<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
___________________________________
FORM 10-Q
QUARTERLY REPORTS UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended May 31, 1997
Commission File No. 0-6936-3
WD-40 COMPANY
(Exact Name of Registrant as specified in its charter)
California 95-1797918
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1061 Cudahy Place, San Diego, California 92110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 275-1400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Common Stock as of July 11, 1997 15,561,008
<PAGE>
Part I Financial Information
Item 1. Financial Statements
WD-40 Company
Consolidated Condensed Balance Sheet
------------------------------------
Assets
------
<TABLE>
<CAPTION>
(Unaudited)
May 31, 1997 August 31, 1996
------------ ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,084,000 $ 6,748,000
Short-term investments 104,000
Trade accounts receivable, less allowance
for cash discounts and doubtful accounts
of $481,000 and $420,000 22,340,000 21,440,000
Product held at contract packagers 2,507,000 2,304,000
Inventories 3,668,000 3,867,000
Other current assets 3,101,000 3,170,000
------------ -------------
Total current assets 39,700,000 37,633,000
Property, plant, and equipment, net 4,011,000 3,938,000
Long-term investments 3,794,000 4,044,000
Goodwill, net 13,706,000 14,392,000
Other assets 1,421,000 1,651,000
------------ -------------
$ 62,632,000 $ 61,658,000
============ =============
</TABLE>
Liabilities and Shareholders' Equity
------------------------------------
<TABLE>
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities $ 4,243,000 $ 5,784,000
Accrued payroll and related expenses 2,333,000 2,737,000
Income taxes payable 1,568,000 1,879,000
Current portion of long-term debt 756,000 706,000
------------ -------------
Total current liabilities 8,900,000 11,106,000
Long-term debt 1,671,000 2,427,000
Deferred employee benefits 1,026,000 954,000
------------ -------------
11,597,000 14,487,000
Shareholders' equity:
Common stock, no par value, 18,000,000
shares authorized -- shares issued and
outstanding of 15,544,450 and 15,441,906 8,338,000 6,603,000
Paid-in capital 321,000 321,000
Retained earnings 42,193,000 40,425,000
Cumulative translation adjustment 183,000 (178,000)
------------ -------------
Total shareholders' equity 51,035,000 47,171,000
------------ -------------
$ 62,632,000 $ 61,658,000
============ =============
</TABLE>
(See accompanying notes to consolidated condensed financial statements)
2
<PAGE>
WD-40 Company
Consolidated Condensed Statement of Income
------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- ---------------------------
May 31 May 31 May 31 May 31
----------- ----------- ------------ -----------
1997 1996 1997 1996
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales $34,525,000 $34,228,000 $102,596,000 $96,920,000
Cost of product sold 14,884,000 15,484,000 43,775,000 42,270,000
----------- ----------- ------------ -----------
Gross profit 19,641,000 18,744,000 58,821,000 54,650,000
----------- ----------- ------------ -----------
Operating expenses:
Selling, general &
administrative 7,234,000 7,620,000 22,045,000 20,223,000
Advertising & sales
promotions 3,775,000 3,407,000 9,761,000 8,661,000
Amortization expense 336,000 334,000 1,007,000 667,000
----------- ----------- ------------ -----------
Income from operations 8,296,000 7,383,000 26,008,000 25,099,000
Other income:
Interest, net (2,000) 10,000 44,000 425,000
Other, net (167,000) 26,000 (1,031,000) 174,000
----------- ----------- ------------ -----------
Income before income
taxes 8,127,000 7,419,000 25,021,000 25,698,000
Provision for income
taxes 2,993,000 2,383,000 9,082,000 9,514,000
----------- ----------- ------------ -----------
Net Income $ 5,134,000 $ 5,036,000 $ 15,939,000 $16,184,000
=========== =========== ============ ===========
Earnings per share $0.33 $0.33 $1.03 $1.05
=========== =========== ============ ===========
Average number of
shares outstanding 15,530,010 15,429,422 15,497,276 15,417,856
=========== =========== ============ ===========
</TABLE>
(See accompanying notes to consolidated condensed financial statements)
3
<PAGE>
WD-40 Company
Consolidated Condensed Statement of Cash Flows
----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------
May 31 May 31
------------ ------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 15,939,000 $ 16,184,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 582,000 502,000
Amortization expense 1,007,000 667,000
Loss on sale of equipment 56,000 39,000
Changes in assets and liabilities:
Accounts receivable (644,000) (2,192,000)
Product held at contract packagers (203,000) 98,000
Inventories 320,000 (1,309,000)
Other assets 340,000 154,000
Accounts payable and accrued expenses (2,107,000) 310,000
Income taxes payable (365,000) (1,763,000)
Long-term deferred employee benefits 73,000 42,000
Deferred taxes 221,000 659,000
------------ ------------
Net cash provided by operating activities 15,219,000 13,391,000
------------ ------------
Cash flows from investing activities:
Decrease in short-term investments 104,000 13,227,000
Non-cash intangible assets of business acquired (15,047,000)
Proceeds from sale of equipment 202,000 140,000
Capital expenditures (883,000) (1,002,000)
------------ ------------
Net cash used in investing activities (577,000) (2,682,000)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,735,000 439,000
Repayment of long-term debt (706,000) (659,000)
Dividends paid (14,405,000) (14,336,000)
------------ ------------
Net cash used in financing activities (13,376,000) (14,556,000)
------------ ------------
Effect of exchange rate changes on cash and
cash equivalents 70,000 47,000
------------ ------------
Increase (decrease) in cash and cash equivalents 1,336,000 (3,800,000)
Cash and cash equivalents at beginning of period 6,748,000 11,090,000
------------ ------------
Cash and cash equivalents at end of period $ 8,084,000 $ 7,290,000
============ ============
</TABLE>
(See accompanying notes to consolidated condensed financial statements)
4
<PAGE>
WD-40 COMPANY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
May 31, 1997
------------
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, WD-40 Company Ltd. (U.K.), WD-40 Products
(Canada) Ltd. and WD-40 Company (Australia) Pty. Ltd. All significant
intercompany transactions and balances have been eliminated.
The financial statements included herein have been prepared by the Company,
without audit, according to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of management, the unaudited financial information for the
interim periods shown reflects all adjustments (which include only normal,
recurring adjustments) necessary for a fair presentation thereof. These
financial statements and notes thereto should be read in conjunction with the
financial statements and notes thereto included in the Company's 1996 Annual
Report to Shareholders, which statements and notes are incorporated by
reference in the Company's Annual Report on Form 10-K for the year ended
August 31, 1996.
Reclassifications
Certain fiscal 1996 amounts have been reclassified to conform to the current
year presentation. On June 23, 1997, the Company declared a two-for-one stock
split which was effective on July 11, 1997. All share and per share amounts
have been retroactively restated to reflect the stock split.
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.
Earnings per Share
Earnings per share are based upon the weighted average number of shares
outstanding during the period increased by the effect of dilutive stock
options, when applicable, using the treasury stock method.
In March 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (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 three and nine months ended May 31, 1997 and 1996
are $.33 and $1.03, and $.33 and $1.05, respectively. Pro forma diluted
earnings per share for the same periods are $.33 and $1.03, and $.33 and $1.05,
respectively.
5
<PAGE>
NOTE 2 - 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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
---------------------
Third Quarter of Fiscal Year 1997 compared to Third Quarter of Fiscal
---------------------------------------------------------------------
Year 1996
---------
Consolidated net sales for the quarter were $34,525,000, an increase of
0.9% or $297,000 from the comparable prior year period. Management
anticipates that the rate of sales growth will increase.
Cost of product sold decreased to 43.1% of net sales this quarter
versus 45.2% in the comparable prior year period. Management believes
that costs have stabilized and that there will be minimal inflationary
impact for the remainder of fiscal year 1997.
Selling, general, and administrative expenses decreased $386,000 or
5.1% in the third quarter of fiscal year 1997 as compared to the same
period in 1996. Such expenses as a percentage of net sales decreased
this quarter to 21.0% from 22.3% in the comparable prior year period.
Advertising and sales promotion expenses increased $368,000 or 10.8%,
(10.9% of sales) due to the timing of overall promotional activities.
These expenses are expected to be within historical levels of 9% to 10%
of sales at fiscal year end.
Amortization expense primarily related to the acquisition of 3-IN-ONE
was flat at $336,000 for this quarter versus $334,000 for the same
period one year ago.
Net interest expense was $2,000 versus interest income of $10,000 in
the prior year quarter due to reduced short-term investments. Other
income, net, was a loss of $167,000 for the quarter, resulting
primarily from currency translation losses of $169,000, versus other
income of $26,000 in the prior year period.
Net income increased $98,000 or 1.9%. Net income as a percentage of net
sales this quarter was 14.9% versus 14.7% in the comparable prior year
period.
WD-40 Company (U.S.)
--------------------
Net sales increased $742,000 or 3.1% compared to the same period in the
prior year. The increase was primarily due to stronger 3-IN-ONE sales.
However export sales were soft, reflecting decreased promotional
opportunities in Asia and changes in certain Latin-American import
regulations.
Cost of product sold decreased to 43.8% of net sales this quarter as
compared to 46.4% in the comparable prior year period, reflecting some
flow-through from the Company's price increases earlier this fiscal
year and the promotional mix of sales.
Selling, general, and administrative expenses decreased $365,000 or
7.0%, to 19.7% of sales versus 22.0% in the comparable prior year
period, reflecting a reduction in outside professional expenses and the
restructuring of our US sales department. The comparable prior year
period results also included a number of "one-time" expenses related to
the purchase of the 3-IN-ONE brand.
Advertising and sales promotion expenses increased $75,000 but were
almost flat at 11.1% of sales.
As a result of the factors discussed above, net income increased by
$688,000 or 16.2%.
6
<PAGE>
Item 2. (Continued) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
WD-40 Company Ltd. (U.K.)
-------------------------
Net sales for the quarter decreased $638,000 or 7.7% compared to the
same quarter in fiscal 1996. The prior year quarter was very strong due
to promotional buy-ins in anticipation of the July 1996 price increase.
Cost of product sold increased to 41.7% of net sales versus 40.9% in the
comparable prior year period primarily due to the mix of products sold,
export sales, the effect of 3-IN-ONE Oil, and sales promotions.
As a percentage of net sales, selling, general, and administrative
expenses were 25.1% versus 22.1% in the comparable prior year period,
resulting from increased overhead due to the additional infrastructure
put in place to manage the growth of the business. Advertising and
sales promotion expenses increased to 11.2% of sales versus 6.3% of
sales in the comparable prior year period primarily due to the timing
of promotional activities.
Foreign currency fluctuations resulted in translation losses of $169,000
compared to translation gains of $56,000 in the third quarter of fiscal
1996.
As a result of the factors described above, net income decreased
$591,000 or 56.0%.
Other Foreign Subsidiaries
--------------------------
Net sales increased $261,000 or 12.0% due primarily to increased sales
in the Canadian Market.
Cost of product sold as a percentage of net sales was 48.2% versus 49.5%
in the comparable prior year period, principally from an increase in
pricing for the Canadian market.
Net income increased by $48,000 or 14.0%, due primarily to increased
sales in the Canadian market and the higher gross profit percentage.
Nine Months Fiscal Year 1997 versus Nine Months Fiscal Year 1996
----------------------------------------------------------------
Consolidated net sales were $102,596,000 an increase of $5,676,000 or
5.9% over the same period in 1996. Management anticipates that sales
will continue to grow.
Cost of product sold as a percentage of net sales decreased slightly to
42.7% versus 43.6% in the prior year period.
Selling, general, and administrative expenses increased $1,822,000 or
9.0% but remained relatively constant at 21.5% of sales, in comparison
to 20.9% in the prior year period.
Advertising and sales promotion expenses increased $1,100,000 or 12.7%
and, as a percentage of sales, increased to 9.5% of sales, in comparison
to 8.9% in the prior year period. The increase is due to the timing of
overall promotional activities.
Amortization expense increased $340,000 due to being only a partial-
period expense during the comparable prior year period.
Net interest income decreased by $381,000 due to reduced short-term
investments. Other income, net, decreased by $1,205,000 due to losses
realized on the sale of fixed assets and foreign currency translation
losses.
Net income decreased $245,000 or 1.5% due the items described above.
7
<PAGE>
Item 2. (Continued) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
WD-40 Company (U.S.)
--------------------
Net sales increased $3,026,000 or 4.4%. The primary reasons for the
sales increase was an improvement in the U.S. and stronger sales of
3-IN-ONE Oil.
Cost of product sold as a percent of net sales remained fairly
consistent at 43.8% versus 44.5% in the prior year period.
Selling, general, and administrative expenses as a percentage of net
sales remained relatively consistent at 20.2% versus 21.4% in the prior
year period.
Advertising and promotion expenses as a percentage of net sales were
also consistent at 9.9% versus 9.4% in the prior year period.
Amortization expense increased $298,000 due to being only a partial-
period expense in the comparable prior year period.
Interest and other expense for the period was $14,000 compared to net
interest and other income of $258,000 in the comparable prior year
period due to reduced short-term investments.
Net income decreased $1,096,000 or 7.4% due to the combination of items
noted above.
WD-40 Company Ltd. (U.K.)
-------------------------
Net sales increased $2,866,000 or 12.5% compared to the prior year
period, primarily attributed to 3-IN-ONE sales and strong WD-40 sales
into the Middle East and European markets.
Cost of product sold as a percent of net sales increased to 41.7% versus
39.6% in the prior year period primarily due to the mix of product sold,
the increased proportion of 3-IN-ONE sales, and increased sales to
European and distributor markets in the Middle East.
Selling, general, and administrative expenses as a percentage of net
sales increased to 25.3% versus 20.5% in the prior year period primarily
from increased overhead costs resulting from the additional
infrastructure put in place to manage the growth of the business.
Advertising and promotional expenses as a percentage of net sales were
consistent at 8.2% versus 7.9% in the comparable prior year period.
Foreign currency fluctuations resulted in translation losses of
$1,059,000 compared to translation gains of $117,000 in the prior year
period.
Net income decreased $1,601,000 or 47.2% due to the items described
above.
8
<PAGE>
Item 2. (Continued) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Other Foreign Subsidiaries
--------------------------
Net sales increased $485,000 or 7.2% due primarily to increased sales in
the Canadian market.
Cost of product sold as a percentage of sales decreased to 47.1% from
48.2% in the prior year period.
Advertising and sales promotion expenses increased $52,000 or 9.3%,
primarily due to the timing of promotional activities.
Net interest income decreased by $91,000 due to reduced short-term
investments.
Net income decreased by $22,000 or 2.0% due to the factors described
above.
Price Increases
---------------
The company is in the process of increasing prices globally during FY
1997 to compensate for the additional costs incurred due to the
conversion to a CO2 propellant. The effects of the flow through from the
1996 price increase are minimal. During the third quarter the company
did not initiate any price increases.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents increased $3,127,000 during the three months
ended May 31, 1997 versus an increase of $4,574,000 for the same period
last year. The increase during the current quarter was due to strong
collection activity on the prior quarter-end trade accounts receivable.
Liquidity and Capital Resources
-------------------------------
The current ratio of 4.4 on May 31, 1997 represents an increase from the
current ratio of 3.4 at August 31, 1996. An increase in cash and cash
equivalents was responsible for the ratio increase.
The Company's primary source of liquidity are funds provided by
operations. The Company's cash flows from operations are expected to
provide sufficient funds to meet both short and long-term operating
needs, as well as future dividends. Capital expenditures for the
remainder of fiscal year 1997 are expected to total approximately
$200,000 related to building improvements, sundry office equipment
purchases, and updating computer equipment.
Private Securities Litigation Reform Act of 1995
------------------------------------------------
Safe Harbor for Forward-Looking Statements
------------------------------------------
This Form 10-Q contains forward-looking statements concerning the
Company's outlook for sales, earnings, dividends, and other financial
results. Such statements are subject to certain risks and uncertainties,
including, but not limited to, general economic conditions in
significant worldwide markets, new product acceptance by end users,
product liability and other litigation, and the impact of inflation and
trade account policies. Readers are urged to carefully review and
consider the various disclosures made by the Company which attempt to
advise interested parties of the factors affecting the Company's
business, including disclosures in this Form 10-Q as well as the
Company's Annual Report, and Forms 10-K and 8-K filed with the
Securities Exchange Commission.
9
<PAGE>
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description
----------- -----------
Articles of Incorporation and By-Laws
3(a) The Restated Articles of Incorporation are incorporated
by reference from the Registrant's Annual Report on Form
10-K filed November 13, 1995, Exhibit 3(a) thereto.
3(b) The Restated By-Laws are incorporated by reference from
the Registrant's Annual Report on Form 10-K filed
November 13, 1995, Exhibit 3(b) thereto.
27 Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter
ended May 31, 1997.
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WD-40 COMPANY
Registrant
/s/ PETER E. WILLIAMS
Date: July 14, 1997 -----------------------------
Peter E. Williams
Chief Financial Officer
(Principal Financial Officer)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> MAR-01-1997
<PERIOD-END> MAY-31-1997
<CASH> 8,084,000
<SECURITIES> 0
<RECEIVABLES> 22,821,000
<ALLOWANCES> 481,000
<INVENTORY> 3,668,000
<CURRENT-ASSETS> 39,700,000
<PP&E> 7,706,000
<DEPRECIATION> 3,695,000
<TOTAL-ASSETS> 62,632,000
<CURRENT-LIABILITIES> 8,900,000
<BONDS> 0
0
0
<COMMON> 8,338,000
<OTHER-SE> 42,193,000
<TOTAL-LIABILITY-AND-EQUITY> 62,632,000
<SALES> 34,525,000
<TOTAL-REVENUES> 34,525,000
<CGS> 14,884,000
<TOTAL-COSTS> 26,229,000
<OTHER-EXPENSES> 167,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,000
<INCOME-PRETAX> 8,127,000
<INCOME-TAX> 2,993,000
<INCOME-CONTINUING> 5,134,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,134,000
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
</TABLE>
