 1995 was
primarily due to the increase in accounts receivable and product inventories.
Cash used for investing activities totaled $104 thousand at the end of
fiscal 1996, compared with short-term investments of $13.2 million in fiscal
1995. This change is primarily attributable to funds utilized in the purchase of
3-IN-ONE Oil in fiscal 1996.
Interest and Other Income, Net
1996 vs 1995
Net interest income declined $720 thousand due to less funds being
available for short-term investment. Other income, net, increased $285 thousand
primarily due to increases in international commission income.
1995 vs 1994
Interest income, net, increased $497 thousand due to higher interest rates
and increased short-term investment balances. Other income, net, decreased $54
thousand primarily due to lower exchange gains in the U.K.
Liquidity and Capital Resources
The Current Ratio of 3.4-to-one on August 31, 1996, was less than the
Current Ratio of 4.5-to-one on August 31, 1995, due mainly to the decrease in
short-term investments. The Company has notes outstanding on August 31, 1996 for
$2.4 million. The proceeds from these notes were used to purchase partnership
units in a Low Income Housing Tax Credit Fund in fiscal 1993 and fiscal 1994
(See Note 9). 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 1997 are expected to total
approximately $1.2 million principally for replacing aged vehicles and updating
computer equipment.
WD-40 COMPANY ANNUAL REPORT
PAGE 18
<PAGE>
TEN YEAR SUMMARY
- --------------------------------------------------------------------------------
Fiscal Year Ended August 31
<TABLE>
<CAPTION>
1987 1988 1989
----------- ----------- -----------
<S> <C> <C> <C>
Net sales......................................................... $70,879,000 $80,005,000 $83,932,000
Cost of product sold.............................................. 30,185,000 33,931,000 36,347,000
----------- ----------- -----------
Gross profit...................................................... 40,694,000 46,074,000 47,585,000
----------- ----------- -----------
Selling, general and administrative, and advertising and
sales promotion expenses........................................ 21,009,000 21,891,000 23,744,000
Interest and other income (expense), net.......................... 988,000 1,235,000 2,084,000
----------- ----------- -----------
Income before income taxes........................................ 20,673,000 25,418,000 25,925,000
Provision for income taxes........................................ 9,663,000 9,870,000 10,170,000
----------- ----------- -----------
Net income........................................................ $11,010,000 $15,548,000 $15,755,000
=========== =========== ===========
Earnings per share................................................ $1.46 $2.06 $2.08
=========== =========== ===========
Average number of shares outstanding.............................. 7,516,652 7,527,507 7,552,114
Dividends per share............................................... $1.47 $1.63 $1.90
=========== =========== ===========
Total assets...................................................... $39,149,000 $43,312,000 $44,640,000
=========== =========== ===========
Number of employees............................................... 61 79 133
</TABLE>
NET SALES
- ---------
Thousands of Dollars
1987 $ 70,879
1988 80,005
1989 83,932
1990 90,990
1991 89,833
1992 99,964
1993 108,964
1994 112,166
1995 116,776
1996 130,912
WD-40 COMPANY ANNUAL REPORT
PAGE 19
<PAGE>
TEN YEAR SUMMARY
- --------------------------------------------------------------------------------
Fiscal Year Ended August 31
<TABLE>
<CAPTION>
1990 1991 1992
----------- ----------- -----------
<S> <C> <C> <C>
Net sales.............................................................. $90,990,000 $89,833,000 $99,964,000
Cost of product sold................................................... 40,446,000 39,828,000 42,217,000
----------- ----------- -----------
Gross profit........................................................... 50,544,000 50,005,000 57,747,000
----------- ----------- -----------
Selling, general and administrative, and advertising and
sales promotion expenses............................................. 27,274,000 26,305,000 29,537,000
Interest and other income (expense), net............................... 1,910,000 1,406,000 1,263,000
----------- ----------- -----------
Income before income taxes............................................. 25,180,000 25,106,000 29,473,000
Provision for income taxes............................................. 9,690,000 9,800,000 11,400,000
----------- ----------- -----------
Net income............................................................. $15,490,000 $15,306,000 $18,073,000
=========== =========== ===========
Earnings per share..................................................... $2.05 $2.02 $2.38
=========== =========== ===========
Average number of shares outstanding................................... 7,554,154 7,555,948 7,594,243
Dividends per share.................................................... $2.02 $1.72 $2.16
=========== =========== ===========
Total assets........................................................... $46,785,000 $47,752,000 $53,596,000
=========== =========== ===========
Number of employees.................................................... 136 134 136
<CAPTION>
1993 1994 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales.................................................. $108,964,000 $112,166,000 $116,776,000 $130,912,000
Cost of product sold....................................... 44,686,000 47,028,000 50,229,000 57,925,000
------------ ------------ ------------ ------------
Gross profit............................................... 64,278,000 65,138,000 66,547,000 72,987,000
------------ ------------ ------------ ------------
Selling, general and administrative, and advertising and
sales promotion expenses................................. 31,242,000 32,755,000 35,065,000 40,311,000
Interest and other income (expense), net................... (1,306,000) (11,900,000) 1,171,000 736,000
------------ ------------ ------------ ------------
Income before income taxes................................. 31,730,000 20,483,000 32,653,000 33,412,000
Provision for income taxes................................. 12,400,000 7,800,000 12,200,000 12,115,000
------------ ------------ ------------ ------------
Net income................................................. $ 19,330,000 $ 12,683,000 $ 20,453,000 $ 21,297,000
============ ============ ============ ============
Earnings per share......................................... $2.52 $1.65 $2.66 $2.76
============ ============ ============ ============
Average number of shares outstanding....................... 7,660,462 7,686,124 7,700,239 7,711,864
Dividends per share........................................ $2.30 $2.30 $2.42 $2.48
============ ============ ============ ============
Total assets............................................... $ 58,784,000 $ 54,872,000 $ 59,579,000 $ 61,658,000
============ ============ ============ ============
Number of employees........................................ 143 144 148 149
</TABLE>
EARNINGS
- --------
Net Income: Earnings per
Thousands of Share:
Dollars Dollars
1987 $11,010 $1.46
1988 15,548 2.06
1989 15,755 2.08
1990 15,490 2.05
1991 15,306 2.02
1992 18,073 2.38
1993 19,330 2.52
1994 12,683 1.65
1995 20,453 2.66
1996 21,297 2.76
WD-40 COMPANY ANNUAL REPORT
PAGE 20
<PAGE>
EXHIBIT 21
----------
Subsidiaries of the Registrant
------------------------------
The Registrant has the following wholly owned subsidiaries which do business
under their respective legal names:
Name Place of Incorporation
- ---- ----------------------
WD-40 Products (Canada) Ltd. Ontario, Canada
WD-40 Company Limited London, England
WD-40 Company (Australia) Pty. Limited New South Wales, Australia
<PAGE>
EXHIBIT 23
----------
Consent of Independent Accountants
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-43174) of WD-40 Company of our report dated
October 4, 1996 appearing on page 6 of the Annual Report to Shareholders
which is incorporated in this Annual Report on Form 10-K. We also consent to
the incorporation by reference of our report on the Financial Statement
Schedule, which appears on page 11 of this Form 10-K.
PRICE WATERHOUSE LLP
San Diego, California
November 26, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 6,748,000
<SECURITIES> 104,000
<RECEIVABLES> 24,164,000
<ALLOWANCES> 420,000
<INVENTORY> 3,867,000
<CURRENT-ASSETS> 37,633,000
<PP&E> 7,141,000
<DEPRECIATION> 3,203,000
<TOTAL-ASSETS> 61,658,000
<CURRENT-LIABILITIES> 11,106,000
<BONDS> 2,427,000
0
0
<COMMON> 6,603,000
<OTHER-SE> 40,568,000
<TOTAL-LIABILITY-AND-EQUITY> 61,658,000
<SALES> 130,912,000
<TOTAL-REVENUES> 130,912,000
<CGS> 57,925,000
<TOTAL-COSTS> 40,311,000
<OTHER-EXPENSES> 736,000
<LOSS-PROVISION> 420,000
<INTEREST-EXPENSE> 295,000
<INCOME-PRETAX> 33,412,000
<INCOME-TAX> 12,115,000
<INCOME-CONTINUING> 21,297,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,297,000
<EPS-PRIMARY> 2.76
<EPS-DILUTED> 2.76
</TABLE>
