<PAGE>
FORM 10-K/A
AMENDMENT NO. 1
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, 1997 0-6936-3
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WD-40 COMPANY
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(Exact Name of Registrant as specified in Charter)
California 95-1797918
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(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
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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: [_]
The aggregate market value (closing price) of the voting stock held by non-
affiliates of the Registrant as of October 10, 1997 was $372,530,000.
As of October 10, 1997 the Registrant had 15,563,792 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
- -----------------------------------
The Proxy Statement for the annual meeting of shareholders on November 25, 1997
is incorporated by reference into PART III, Items 10-13. The Annual Report to
Shareholders for the fiscal year ended August 31, 1997 is incorporated by
reference into PART I, ITEM 1, PART II, ITEMS 5-8, and PART IV.
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<PAGE>
STATEMENT REGARDING AMENDED FORM 10-K
-------------------------------------
In order to assist readers of the registrant's electronic filing of its
Annual Report on Form 10-K filed on November 28, 1997, the registrant is
refiling its report in its entirety to reflect the following changes:
(1) Part IV, Item 14, listing documents filed as part of this report, is
amended to include new Exhibit 3(b), Certificate of Amendment of Restated
Articles of Incorporation, which was filed with the Secretary of State of
California on July 11, 1997 to effect a 2 for 1 stock split. The exhibits
listed under Item 14 have been renumbered and the Index to Exhibits has been
amended accordingly.
(2) Exhibit 13, pages 6 through 20 of the registrant's Annual Report to
Shareholders for the fiscal year ended August 31, 1997, has been amended to
correct typographical errors found in the electronically filed document. No
change has been made to the financial statements released to shareholders in
connection with the registrant's annual meeting of shareholders held on November
25, 1997. Exhibit 13 is incorporated by reference in Part I, Item 1; Part II,
Items 5-8; and Part IV, Item 14, of this report on Form 10-K/A.
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<PAGE>
PART I
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ITEM 1 - Business
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(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, which was 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 has been 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.
(b) Financial Information About Industry Segments. Not applicable.
3
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(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 1996 fiscal year as an extra
strength synthetic spray lubricant for heavy-duty applications. Marketing for
T.A.L 5 is 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 to 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.
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.
4
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Ninety-three (93) persons are employed by the United States parent
corporation, ten (10) by the Company's Canadian subsidiary, fifty-two (52) by
the United Kingdom subsidiary, and eleven (11) 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
Page 12 of the Annual Report to Shareholders for the fiscal year ended August
31, 1997 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, England. The building consists of approximately 8,000 square
feet of office space and 4,700 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; Miami, Florida;
Northbrook, Illinois; Thousand Oaks, California, and Trevose, Pennsylvania.
The Company leases approximately 2,000 square feet of office space in
Etobicoke, Ontario, Canada.
The Company leases approximately 2,500 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.
ITEM 3 - Legal Proceedings
- --------------------------
Not Applicable.
ITEM 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Not applicable.
5
<PAGE>
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:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<C> <C> <S>
Garry O. Ridge 41 President and Chief Executive Officer: Mr. Ridge
joined the Company's Australian subsidiary, WD-40
Company (Australia) Pty. Limited, in 1987 as
Managing Director and has held several senior
management positions prior to his election as CEO in
1997.
Michael L. Freeman 44 Vice President Administration, Chief Information
Officer: Mr. Freeman joined the Company in 1990 as
Director of marketing and was named Director of
Operations in 1994. He was named Vice President
Administration and Chief Information Officer in
December, 1996.
Geoffrey J. Holdsworth 35 Managing Director, Asia Pacific, WD-40 Company
(Australia) Pty. Ltd.: Mr. Holdsworth joined the
Company's Australian subsidiary, WD-40 Company
(Australia) Pty. Limited, in 1996 as General
Manager, Australia. Prior to joining WD-40 Company,
Mr. Holdsworth held sales management positions at
Columbia Pelikan Pty. Ltd., Australia.
Graham P. Milner 43 Vice President, Sales and Marketing, The Americas:
Mr. Milner joined the Company in 1992 as
International Director, and was appointed Vice
President, Sales and Marketing, The Americas in
March, 1997.
William B. Noble 39 Managing Director, Europe, WD-40 Company Ltd.
(U.K.): Mr. Noble joined the Company's Australian
subsidiary, WD-40 Company (Australia) Pty.
Limited, in 1993 as International Marketing Manager
for the Asia Region. He was appointed Managing
Director, Europe in December, 1996.
Peter E. Williams 54 Vice President Finance, Chief Financial Officer,
Treasurer and Assistant Secretary: Mr. Williams
joined the Company in 1996 as Controller and was
named Vice President Finance and Chief Financial
Officer in December, 1996. Prior to joining WD-40
Company, Mr. Williams held financial management
positions at Silicon Graphics, Inc.
</TABLE>
All officers hold office at the pleasure of the Board of Directors.
6
<PAGE>
PART II
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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, 1997, the approximate number of
holders of record of the Company's common stock was 2,226. 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, 1997 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
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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, 1997.
ITEM 8 - Financial Statements and Supplementary Data
- ----------------------------------------------------
See the Index to Consolidated Financial Statements and Financial Statement
Schedule on Page 8 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, 1997.
ITEM 9 - Changes in and Disagreements With Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
- --------------------
Not applicable.
PART III
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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.
7
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ITEM 13 - Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required in ITEMS 10, 11, 12 and 13 is incorporated by
reference from Pages 4, 5, and 6; Pages 6, 7, 8, 9, 10, 11, and 12; Pages 2 and
4; and Page 5; respectively, of the Proxy Statement for the annual meeting of
shareholders, November 25, 1997.
PART IV
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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, 1997:
1. Financial Statements
Report of Independent Accountants
Consolidated Statement of Income for the three years ended August 31, 1997
Consolidated Balance Sheet at August 31, 1997 and 1996
Consolidated Statement of Shareholders' Equity for the three years ended August
31, 1997
Consolidated Statement of Cash Flows for the three years ended August 31, 1997
Notes to Consolidated Financial Statements
The following financial statement schedule of WD-40 Company for the three
years ended August 31, 1997 is included in PART II, ITEM 8:
2. Financial Statement Schedule
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants on Financial Statement Schedule 11
II - Consolidated Valuation and Qualifying Accounts and Reserves 12
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
8
<PAGE>
3. Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------- -----------
<C> <S>
Articles of Incorporation and By-Laws.
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) Certificate of Amendment of Restated Articles of Incorporation.
3(c) Restated By-Laws are incorporated by reference from the Form 10-K
Annual Report dated November 9, 1995, Exhibit 3(b) thereto.
3(d) Amendment No. 1 to Restated By-Laws.
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) Second Amendment and Restatement, WD-40 Company 1990 Incentive
Stock Option Plan.
13 Annual Report to Shareholders for the fiscal year ended August
31, 1997; pages 6-20 incorporated by reference in this report.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule (electronic filing only).
(b) Reports on Form 8-K
</TABLE>
No reports on Form 8-K were filed during the last quarter of the
Registrant's fiscal year ended August 31, 1997.
9
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to its
annual report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WD-40 COMPANY
Registrant
By /s/ Garry O. Ridge
-----------------------------
GARRY O. RIDGE, President and
Chief Executive Officer
(Principal Executive Officer)
December 4, 1997
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<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 2, 1997 appearing on page 6 of the 1997 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.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Diego, California
October 2, 1997
11
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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>
Reserve for bad debts and sales discounts:
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
========= ========== ========== =========
Year ended
August 31, 1997 $ 420,000 $1,104,000 $1,029,000 $ 495,000
========= ========== ========== =========
</TABLE>
* Write-off of doubtful accounts and sales discounts taken.
12
<PAGE>
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Incorporated
By Reference
No. Exhibit Page
- --- ------- ----
<C> <S> <C>
3(a) Restated Articles of Incorporation 9
3(b) Certificate of Amendment of Restated Articles of Incorporation
3(c) Restated By-Laws 9
3(d) Amendment No. 1 to Restated By-Laws
10(a) Restated WD-40 Company Incentive Stock Option Plan 9
10(b) WD-40 Company Supplemental Death Benefit Plan 9
10(c) WD-40 Company Supplemental Retirement Benefit Plan 9
10(d) Second Amendment and Restatement, WD-40 Company 1990
Incentive Stock Option Plan
13 Annual Report to Shareholders for the fiscal year ended August 31, 1997
(Pages 6-20 in electronic filing)
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
27 Financial Data Schedule (electronic filing only)
</TABLE>
13
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EXHIBIT 3(b)
CERTIFICATE OF AMENDMENT
------------------------
OF
--
RESTATED ARTICLES OF INCORPORATION
----------------------------------
OF
--
WD-40 COMPANY
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GARRY O. RIDGE and PETER E. WILLIAMS certify that:
1. They are the Executive Vice-President and the Treasurer, respectively,
of WD-40 COMPANY, a California corporation, Corporate Number 278655.
2. Article THIRD of the Articles of Incorporation of the corporation is
amended to read as follows:
"THIRD: This corporation is authorized to issue only one class of
-----
shares of stock and the total number of shares which this corporation
is authorized to issue is Eighteen Million (18,000,000). Upon the
amendment of this article to read as herein set forth, each outstanding
share is split up and converted into 2 shares."
3. The foregoing amendment of Articles of Incorporation has been duly
approved by the Board of Directors of the corporation.
4. The foregoing amendment is one which may be adopted by the Board of
Directors alone under Section 902(c) of the Corporations Code because the
corporation has only one class of shares outstanding and the total number of
authorized shares of the corporation is being proportionately increased to
effect a stock split.
Page 1 of 2
<PAGE>
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in the Certificate are true and correct of
our own knowledge.
Date: June 27, 1997
/s/ Garry O. Ridge
----------------------------
GARRY O. RIDGE,
Executive Vice-President
/s/ Peter E. Williams
----------------------------
PETER E. WILLIAMS, Treasurer
Page 2 of 2
<PAGE>
EXHIBIT 3(d)
AMENDMENT NO. 1
---------------
TO RESTATED BY-LAWS
-------------------
OF
--
WD-40 COMPANY
-------------
A CALIFORNIA CORPORATION
------------------------
1. Section 2 of Article III of the Restated By-Laws of WD-40 Company, a
California corporation, is amended to read as follows:
"Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized
-------------------------------------
number of directors shall be not less than nine nor more than twelve until
changed by amendment of the Articles or by a By-Law duly adopted by the
shareholders. The exact number of directors shall be fixed, within the
limits specified, by the Board or the shareholders in the same manner
provided in these By-Laws for the amendment hereof. The exact number of
directors shall be ten until changed as provided in this Section 2."
2. In all other respects, the Restated By-Laws of the corporation dated
December 1, 1988 shall remain in full force and effect.
I hereby certify that I am the duly elected and acting Secretary of
WD-40 Company, a California corporation, and that the foregoing Amendment No. 1
to Restated By-Laws was duly adopted at a meeting of the Shareholders of the
corporation held on November 25, 1997.
IN WITNESS WHEREOF, I have executed this Amendment No. 1 to Restated
By-Laws this 25th day of November, 1997.
/s/ Harlan F. Harmsen
----------------------------
Harlan F. Harmsen, Secretary
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EXHIBIT 10(d)
-------------
SECOND AMENDMENT AND RESTATEMENT
--------------------------------
WD-40 COMPANY
-------------
1990
----
INCENTIVE STOCK OPTION PLAN
---------------------------
Pursuant to the authority granted to the Board of Directors of WD-40
COMPANY under Paragraph 8 of the WD-40 COMPANY 1990 INCENTIVE STOCK OPTION PLAN
adopted by the Board of Directors on March 28, 1990, restated on September 26,
1994 and approved by the Company's shareholders on November 29, 1994, said Plan
is hereby amended and restated in its entirety to increase the number of shares
authorized for issuance under the Plan, to authorize the grant of options for
outside Directors and to extend the termination date of the Plan. The Restated
Plan also includes certain conforming amendments under the Securities Exchange
Act of 1934 and applicable regulations thereunder.
This Second Amendment and Restatement shall be effective upon its approval
by the shareholders of the Company within twelve (12) months of its adoption by
the Company's Board of Directors.
1. ESTABLISHMENT AND PURPOSE
-------------------------
The purpose of the Plan is to provide a means whereby Directors and
salaried or key employees of WD-40 COMPANY, a California corporation (the
"Company") or of its subsidiaries (the "Subsidiaries") may be given an
opportunity to purchase common stock of the Company under options which will be
non-qualified or qualify as "incentive stock options" under
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<PAGE>
Section 422 of the Internal Revenue Code. Subsidiaries, for this purpose, shall
include corporations defined as a subsidiary corporation under Section 424 of
the Internal Revenue Code.
2. AMOUNT OF STOCK
---------------
(a) Options designated as "non-qualified stock options" or "incentive
stock options" may be granted from time to time to directors and employees of
the Company or Subsidiaries to purchase an aggregate of not more than 1,480,000
shares of the Company's authorized but unissued no par value common stock. If
an option is surrendered or for any other reason ceases to be exercisable in
whole or in part, the shares which were subject to such option but as to which
the option had not been exercised shall continue to be available under the Plan.
(b) The number of shares available under the Plan shall be increased
to the extent of any shares tendered in lieu of cash upon exercise of an option
granted under the Plan, whether such shares are actually canceled or are
retained upon issuance of an appropriate net number of new shares, the effect on
the issuance of additional shares being the same.
(c) The aggregate fair market value (determined at the time an option
is granted) of the stock for which incentive stock options first become
exercisable by any person in any calendar year (under all such plans of the
Company or of its parent or Subsidiaries) shall not exceed $100,000.
(d) Except as provided in Paragraph 4 of this Plan, no incentive
stock option shall be granted to any person who, immediately before such option
is granted, owns (as defined in Section 424 of the Internal Revenue Code) stock
possessing more than 10% of the total combined voting power or value of all
classes of stock of the Company or of its parent or Subsidiaries.
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<PAGE>
3. ADMINISTRATION
--------------
(a) The Plan shall be administered by the Board of Directors or a
Stock Option Committee (the "Committee") of the Board of Directors of the
Company. The Committee shall consist of two or more directors who are "Non-
Employee Directors" as defined in regulation Section 240.16b-3 promulgated by
the Securities and Exchange Commission under the Securities Exchange Act of
1934. Subject to the express terms and conditions of the Plan, the Board of
Directors or the Committee shall have full power to construe and interpret the
Plan, to prescribe, amend and rescind rules and regulations relating to it, and
to make all other determinations necessary or advisable, in the sole discretion
of the Board of Directors or the Committee, for its administration.
(b) The Board of Directors or the Committee may from time to time
determine which Directors and employees of the Company or Subsidiaries shall be
granted non-qualified or incentive stock options under this Plan, and the number
of shares for which an option or options shall be granted to each of them.
Options granted to outside directors shall be approved by a vote of the full
Board of Directors.
4. TERMS AND CONDITIONS OF OPTIONS
-------------------------------
Each option shall be evidenced by a Stock Option Agreement executed by the
Company and the person to whom such option is granted. Each Agreement shall
specify whether the option is a non-qualified or incentive stock option. The
Agreements shall be subject to the following terms and conditions:
(a) Option Price. Except as provided in subparagraph (c), the option
------------
price shall be fixed by the Board of Directors or the Committee and shall be a
price at least equal to
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100% of the fair market value of the stock on the day the option is granted;
fair market value may be taken as the previous day's closing price or the mean
between the opening bid and asked price of the stock in the over-the-counter
market, as may be appropriate.
(b) Option Period. Except as provided in subparagraph (c), each
-------------
option granted under the Plan shall expire on a date determined by the Board of
Directors or the Committee, but, for incentive stock options, not later than ten
years from the date the option is granted. No option shall be exercisable until
one year from the initial grant date.
(c) Incentive Stock Options Granted to 10% Shareholders. An
---------------------------------------------------
incentive stock option may be granted to a shareholder who, immediately before
such option is granted, owns more than 10% of the total combined voting power or
value of all classes of stock of the Company or of its parent or Subsidiaries,
provided that the price of such option is at least 110% of the fair market value
of the stock, and provided further that the option is not exercisable after five
years from the date the option is granted.
(d) Adjustments.
-----------
(i) In the event of an increase or decrease in the number of
outstanding shares of common stock of the Company through stock dividends,
split-ups, changes in par value and the like, an appropriate adjustment shall be
made in the number of shares and option price per share of the shares as to
which the right to purchase has not been exercised or has not matured. Such
adjustment may be made either by increase in the number of shares and decrease
in the option price per share, or by decrease in the number of shares and
increase in the option price per share, as may be required to enable the holder
of the option to acquire the same proportionate stockholdings at the same
aggregate purchase price. In making such adjustments,
-4-
<PAGE>
no fractional shares, or scrip certificates in lieu thereof, shall be issued by
the Company, and the holder of the option shall receive only the number of full
shares to which he may be entitled by reason of such adjustment at the adjusted
option price per share.
(ii) Whenever during the term of an option and prior to the
exercise thereof as to all shares at that time subject thereto, the Company (1)
shall offer for sale to holders of its common stock, shares of common stock or
other classes of stock or of other securities of the Company, or (2) in
connection with any transaction shall acquire or shall cause to be issued rights
to acquire shares of stock or other securities of any corporation to or for the
benefit of the holders of common stock of the Company, it will give written
notice to the holder of an option of the rights which are thus to be acquired or
issued to or for the benefit of the holders of its common stock in sufficient
time to permit such option holder to exercise the option to the full extent then
possible.
(iii) In the event the Company proposes to merge or consolidate
with another corporation or to sell or dispose of its assets and business or to
dissolve, the Company will give written notice thereof to the holder of each
option in sufficient time to permit him to exercise the option in full as to any
matured options, if such holder should elect to do so, and to participate in
such transaction as a stockholder of the Company. In the event of a merger or
consolidation or sale under which the Company or its holders of common stock
will not acquire stock or other securities of the continuing, resulting or
another corporation in exchange for their shares of common stock of the Company
but shall receive cash in whole or in part, then any unmatured options shall
likewise be deemed to have matured at the date of the notice of the meeting of
stockholders of the Company at which such consolidation, merger, sale or other
-5-
<PAGE>
transaction is to be considered so that the option holder will have an
opportunity to exercise such option before such consolidation, merger, sale or
other transaction is effective. In either event, if such options are not
exercised, they shall terminate and expire.
(e) Nontransferability of Options. An option shall not be
-----------------------------
transferable otherwise than by Will or the laws of descent and distribution, and
an option may be exercised during the lifetime of the employee only by him.
(f) Other Provisions and Amendments. The option may contain such
-------------------------------
other terms, provisions and conditions not inconsistent with the Plan as may be
determined by the Board of Directors or the Committee and incentive stock
options shall include such provisions and conditions as may be necessary to
qualify the option as an "incentive stock option" under Section 422 of the
Internal Revenue Code. The Board of Directors or the Committee shall have
authority to amend any outstanding option to include such terms, provisions and
conditions not inconsistent with the Plan as may be agreed to by the optionee.
5. EXERCISE OF OPTIONS
-------------------
(a) An option may be exercised with respect to all or any part of the
shares then subject to exercise only by delivering to the Company written notice
of exercise, specifying the number of such shares as to which the option is so
exercised and accompanied by cash or a certified or cashier's check, payable to
the order of the Company for an amount in lawful money of the United States
equal to the option price of such shares.
(b) In lieu of cash, an optionee may exercise his or her option by
tendering to the Company shares of the common stock of the Company, owned by him
or her for not less than six (6) months, and having a fair market value equal to
the cash exercise price
-6-
<PAGE>
applicable to the option(s) being exercised, with the fair market value of such
stock to be determined in such appropriate manner as may be provided for by the
Board of Directors or the Committee.
(c) The Stock Option Agreement shall require certain representations,
warranties or assurances, or an undertaking by an optionee in the event issuance
of the shares might require filing or registration under the Securities Act of
1933 or the Blue Sky laws of any state or any other law regulating the issuance
of securities.
6. TAX REPORTING AND WITHHOLDING
-----------------------------
The Company shall comply with all reporting and withholding requirements
applicable to the exercise of options under the Internal Revenue Code and
regulations thereunder.
7. PROCEEDS FROM SALE OF STOCK
---------------------------
Proceeds from the sale of stock pursuant to the options granted under
the Plan shall be added to the general funds of the Company.
8. SUSPENSION, AMENDMENT OR TERMINATION OF THE PLAN
------------------------------------------------
The Board of Directors may at any time amend, suspend or terminate the
Plan. Unless the Plan shall theretofore have been terminated by the Board of
Directors, the Plan shall terminate on December 31, 2005. No option may be
granted during such suspension or after such termination. The termination of
the Plan shall not, without the consent of the optionee, alter or impair any
rights or obligations under any option theretofore granted under the Plan.
9. DELIVERY OF SHARES SUBJECT TO DELAYS
------------------------------------
The issuance of each option under the plan and the issuance and delivery of
shares of stock pursuant to the exercise of any option under the Plan shall be
subject to and in
-7-
<PAGE>
compliance with the laws of any state or other governmental authority applicable
thereto, the Board of Directors being hereby authorized to cause to be prepared,
filed and presented on the Company's behalf to any governmental official, agency
or tribunal all such applications or other instruments or papers and to maintain
any and all proceedings as shall be required to cause the issuance to the
Company of a permit or other authorization to issue or deliver any such option
of shares. Neither the Company nor any officer, director or employee shall be
liable for any delay in issuance or delivery of any option or shares pending the
filing of any such application, instrument or papers or the grant of a permit or
other authorization to enable such issuance or delivery to be made.
IN WITNESS WHEREOF, the Plan is amended and restated this 22nd day of
September, 1997.
WD-40 COMPANY
By /s/ Gerald C. Schleif
----------------------------
Gerald C. Schleif, President
Attest:
/s/ Harlan F. Harmsen
- ----------------------------
Harlan F. Harmsen, Secretary
-8-
<PAGE>
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, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended August 31, 1997, 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.
/s/ Price Waterhouse LLP
San Diego, California
October 2, 1997
WD-40 COMPANY CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales.................... $137,893,000 $130,912,000 $116,776,000
Cost of product sold......... 59,286,000 57,925,000 50,229,000
------------ ------------ ------------
Gross profit................. 78,607,000 72,987,000 66,547,000
------------ ------------ ------------
Operating expenses:
Selling, general and
administrative........... 28,770,000 27,027,000 23,759,000
Advertising and sales
promotion................ 13,846,000 12,219,000 10,973,000
Amortization expense....... 1,343,000 1,065,000 333,000
------------ ------------ ------------
43,959,000 40,311,000 35,065,000
------------ ------------ ------------
Income from operations....... 34,648,000 32,676,000 31,482,000
Interest income, net......... 54,000 398,000 1,118,000
Other income (expense), net.. (1,342,000) 338,000 53,000
------------ ------------ ------------
Income before income taxes... 33,360,000 33,412,000 32,653,000
Provision for income taxes... 11,997,000 12,115,000 12,200,000
------------ ------------ ------------
Net income................... $ 21,363,000 $ 21,297,000 $ 20,453,000
============ ============ ============
Earnings per share........... $ 1.38 $ 1.38 $ 1.33
============ ============ ============
Average number of shares
outstanding................ 15,512,140 15,423,728 15,400,478
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
WD-40 COMPANY CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS YEAR ENDED AUGUST 31,
-------------------------------
1997 1996
------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................... $ 10,868,000 $ 6,748,000
Short-term investments...................................................... 104,000
Trade accounts receivable, less allowance for cash discounts
and doubtful accounts of $495,000 and $420,000............................ 22,608,000 21,440,000
Product held at contract packagers.......................................... 2,132,000 2,304,000
Inventories................................................................. 3,341,000 3,867,000
Other current assets........................................................ 3,407,000 3,170,000
------------ ------------
Total current assets.......................................................... 42,356,000 37,633,000
Property, plant and equipment, net............................................ 4,160,000 3,938,000
Long-term investments......................................................... 3,711,000 4,044,000
Goodwill, net................................................................. 13,435,000 14,392,000
Other assets.................................................................. 1,756,000 1,651,000
------------ ------------
$ 65,418,000 $ 61,658,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................................... $ 6,683,000 $ 5,784,000
Accrued payroll and related expenses........................................ 2,383,000 2,737,000
Income taxes payable........................................................ 1,546,000 1,879,000
Current portion of long-term debt........................................... 756,000 706,000
------------ ------------
Total current liabilities..................................................... 11,368,000 11,106,000
Long-term debt................................................................ 1,671,000 2,427,000
Deferred employee benefits.................................................... 1,039,000 954,000
------------ ------------
Total long-term liabilities................................................... 2,710,000 3,381,000
------------ ------------
Commitments and contingencies (Note 10)
Shareholders' equity:
Common stock, no par value, 18,000,000 shares authorized--
15,561,942 and 15,441,906 shares issued and outstanding..................... 8,459,000 6,603,000
Paid-in capital............................................................. 321,000 321,000
Retained earnings........................................................... 42,403,000 40,425,000
Cumulative translation adjustment........................................... 157,000 (178,000)
------------ ------------
Total shareholders' equity.................................................... 51,340,000 47,171,000
------------ ------------
$ 65,418,000 $ 61,658,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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, 1994............................. 15,385,950 $ 5,720,000 $ 292,000 $ 36,433,000 $ (350,000)
Issuance of common stock upon exercise of options...... 20,360 363,000
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............................. 15,406,310 6,083,000 321,000 38,251,000 (150,000)
Issuance of common stock upon exercise of options...... 45,392 747,000
Repurchase of common stock upon exercise of options.... (9,796) (227,000)
Cash dividends......................................... (19,123,000)
Change in cumulative translation adjustment............ (28,000)
Net income............................................. 21,297,000
---------- ------------ ---------- ------------- -----------
Balance at August 31, 1996............................. 15,441,906 6,603,000 321,000 40,425,000 (178,000)
Issuance of common stock upon exercise of options...... 177,400 3,509,000
Repurchase of common stock upon exercise of options.... (57,364) (1,653,000)
Cash dividends......................................... (19,385,000)
Change in cumulative translation adjustment............ 335,000
Net income............................................. 21,363,000
---------- ------------ ---------- ------------- -----------
Balance at August 31, 1997............................. 15,561,942 $ 8,459,000 $ 321,000 $ 42,403,000 $ 157,000
========== ============ ========== ============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
WD-40 COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ........................................................................ $ 21,363,000 $ 21,297,000 $ 20,453,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................... 2,216,000 1,760,000 996,000
Loss on sale of equipment ....................................................... 108,000 32,000 124,000
Non-cash compensation ........................................................... 29,000
Decrease (increase) in deferred income taxes .................................... 18,000 619,000 (787,000)
Changes in assets and liabilities:
Trade accounts receivable ..................................................... (998,000) (4,276,000) (2,205,000)
Product held at contract packagers ............................................ 172,000 3,000 1,460,000
Inventories ................................................................... 624,000 (1,270,000) (78,000)
Other assets .................................................................. (331,000) (342,000) (1,437,000)
Accounts payable and accrued expenses ......................................... 435,000 1,109,000 650,000
Income taxes payable .......................................................... (383,000) (832,000) 2,166,000
Long-term deferred employee benefits .......................................... 85,000 92,000 63,000
------------ ------------ ------------
Net cash provided by operating activities ................................... 23,309,000 18,192,000 21,434,000
------------ ------------ ------------
Cash flows from investing activities:
Decrease (increase) in short-term investments ..................................... 104,000 13,123,000 (4,077,000)
Non-cash intangible assets of business acquired ................................... (15,047,000)
Proceeds from sale of equipment ................................................... 291,000 163,000 307,000
Capital expenditures .............................................................. (1,478,000) (1,353,000) (1,371,000)
------------ ------------ ------------
Net cash used in investing activities ....................................... (1,083,000) (3,114,000) (5,141,000)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock ............................................ 1,856,000 520,000 363,000
Repayments of long-term debt ...................................................... (706,000) (658,000) (615,000)
Dividends paid .................................................................... (19,385,000) (19,123,000) (18,635,000)
------------ ------------ ------------
Net cash used in financing activities ....................................... (18,235,000) (19,261,000) (18,887,000)
------------ ------------ ------------
Effect of exchange rate changes on cash ............................................. 129,000 (159,000) 169,000
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents .................................... 4,120,000 (4,342,000) (2,425,000)
Cash and cash equivalents at beginning of year ...................................... 6,748,000 11,090,000 13,515,000
------------ ------------ ------------
Cash and cash equivalents at end of year ............................................ $ 10,868,000 $ 6,748,000 $ 11,090,000
============ ============ ============
Non-cash investing and financing activities:
Repurchase of common stock upon exercise of options ............................... $ 1,653,000 $ 227,000 $ -0-
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT 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 reporting 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 shipped to 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, three to fifteen
years for machinery and equipment, five years for vehicles and five to seven
years for furniture and fixtures.
Goodwill
Goodwill represents the excess of the 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.
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
adopted 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 No.
121 did not have a significant impact on the Company's financial position or
results of operations.
Advertising Costs
The Company expenses advertising costs when the liabilities arise.
Fair Value of Financial Instruments
At August 31, 1997, the carrying amounts of the Company's financial instruments,
including cash equivalents, 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, 1997.
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.
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 as other income (expense). Aggregate
foreign currency transaction gains and (losses) were ($1,274,000) and $135,000
for the years ended August 31, 1997 and 1996, respectively.
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.
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128
"Earnings per Share." SFAS No. 128 will be adopted by the Company as required in
the second quarter of fiscal 1998. Upon adoption of SFAS No. 128, the Company
will present basic earnings per share and diluted earnings per share. Basic
earnings per share will be computed based on the weighted average number of
shares outstanding during the period. Diluted earnings per share will be
computed based on the weighted average number of shares outstanding during the
period increased by the effect of dilutive stock options using the treasury
stock method. Pro forma basic earnings per share for the years ended August 31,
1997 and 1996 are $1.38 and $1.38, respectively. Pro forma diluted earnings per
share for the same periods are $1.37 and $1.38, respectively.
Stock-Based Compensation
As permitted by SFAS No. 123 "Accounting for Stock-Based Compensation" the
Company has elected to continue to account for stock options and other
stock-based awards to employees in accordance with APB Opinion No. 25
("Accounting for Stock Issued to Employees"). See Note 6 for pro forma
disclosures of net income and earnings per share as if the fair value based
method prescribed by SFAS No. 123 had been applied in measuring compensation
expense.
Recapitalization
On July 11, 1997, the Company filed a Certificate of Amendment of Restated
Articles of Incorporation to effect a two-for-one stock split of all outstanding
shares of common stock and stock options. All shares and per share data in the
accompanying financial statements have been adjusted retroactively to give
effect to the stock split. The Certificate of Amendment increased the authorized
stock of the Company such that the Company is authorized to issue 18,000,000
shares of no par value common stock.
Reclassifications
Certain 1996 and 1995 balances have been reclassified to conform to the 1997
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,
1997 and 1996 was $1,746,000 and $732,000 and the related amortization expense
for the years then ended was $1,014,000 and $732,000, respectively.
NOTE 3 - SELECTED FINANCIAL STATEMENT INFORMATION
<TABLE>
<CAPTION>
AUGUST 31,
-----------------------------
1997 1996
----------- ------------
<S> <C> <C>
Inventories:
Raw materials ............................................................... $ 459,000 $ 333,000
Finished goods .............................................................. 2,882,000 3,534,000
----------- ------------
$ 3,341,000 $ 3,867,000
=========== ============
Property, plant and equipment:
Land ........................................................................ $ 254,000 $ 254,000
Building and improvements ................................................... 1,919,000 1,746,000
Furniture and fixtures ...................................................... 2,832,000 2,612,000
Machinery, equipment and vehicles ........................................... 2,840,000 2,529,000
----------- ------------
7,845,000 7,141,000
Accumulated depreciation .................................................... (3,685,000) (3,203,000)
----------- ------------
$ 4,160,000 $ 3,938,000
=========== ============
</TABLE>
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $19,141,000, $18,163,000, and $13,413,000 in fiscal 1997, 1996, and 1995,
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 subsidiaries. Substantially all sales by
these entities are to customers within Canada, Australia, and New Zealand.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales:
WD-40 Company (U.S.) .............................................. $ 98,275,000 $ 93,487,000 $ 86,547,000
WD-40 Company Ltd. (U.K.) ......................................... 32,244,000 29,949,000 24,116,000
Other foreign subsidiaries ........................................ 9,174,000 8,751,000 6,978,000
Intercompany ...................................................... (1,800,000) (1,275,000) (865,000)
------------ ------------ ------------
$137,893,000 $130,912,000 $116,776,000
============ ============ ============
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Operating profit:
WD-40 Company (U.S.) .............................................. $ 25,146,000 $ 22,352,000 $ 23,391,000
WD-40 Company Ltd. (U.K.) ......................................... 7,078,000 8,134,000 6,693,000
Other foreign subsidiaries ........................................ 2,424,000 2,190,000 1,398,000
------------ ------------ ------------
Income from operations .............................................. 34,648,000 32,676,000 31,482,000
Interest income, net .............................................. 54,000 398,000 1,118,000
Other income (expense), net ....................................... (1,342,000) 338,000 53,000
------------ ------------ ------------
Income before income taxes .......................................... $ 33,360,000 $ 33,412,000 $ 32,653,000
============ ============ ============
<CAPTION>
AUGUST 31,
----------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Identifiable assets:
WD-40 Company (U.S.) .............................................. $ 46,811,000 $ 44,876,000 $ 45,587,000
WD-40 Company Ltd. (U.K.) ......................................... 16,526,000 14,949,000 12,443,000
Other foreign subsidiaries ........................................ 2,081,000 1,833,000 1,549,000
------------ ------------ ------------
$ 65,418,000 $ 61,658,000 $ 59,579,000
============ ============ ============
</TABLE>
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5-INCOME TAXES
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
AUGUST 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current tax provision:
United States............... $ 8,359,000 $ 6,812,000 $ 8,021,000
State....................... 1,687,000 1,818,000 1,971,000
Foreign..................... 1,933,000 2,866,000 2,995,000
----------- ----------- -----------
Total current......... 11,979,000 11,496,000 12,987,000
----------- ----------- -----------
Deferred tax provision (benefit):
United States............... 8,000 563,000 (792,000)
Foreign..................... 10,000 56,000 5,000
----------- ----------- -----------
Total deferred........ 18,000 619,000 (787,000)
----------- ----------- -----------
$11,997,000 $12,115,000 $12,200,000
=========== =========== ===========
</TABLE>
Deferred tax assets included in other current assets are comprised of the
following:
<TABLE>
<CAPTION>
AUGUST 31, 1997 AUGUST 31, 1996
--------------- ---------------
<S> <C> <C>
Accrued employee benefits............. $363,000 $375,000
State income taxes.................... 232,000 273,000
Reserves and allowances............... 118,000 104,000
-------- --------
$713,000 $752,000
======== ========
</TABLE>
Long-term deferred tax assets and (liabilities) included in other assets are
comprised of the following:
<TABLE>
<CAPTION>
AUGUST 31, 1997 AUGUST 31, 1996
--------------- ---------------
<S> <C> <C>
Depreciation......................... $(281,000) $(283,000)
Deferred compensation................ 439,000 395,000
Other................................ 93,000 118,000
--------- ---------
$ 251,000 $ 230,000
========= =========
</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,
-----------------------------------------------
1997 1996 1995
------------- -------------- --------------
<S> <C> <C> <C>
Amount computed at U.S.
statutory federal tax rate.. $11,676,000 $11,694,000 $11,429,000
State income taxes,
net of federal benefit...... 1,409,000 1,182,000 1,235,000
Affordable housing credits... (654,000) (499,000) (111,000)
Other........................ (434,000) (262,000) (353,000)
----------- ----------- -----------
$11,997,000 $12,115,000 $12,200,000
=========== =========== ===========
</TABLE>
Income taxes paid in fiscal 1997, 1996, and 1995 amounted to $11,850,000,
$12,329,000, and $11,643,000, respectively.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 880,000 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, 1997 options for 239,252 shares were
exercisable and options for 228,046 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, 1997 is as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------------- ---------------
<S> <C> <C>
Outstanding at August 31, 1994... 298,640 $12.25 - $23.75
Options granted................ 117,800 $21.25
Options exercised.............. (20,360) $15.34 - $20.00
Options canceled............... (10,762) $20.00 - $23.75
--------------- ---------------
Outstanding at August 31, 1995... 385,318 $12.25 - $23.75
Options granted................ 124,800 $21.19
Options exercised.............. (45,392) $12.25 - $21.25
Options canceled............... (22,994) $21.19 - $23.75
--------------- ---------------
Outstanding at August 31, 1996... 441,732 $12.25 - $23.75
Options granted................ 126,800 $23.00
Options exercised.............. (177,400) $15.34 - $23.75
Options canceled............... (16,082) $21.19 - $23.75
--------------- ---------------
Outstanding at August 31, 1997... 375,050 $15.34 - $23.75
=============== ===============
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options as of August 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- -----------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING AS OF REMAINING AVERAGE EXERCISABLE AS OF AVERAGE
RANGES OF EXERCISE PRICES AUGUST 31,1997 LIFE (YEARS) EXERCISE PRICE AUGUST 31, 1997 EXERCISE PRICE
- -------------------------- ----------------- ------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
$15.34 - $19.00 27,448 3.66 $ 15.81 27,448 $ 15.81
$19.00 - $23.75 347,602 8.48 $ 22.25 211,804 $ 21.71
---------------- -----------------
375,050 8.13 $ 21.78 239,252 $21.03
================ =================
</TABLE>
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company applies APB Opinion No. 25 and related Interpretations in accounting
for its stock option plan. If the Company had elected to recognize compensation
expense based upon the fair value at the grant date for awards under the stock
option plan consistent with the methodology prescribed by SFAS No. 123, the
Company's net income and earnings per share would be reduced to the pro forma
amounts indicated below.
<TABLE>
YEAR ENDED AUGUST 31,
-----------------------------
1997 1996
------------ -----------
<S> <C> <C>
Net income
As reported .......................................... $ 21,363,000 $ 21,297,000
Pro forma ............................................ $ 21,055,000 $ 21,098,000
Earnings per share
As reported .......................................... $ 1.38 $ 1.38
Pro forma ............................................ $ 1.36 $ 1.37
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for 1997 and 1996: expected volatility of 16.99%, risk-free
interest rate of 6.21%, an average expected life of three years and a dividend
yield of 5.60%. The weighted average fair value of stock options granted in
1997 and 1996 was $2.58 and $2.11 per share, respectively.
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 1997, 1996, and 1995 approximated $1,094,000,
$1,029,000, and $1,029,000, 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 1997, 1996, and 1995 was approximately $129,000, $118,000,
and $104,000, 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 $3,243,000 of which $1,039,000, representing the present value of
these obligations to employees for service through August 31, 1997, has been
accrued.
The Company has life insurance policies on certain of its key executives. As of
August 31, 1997 the aggregate cash surrender value of these policies is
$1,505,000, which is included in other assets. Keyman life insurance premiums
paid by the Company in fiscal 1997, 1996, and 1995 were $56,000, $46,000, and
$91,000, respectively.
NOTE 8 - 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 was $333,000 in each of the last three fiscal years.
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%. Combined interest and
principal payments on each note are $559,000 and $370,000, respectively, due
annually each January through 2000. Interest paid in fiscal 1997, 1996, and
1995 was $223,000, $270,000 and $314,000, respectively.
NOTE 9 - BANK LINE OF CREDIT
In July 1997, the Company obtained an unsecured line of credit with a commercial
bank which expires on November 30, 1999. Under the terms of the credit
agreement, the Company may borrow up to $10,000,000 at the bank's prime rate
(8.50% at August 31, 1997), or LIBOR plus 1.5% 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
borrowings outstanding on this line at August 31, 1997.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10--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.
The Company was committed under certain noncancelable operating leases at August
31, 1997 which provide for the following future minimum lease payments: 1998,
$143,000; 1999, $117,000; 2000, $86,000; 2001, $87,000; and 2002, $15,000. Rent
expense for the years ended August 31, 1997, 1996, and 1995 was $257,000,
$273,000, and $192,000, respectively.
NOTE 11--SUBSEQUENT EVENT
On September 22, 1997, the Company declared a cash dividend of $.32 per share
payable on October 30, 1997 to shareholders of record on October 10, 1997.
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, 1997.
<TABLE>
<CAPTION>
NET GROSS NET EARNINGS
QUARTER ENDED: SALES PROFIT INCOME PER SHARE*
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
November 30, 1995............ $ 27,612,000 $15,926,000 $5,266,000 $ .34
February 28, 1996............ 35,080,000 19,980,000 5,883,000 .38
May 31, 1996................. 34,228,000 18,744,000 5,036,000 .33
August 31, 1996.............. 33,992,000 18,337,000 5,112,000 .33
------------ ----------- ----------- -----
$130,912,000 $72,987,000 $21,297,000 $1.38
============ =========== =========== =====
November 30, 1996............. $ 28,265,000 $16,846,000 $ 4,240,000 $ .28
February 28, 1997............. 39,806,000 22,334,000 6,565,000 .42
May 31, 1997.................. 34,525,000 19,641,000 5,134,000 .33
August 31, 1997............... 35,297,000 19,786,000 5,424,000 .35
------------ ----------- ----------- -----
$137,893,000 $78,607,000 $21,363,000 $1.38
============ =========== =========== =====
</TABLE>
<TABLE>
<CAPTION>
STOCK INFORMATION*
FISCAL 1997 FISCAL 1996
-------------------------------- ------------------------------------
PERIOD: HIGH LOW DIVIDEND HIGH LOW DIVIDEND
-------- -------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
First Quarter.................. 26 5/8 22 1/2 $.31 21 3/8 19 3/8 $.31
Second Quarter................. 26 5/8 24 3/4 $.31 24 1/2 20 1/4 $.31
Third Quarter.................. 29 7/8 24 3/8 $.31 24 3/4 22 7/8 $.31
Fourth Quarter................. 31 1/4 26 $.32 24 1/4 20 7/8 $.31
</TABLE>
The high and low closing prices are as quoted in the Wall Street Journal.
* Amounts have been retroactively restated to reflect the two-for-one stock
split effective July 11, 1997.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
WD-40 COMPANY (US)
1997 vs 1996
Net sales reached yet another record high of $98.3 million, an increase of $4.8
million or 5.1% over the previous year. Domestic net sales increased $3.8
million or 5.1% primarily due to the flow-through effect of a price increase
implemented in June, 1996.
Export sales to Latin America increased $2.0 million, or 26.9% while sales to
the Pacific Rim declined $1.0 million,or 9.1%. The decline in the Pacific Rim
was due to the heavy buy-in of products in 1996 in anticipation of the September
1996 price increase. Combined export sales to these areas totaled $19.1 million,
up 5.4% from last year and now account for approximately 20% of the U.S. total.
3-IN-ONE sales accounted for $2.2 million of the export total.
Cost of product sold returned to fiscal 1995 levels as a percentage of sales and
was 43.9% versus 46.1% in fiscal 1996. A combination of product mix, customer
mix, and the flow-through of the price increases contributed to the lower cost
percentages. Selling, general, and administrative expenses as a percentage of
net sales decreased to 19.5% versus 20.2% in fiscal year 1996 primarily due to
reduced professional expenses and a reduction in other general overhead
expenses.
Advertising and sales promotion expenses as a percentage of net sales increased
to 9.8% versus 8.8% last year, but overall remain within our historical range of
approximately 9-10% of sales.
1996 vs 1995
Net sales reached a 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 continued to grow at a very rapid
rate. Sales to these areas were $18.2 million, up 36% from the prior year.
Export sales accounted for approximately 20% of the U.S. total. 3-IN-ONE sales
accounted for $2.5 million of this gain.
Cost of product sold continued to escalate as a percentage of sales and was
46.1% versus 43.9% in fiscal 1995. Increases 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 overhead, higher
legal costs, and the establishment of the national computer network and disaster
recovery plans were the reasons for the higher expenses.
Advertising and sales promotion expenses as a percentage of net sales were
stable at 8.8% versus 9.1% in FY 1995.
WD-40 COMPANY LTD. (UK)
1997 vs 1996
Net sales increased across most of the European subsidiary's territories, and in
total by $2.3 million, or 7.7%. Prime European sales were unchanged at
$21.4 million, or 66.5% of total European sales. Eastern European sales
increased $1.2 million, or 47.8% due to stepped-up sales activity in the
region, and sales in the Middle East increased 15.4%. 3-IN-ONE sales
contributed $3.7 million to the total.
Cost of sales increased to 42.3% of net sales versus 39.8% in fiscal 1996
primarily due to sales to marketing distributors and increased sales of the
3-IN-ONE brand, both of which yield a somewhat lower margin.
Selling, general, and administrative expenses as a percentage of net sales
increased to 24.9% versus 22.5% in fiscal year 1996 due primarily to staffing
increases and associated costs to support the infrastructure necessary for the
anticipated future growth in Europe.
Advertising and sales promotion expenses increased slightly to 10.5% of sales
versus 10.1% a year ago.
Operating income decreased $1.1 million or 13.0% primarily due to the lower
margins and higher overhead expenses described above.
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 Eurpean 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.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
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 and sales promotion expense 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 overhead.
OTHER SUBSIDIARIES
1997 vs 1996
Net sales increased $422 thousand or 4.8%. Sales to Australia were unchanged
from FY 1996, with Canadian sales growth being primarily responsible for the
overall increase. Cost of product sold as a percentage of sales decreased
slightly to 47.5% versus 48.4% last year.
Selling, general, and administrative expenses along with advertising and sales
promotion as a percentage of sales were almost flat at 26.0% versus 26.5% in
fiscal 1996.
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% in FY 1995.
Selling, general, and administrative expenses along with advertising and sales
promotion as a percentage of sales was down significantly to 26.5% versus 30.8%
in fiscal 1995 due to the strong rebound in the Canadian sales.
INTEREST AND OTHER INCOME (EXPENSE), NET
1997 vs 1996
Net interest income decreased $344 thousand due to unavailability of funds for
short-term investment. Other income (expense), net, decreased $1.7 million
primarily due to foreign currency translation losses recognized in the U.K.
operation.
1996 vs 1995
Net interest income declined $720 thousand due to less funds being available for
short-term investment. Other income (expense), net, increased $285 thousand
primarily due to increases in international commission income.
PRICE INCREASES
The Company converted to CO\\2\\ propellant in the fourth quarter of FY 1996
which increased the cost of product sold. As a result, pricing to customers in
North America, Europe, and Canada was adjusted accordingly. During the first and
second quarters of FY 1997, prices to Asia, Latin America, and Middle East
distributors were similarly increased to compensate for the additional costs
incurred due to the conversion to CO\\2\\ propellent. The overall price
increases were in the range of 7-9% and, as noted above, have had some impact on
the Company's margins.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents increased $4.1 million during fiscal 1997 versus a
decrease of $4.3 million in the prior year. Cash provided by operations was
$23.3 million in fiscal 1997. The increase of $5.1 million from fiscal 1996 was
primarily due to the decrease in inventories and the effect of a full year's
amortization of goodwill resulting from the acquisition of the 3-IN-ONE brand.
Cash used for investing activities was nil at the end of fiscal 1997, compared
with short-term investments of $104 thousand in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The current ratio of 3.7-to-one on August 31, 1997, was greater than the current
ratio of 3.4-to-one on August 31, 1996, due mainly to the increase in cash and
cash equivalents. The Company has notes outstanding on August 31, 1997
amounting to $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 8). 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 1998 are expected
to total approximately $1.0 million principally for improving management
information systems and facility upgrades in Europe and the United States.
18
<PAGE>
TEN YEAR SUMMARY
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31
1988 1989
----------- -----------
<S> <C> <C>
Net sales........................................... $80,005,000 $83,932,000
Cost of product sold................................ 33,931,000 36,347,000
----------- -----------
Gross profit........................................ 46,074,000 47,585,000
----------- -----------
Operating expenses.................................. 21,891,000 23,744,000
Interest and other income (expense), net............ 1,235,000 2,084,000
----------- -----------
Income before income taxes.......................... 25,418,000 25,925,000
Provision for income taxes.......................... 9,870,000 10,170,000
----------- -----------
Net income.......................................... $15,548,000 $15,755,000
=========== ===========
Earnings per share.................................. $ 1.03 $ 1.04
=========== ===========
Average number of shares outstanding................ 15,055,014 15,104,228
Dividends per share................................. $ 0.82 $ 0.95
=========== ===========
Total assets........................................ $43,312,000 $44,640,000
=========== ===========
Number of employees................................. 79 133
</TABLE>
NET SALES
Thousands of Dollars
[BAR CHART APPEARS HERE]
<TABLE>
<S> <C>
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
1997 137,893
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997
- ----------- ----------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$90,990,000 $89,833,000 $99,964,000 $108,964,000 $112,166,000 $116,776,000 $130,912,000 $137,893,000
40,446,000 39,828,000 42,217,000 44,686,000 47,028,000 50,229,000 57,925,000 59,286,000
- ----------- ----------- ------------ ------------ ------------ ------------ ------------ ------------
50,544,000 50,005,000 57,747,000 64,278,000 65,138,000 66,547,000 72,987,000 78,607,000
- ----------- ----------- ------------ ------------ ------------ ------------ ------------ ------------
27,274,000 26,305,000 29,537,000 31,242,000 32,755,000 35,065,000 40,311,000 43,959,000
1,910,000 1,406,000 1,263,000 (1,306,000) (11,900,000) 1,171,000 736,000 (1,288,000)
- ----------- ----------- ------------ ------------ ------------ ------------ ------------ ------------
25,180,000 25,106,000 29,473,000 31,730,000 20,483,000 32,653,000 33,412,000 33,360,000
9,690,000 9,800,000 11,400,000 12,400,000 7,800,000 12,200,000 12,115,000 11,997,000
- ----------- ----------- ------------ ------------ ------------ ------------ ------------ ------------
$15,490,000 $15,306,000 $18,073,000 $ 19,330,000 $ 12,683,000 $ 20,453,000 $ 21,297,000 $ 21,363,000
=========== =========== =========== ============ ============ ============ ============ ============
$ 1.03 $ 1.01 $ 1.19 $ 1.26 $ 0.83 $ 1.33 $ 1.38 $ 1.38
=========== =========== =========== ============ ============ ============ ============ ============
15,108,308 15,111,896 15,188,486 15,320,924 15,372,248 15,400,478 15,423,728 15,512,140
$ 1.01 $ 0.86 $ 1.08 $ 1.15 $ 1.15 $ 1.21 $ 1.24 $ 1.25
=========== =========== =========== ============ ============ ============ ============ ============
$46,785,000 $47,752,000 $53,596,000 $ 58,784,000 $ 54,872,000 $ 59,579,000 $ 61,658,000 $ 65,418,000
=========== =========== =========== ============ ============ ============ ============ ============
136 134 136 143 144 148 149 165
</TABLE>
EARNINGS
. Net Income: Thousands of Dollars
. Earnings per Share: Dollars
[BAR GRAPH APPEARS HERE]
<TABLE>
<S> <C> <C>
1988 15,548 1.03
1989 15,755 1.04
1990 15,490 1.03
1991 15,306 1.01
1992 18,073 1.19
1993 19,330 1.26
1994 12,683 .83
1995 20,453 1.33
1996 21,297 1.38
1997 21,363 1.38
</TABLE>
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. 33-90972) of WD-40 Company of our report dated
October 2, 1997 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.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Diego, California
November 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<CASH> 10,868,000
<SECURITIES> 0
<RECEIVABLES> 22,608,000
<ALLOWANCES> 495,000
<INVENTORY> 3,341,000
<CURRENT-ASSETS> 42,356,000
<PP&E> 7,845,000
<DEPRECIATION> 3,685,000
<TOTAL-ASSETS> 65,418,000
<CURRENT-LIABILITIES> 11,368,000
<BONDS> 0
0
0
<COMMON> 8,459,000
<OTHER-SE> 42,881,000
<TOTAL-LIABILITY-AND-EQUITY> 65,418,000
<SALES> 137,893,000
<TOTAL-REVENUES> 137,893,000
<CGS> 59,286,000
<TOTAL-COSTS> 43,959,000
<OTHER-EXPENSES> 1,342,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (54,000)
<INCOME-PRETAX> 33,360,000
<INCOME-TAX> 11,997,000
<INCOME-CONTINUING> 21,363,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,363,000
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.38
</TABLE>
