<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
----------------------------------
FORM 10-Q
QUARTERLY REPORTS UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended May 31, 1996
Commission File No. 0-6936-3
WD-40 COMPANY
(Exact Name of Registrant as specified in its charter)
<TABLE>
<S> <C>
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
</TABLE>
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 July 3, 1996 7,720,353
---------
<PAGE>
PART I Financial Information
---------------------
Item 1. Financial Statements
WD-40 COMPANY
CONSOLIDATED CONDENSED BALANCE SHEET
------------------------------------
ASSETS
------
<TABLE>
<CAPTION>
May 31, 1996 August 31, 1995
--------------- ---------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,290,000 $11,090,000
Short-term investments 13,227,000
Trade accounts receivable, less
allowance for cash discounts
and doubtful accounts of
$559,000 and $476,000 19,278,000 17,088,000
Product held at contract packagers 2,209,000 2,307,000
Inventories 3,881,000 2,570,000
Other current assets 3,213,000 3,298,000
----------- -----------
Total current assets 35,871,000 49,580,000
Property, plant and equipment, net 3,792,000 3,467,000
Long-term investments 4,128,000 4,378,000
Goodwill, net 14,629,000
Other assets 1,807,000 2,154,000
----------- -----------
$60,227,000 $59,579,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable & accrued liabilities $ 4,855,000 $ 4,749,000
Accrued payroll & related expenses 2,835,000 2,619,000
Income taxes payable 1,175,000 3,053,000
Current portion of long-term debt 706,000 659,000
----------- -----------
Total current liabilities 9,571,000 11,080,000
----------- -----------
Long-term debt 2,427,000 3,132,000
Deferred income tax 195,000
Deferred employee benefits 904,000 862,000
----------- -----------
3,526,000 3,994,000
----------- -----------
Shareholders' equity:
Common stock, no par value, 9,000,000
shares authorized - 7,718,953 and
7,703,155 shares issued and
outstanding 6,522,000 6,083,000
Paid-in capital 321,000 321,000
Retained earnings 40,099,000 38,251,000
Cumulative translation adjustment 188,000 (150,000)
----------- -----------
Total shareholders' equity 47,130,000 44,505,000
----------- -----------
Commitments and contingencies (Note 3)
$60,227,000 $59,579,000
=========== ===========
</TABLE>
(See accompanying notes to consolidated condensed financial statements)
2
<PAGE>
WD-40 COMPANY
CONSOLIDATED CONDENSED STATEMENT OF INCOME
------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
May 31 May 31 May 31 May 31
------ ------ ------ ------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $34,228,000 $29,916,000 $96,920,000 $89,074,000
Cost of product sold 15,484,000 13,220,000 42,270,000 38,153,000
----------- ----------- ----------- -----------
Gross profit 18,744,000 16,696,000 54,650,000 50,921,000
----------- ----------- ----------- -----------
Operating expenses:
Selling, general &
administrative 7,620,000 5,899,000 20,223,000 17,911,000
Advertising & sales
promotions 3,407,000 3,136,000 8,661,000 8,216,000
Amortization expense 334,000 83,000 667,000 250,000
----------- ----------- ----------- -----------
Income from
operations 7,383,000 7,578,000 25,099,000 24,544,000
Other income (expense):
Interest, net 10,000 250,000 425,000 879,000
Other, net 26,000 (132,000) 174,000
----------- ----------- ----------- -----------
Income before income
taxes 7,419,000 7,696,000 25,698,000 25,423,000
Provision for income
taxes 2,383,000 2,800,000 9,514,000 9,400,000
----------- ----------- ----------- -----------
Net income $ 5,036,000 $ 4,896,000 $16,184,000 $16,023,000
=========== =========== =========== ===========
Earnings per share $ .65 $ .63 $ 2.10 $ 2.08
=========== =========== =========== ===========
Average number of
shares outstanding 7,714,711 7,702,445 7,708,928 7,699,369
=========== =========== =========== ===========
</TABLE>
(See accompanying notes to consolidated condensed financial statements)
<PAGE>
WD-40 COMPANY
CONSOLIDATED CONDENSED STATEMENT OF INCOME
------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
May 31 May 31
------ ------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 5,036,000 $ 4,896,000 $16,184,000 $16,023,000
Adjustments to recon-
cile net income to
net cash provided by
operating activities:
Depreciation and
amortization 504,000 249,000 1,169,000 750,000
Loss on sale of
equipment 5,000 21,000 39,000 113,000
Changes in assets and
liabilities:
Trade accounts
receivable 6,857,000 2,020,000 (2,192,000) (2,517,000)
Product held at
contract packagers 578,000 311,000 98,000 59,000
Inventories (880,000) 234,000 (1,309,000) 531,000
Other assets (652,000) 307,000 154,000 164,000
Accounts payable and
accrued liabilities (183,000) (445,000) 310,000 449,000
Income taxes payable (1,758,000) (556,000) (1,763,000) 826,000
Deferred tax asset (241,000) 659,000 (46,000)
Long-term deferred
employee benefits 19,000 (17,000) 42,000 47,000
----------- ----------- ----------- -----------
Net cash provided by
operating activities 9,285,000 7,020,000 13,391,000 16,399,000
----------- ----------- ----------- -----------
Cash flows from investing
activities:
Decrease (increase) in
short-term investments (3,814,000) 13,227,000 (6,343,000)
Acquisition of certain
business assets
including goodwill (15,047,000)
Proceeds from sale of
equipment 80,000 78,000 140,000 266,000
Capital expenditures (384,000) (316,000) (1,002,000) (1,237,000)
----------- ----------- ----------- -----------
Net cash used in
investing activities $ (304,000) $(4,052,000) $(2,682,000) $(7,314,000)
----------- ----------- ----------- -----------
</TABLE>
(Continued on next page)
4
<PAGE>
WD-40 COMPANY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
-----------------------------------------------
(Unaudited)
Continued
<TABLE>
<CAPTION>
There Months Ended Nine Months Ended
------------------ -----------------
May 31 May 31
------ ------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from financing
activities:
Proceeds from issuance
of common stock 291,000 439,000 335,000
Repayment of long term
debt (659,000) (615,000)
Deferred stock
compensation 29,000
Dividends paid (4,782,000) (4,621,000) (14,336,000) (13,859,000)
Net cash used in ----------- ----------- ----------- -----------
financing activities (4,491,000) (4,621,000) (14,556,000) (14,110,000)
----------- ----------- ----------- -----------
Effect of exchange rate
changes on cash and
cash equivalents 84,000 (221,000) 47,000 (136,000)
Increase (decrease) in cash ----------- ----------- ----------- -----------
and cash equivalents 4,574,000 (1,874,000) (3,800,000) (5,161,000)
Cash and cash equivalents
at beginning of period 2,716,000 10,228,000 11,090,000 13,515,000
Cash and cash equivalents ----------- ----------- ----------- -----------
at end of period $ 7,290,000 $ 8,354,000 $ 7,290,000 $ 8,354,000
=========== =========== =========== ===========
</TABLE>
(See accompanying notes to consolidated condensed financial statements)
5
<PAGE>
WD-40 COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
May 31, 1996
------------
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
Principles of Consolidation
The consolidated condensed financial statements include the accounts of the
Company and its wholly owned subsidiaries, WD-40 Company Ltd. (U.K.), WD-40
Products (Canada) Ltd. and WD-40 Company (Australia) Pty. Ltd. All significant
intercompany transactions and balances have been eliminated.
The unaudited financial statements included herein have been prepared by the
Company 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 related notes should be read 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.
Earnings per Share
Earnings per share calculations are based upon the weighted average number of
shares outstanding during the period increased by the effect of dilutive stock
options, when applicable, using the treasury stock method.
Reclassifications
Certain fiscal 1995 amounts have been reclassified to conform to the current
year presentation.
NOTE 2 - ACQUISITION OF 3-IN-ONE OIL BUSINESS
The Company completed its acquisition of the 3-IN-ONE Oil brand from affiliates
of Reckitt & Colman plc on December 8, 1995. The Company paid cash in the
amount of $15,000,000 for the trademarks and other intangible assets and
approximately $950,000 for inventory. None of the funds required for the
acquisition were borrowed.
NOTE 3 - 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 or cash flows.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
---------------------
Third Quarter Fiscal Year 1996 versus Third Quarter Fiscal Year
---------------------------------------------------------------
1995
----
Consolidated net sales for the third quarter were a record $34,228,000,
an increase of 14.4% or $4,312,000 from a year ago. Strong promotional
sales by all of the operating units along with sales of approximately
$2,000,000 for 3-IN-ONE products helped to achieve these results.
Management continues to expect record levels of net sales for the
remainder of fiscal year 1996.
Costs of product sold for the quarter increased to 45.2% of net sales
versus 44.2% last year, due to inflationary pressures, the added costs
associated with promotional sales and the higher cost of sales related to
3-IN-ONE products. It is anticipated that these costs as a percentage of
net sales will remain at these higher levels.
Selling, general and administrative expenses for the quarter increased by
$1,721,000 or 29.2% due to increased professional services expenses. As a
percentage of net sales, these expenses increased to 22.2% as compared to
19.7% last year.
Advertising and sales promotion expenses increased by $271,000 in support
of the sales growth. As a percentage of net sales these expenses were
10.0% versus 10.5% a year ago. These expenses are expected to remain
within the historic range of 9% to 10% of net sales throughout the
remainder of fiscal year 1996.
Amortization of goodwill and investments includes amortization of the low
income housing investment and the acquisition of certain intangible
assets relating to the 3-IN-ONE brand from affiliates of Reckitt & Colman
plc.
Net interest decreased $240,000 due to the reduction of short-term
investments which were used to finance the acquisition of 3-IN-ONE. Other
income (expense) increased $158,000 primarily due to the increase in
exchange gains from U.K. sales denominated in foreign currencies.
Net income increased $140,000 or 2.9% due to the factors discussed above.
Net income as a percentage of net sales was 14.7% this quarter versus
16.4% in the third quarter of fiscal year 1995.
<PAGE>
WD-40 COMPANY (U.S.)
- --------------------
1996 vs. 1995 Net sales increased $2,266,000 or 10.5%. Export sales to Latin
- -------------
America and the Pacific Rim were up approximately 40%, and domestic sales were
up 8%. Strong promotional sales accounted for these gains.
Cost of product sold as a percentage of net sales was 46.4% versus 45.4% in
fiscal year 1995. This increase was due to the additional costs of the
promotional packaging, inflation and the higher costs of sales related to
3-IN-ONE products. It is anticipated that these costs as a percentage of sales
will decrease.
Selling, general and administrative expenses increased $1,261,000 or 31.7% and,
as a percentage of net sales, were 22.0% versus 18.5% last year. In addition to
the normal increases in general overhead, there was some inflation in freight
and travel expenses due to rising petroleum prices. Legal and professional
expenses increased for the quarter, and there were additional expenses
associated with our strategic planning for business continuity. For example, we
have implemented a computer network with main frame backup, linking all of the
regional sales offices and contract aerosol packagers in North America with San
Diego.
Advertising and sales promotion expenses increased by $373,000 or 16.2%,
attributable primarily to the promotional sales. Advertising and sales promotion
expenses amounted to 11.2% of net sales versus 10.7% in the third quarter of
fiscal year 1995.
Amortization of goodwill and investments was $307,000 in the third quarter of
fiscal year 1996 versus $83,000 in the third quarter of fiscal year 1995. The
increase largely resulted from the amortization of goodwill related to the
acquisition of 3-IN-ONE in December 1995.
Net income decreased $369,000 or 11.7% from last year due to the increased costs
and expenses as described above.
WD-40 Company Ltd. (U.K.)
- -------------------------
1996 vs. 1995 Net sales for the third quarter were up $1,884,000 or 29.7%
- -------------
reflecting strong promotional sales in the U.K., Europe and the Middle East for
WD-40 and the additional sales of 3-IN-ONE. However note that the currency
translation of U.K. pounds to U.S. dollars for financial reporting purposes was
down 4.9% from 1995.
Cost of product sold also increased because of the promotional packaging and was
40.9% of net sales versus 38.2% a year ago.
Selling, general and administrative expenses increased $398,000 or 27.9%;
however, as a percentage of net sales, were down slightly from 22.4% in the
third quarter of last year to 22.1% this quarter.
Advertising and promotional expenses were down to 6.3% of net sales versus 9.9%
last year due entirely to the timing of promotions.
8
<PAGE>
Net income increased by $521,000 or 37.7% and represented 23.1% of net sales
versus 21.8% last year.
Other Foreign Subsidiaries
- --------------------------
1996 vs. 1995 Net sales increased $161,000 or 8.0% due primarily to the
- -------------
improvement of the retail economy in Canada.
Cost of product sold as a percentage of net sales was 49.5% versus 50.4% in the
third quarter last year.
Net income increased $53,000 or 18.5%.
Nine Months Fiscal Year 1996 versus Nine Months Fiscal Year 1995
- ----------------------------------------------------------------
Consolidated net sales were $96,920,000, an increase of $7,846,000 or 8.8% over
fiscal year 1995. This increase was generated primarily by increased foreign
sales and the addition of 3-IN-ONE sales which were approximately $3,000,000.
Cost of product sold as a percentage of net sales was 43.6% versus 42.8% last
year. This increase was due to the additional cost of promotional packaging and
inflationary cost increases.
Selling, general and administrative expenses were up $2,312,000 or 12.9% and, as
a percentage of net sales, these expenses were 20.9% versus 20.1% last year. In
addition to other inflationary increases, freight and travel expenses were up
primarily due to rising petroleum prices, legal and professional expenses
increased, and there were additional expenses associated with strategic
planning for business continuity as discussed above.
Advertising and sales promotion expenses were also up by 5.4% or $445,000;
however, these expenses declined as a percentage of net sales to 8.9% versus
9.2% last year. These expenses are expected to return to their historic range of
9% to 10% of net sales by fiscal year end.
Amortization of goodwill and investments during the first nine months of fiscal
year 1996 was $667,000 versus $250,000 in the prior year.
Net interest income decreased $454,000 mainly due to the reduction of short-term
investments which were used to finance the acquisition of 3-IN-ONE. Other income
increased $174,000 due primarily to the increase in exchange gains from U.K.
sales denominated in foreign currencies.
Net income increased slightly from last year due to the factors discussed above.
9
<PAGE>
WD-40 Company (U.S.)
- --------------------
Net sales increased $2,986,000 as a result of higher export sales to the Pacific
Rim and Latin America where sales increased approximately 40%. Domestic sales
were up 1.2% due to the addition of 3-IN-ONE.
Cost of product sold as a percent of net sales increased to 44.5% versus 43.7%
in 1995 due to both the additional cost of promotional packaging and inflation
in raw material costs.
Selling, general, and administrative expenses as a percentage of net sales
increased to 21.4% from 19.1% in 1995.
Advertising and promotion expenses as a percentage of net sales were up slightly
to 9.4% versus 9.3% of last year.
Net income decreased 13.6% or $1,441,000 due to increased costs and expenses as
described above.
WD-40 Company Ltd. (U.K.)
- -------------------------
Net sales increased $3,738,000 or 19.4%, due to strong promotional sales in the
U.K., Europe, and the Middle East and the addition of 3-IN-ONE. However, the
currency translation of U.K. pounds to U.S. dollars for financial reporting
purposes was down 3.1%.
Cost of product sold as a percentage of net sales increased to 39.6% versus
38.1% in 1995 due to the additional cost of promotional packaging.
Selling, general and administrative expenses increased 10.9% or $468,000;
however as a percentage of net sales, these expenses decreased to 20.8% versus
22.4% last year.
Advertising and promotion expenses increased 8.4% or $140,000 due to the timing
of promotions during the year.
Net income increased $1,439,000 or 33.3% over the previous year primarily due to
the combined effect of the factors discussed above.
Other Foreign Subsidiaries
- --------------------------
Net sales increased 19.9% or $1,122,000 due to the rebound of sales in Canada.
Cost of product sold as a percentage of net sales decreased to 48.2% versus
49.5% in 1995.
Selling, general and administrative expenses decreased to 16.4% of net sales
versus 19.4% in 1995.
10
<PAGE>
Advertising and promotion expenses decreased to 8.3% of net sales versus 10.2%
in 1995.
Net income increased $230,000 or 23.0% due to the increased sales.
Price Increases
- ---------------
The Company did not initiate any price increases during this quarter.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents increased $4,574,000 during the three months ended May
31, 1996 versus a decrease of $1,874,000 for the comparable quarter of last
year.
Liquidity and Capital Resources
- -------------------------------
The current ratio of 3.7 to one on May 31, 1996 was less than the current ratio
of 4.5 to one in August 31, 1995 largely due to the cash paid to acquire all of
the worldwide 3-IN-ONE brand trademarks, other related intangible assets, and
inventory.
The Company's primary source of liquidity is funds provided by operations. The
Company anticipates its cash flows from operations will provide sufficient funds
to meet both short and long-term operating needs, as well as future dividends.
Capital expenditures for the remainder of fiscal year 1996 are expected to total
approximately $400,000 principally for replacement of aged vehicles and updating
computer equipment.
11
<PAGE>
PART II Other Information
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
Exhibit No. Description
- ----------- -----------
Articles of Incorporation and By-Laws.
3 (a) The Restated Articles of Incorporation dated December 6, 1988
are incorporated by reference from the Registrant's form 10-K
Annual Report filed November 13, 1995, Exhibit 3(a) thereto.
3 (b) The restated By-Laws dated December 1, 1988 are incorporated
by reference from the Registrant's Form 10-K Annual Report
filed November 13, 1995, Exhibit 3(a) thereto.
SIGNATURES
- ----------
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
WD-40 COMPANY
Registrant
/s/ Robert D. Gal
Date: July 3, 1996 -----------------
Robert D. Gal,
Treasurer
(Principal Financial Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> MAR-01-1996
<PERIOD-END> MAY-31-1996
<CASH> 7,290,000
<SECURITIES> 0
<RECEIVABLES> 22,046,000
<ALLOWANCES> 559,000
<INVENTORY> 3,881,000
<CURRENT-ASSETS> 35,871,000
<PP&E> 6,869,000
<DEPRECIATION> 3,077,000
<TOTAL-ASSETS> 60,227,000
<CURRENT-LIABILITIES> 9,571,000
<BONDS> 2,427,000
0
0
<COMMON> 6,522,000
<OTHER-SE> 40,608,000
<TOTAL-LIABILITY-AND-EQUITY> 60,227,000
<SALES> 34,228,000
<TOTAL-REVENUES> 34,386,000
<CGS> 15,484,000
<TOTAL-COSTS> 11,361,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,000
<INCOME-PRETAX> 7,419,000
<INCOME-TAX> 2,383,000
<INCOME-CONTINUING> 5,036,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,036,000
<EPS-PRIMARY> .66
<EPS-DILUTED> .65
</TABLE>
