<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 November 30, 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
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Stock as of January 9, 1998 15,583,696
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Part I Financial Information
Item 1. Financial Statements
WD-40 COMPANY
CONSOLIDATED CONDENSED BALANCE SHEET
ASSETS
(Unaudited)
November 30, 1997 August 31, 1997
----------------- ---------------
Current assets:
Cash and cash equivalents $ 14,591,000 $ 10,868,000
Trade accounts receivable, less allowance
for cash discounts and doubtful accounts
of $730,000 and $495,000 24,580,000 22,608,000
Product held at contract packagers 1,548,000 2,132,000
Inventories 2,044,000 3,341,000
Other current assets 3,057,000 3,407,000
------------ ------------
Total current assets 45,820,000 42,356,000
Property, plant, and equipment, net 3,594,000 4,160,000
Long-term investments 3,628,000 3,711,000
Goodwill, net 13,240,000 13,435,000
Other assets 1,505,000 1,756,000
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$ 67,787,000 $ 65,418,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 5,728,000 $ 6,683,000
Accrued payroll and related expenses 2,106,000 2,383,000
Income taxes payable 3,929,000 1,546,000
Current portion of long-term debt 756,000 756,000
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Total current liabilities 12,519,000 11,368,000
Long-term debt 1,671,000 1,671,000
Deferred employee benefits 1,062,000 1,039,000
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15,252,000 14,078,000
Shareholders' equity:
Common stock, no par value, 18,000,000 shares
authorized -- shares issued and outstanding
of 15,564,742 and 15,561,942 8,508,000 8,459,000
Paid-in capital 321,000 321,000
Retained earnings 42,647,000 42,403,000
Cumulative translation adjustment 1,059,000 157,000
------------ ------------
Total shareholders' equity 52,535,000 51,340,000
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$ 67,787,000 $ 65,418,000
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(See accompanying notes to consolidated condensed financial statements.)
2
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WD-40 COMPANY
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended
---------------------------
November 30,
---------------------------
1997 1996
------------ ------------
Net sales $ 33,597,000 $ 28,265,000
Cost of product sold 14,318,000 11,419,000
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Gross profit 19,279,000 16,846,000
Operating expenses:
Selling, general, administrative,
and amortization expenses 7,910,000 7,614,000
Advertising and sales promotion 3,071,000 2,245,000
------------ ------------
Income from operations 8,298,000 6,987,000
Other income (expense):
Interest, net 50,000 21,000
Other, net (184,000) (379,000)
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Income before income taxes 8,164,000 6,629,000
Provision for income taxes 2,939,000 2,389,000
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Net Income $ 5,225,000 $ 4,240,000
------------ ------------
------------ ------------
Earnings per share $0.34 $0.28
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------------ ------------
Average number of shares
outstanding 15,563,688 15,461,756
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------------ ------------
(See accompanying notes to consolidated condensed financial statements.)
3
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WD-40 COMPANY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended
---------------------------
November 30,
---------------------------
1997 1996
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Cash flows from operating activities:
Net income $ 5,225,000 $ 4,240,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 206,000 214,000
Amortization expense 336,000 335,000
Loss on sale of equipment 103,000 8,000
Decrease in deferred income taxes 535,000 295,000
Changes in assets and liabilities:
Accounts receivable (1,764,000) 261,000
Product held at contract packagers 584,000 1,062,000
Inventories 1,348,000 96,000
Other assets 596,000 547,000
Accounts payable and accrued expenses (1,012,000) (1,300,000)
Income taxes payable 2,075,000 1,845,000
Long-term deferred employee benefits 24,000 35,000
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Net cash provided by operating activities 8,256,000 7,638,000
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Cash flows from investing activities:
Decrease in short-term investments 104,000
Proceeds from sale of equipment 465,000 60,000
Capital expenditures (500,000) (361,000)
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Net cash used in investing activities (35,000) (197,000)
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Cash flows from financing activities:
Proceeds from issuance of common stock 48,000 969,000
Dividends paid (4,981,000) (4,790,000)
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Net cash used in financing activities (4,933,000) (3,821,000)
------------ ------------
Effect of exchange rate changes on cash
and cash equivalents 435,000 159,000
Increase in cash and cash equivalents 3,723,000 3,779,000
Cash and cash equivalents at beginning of period 10,868,000 6,748,000
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Cash and cash equivalents at end of period $ 14,591,000 $ 10,527,000
------------ ------------
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(See accompanying notes to consolidated condensed financial statements.)
4
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WD-40 COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 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 1997 Annual
Report to Shareholders, which statements and notes are incorporated by
reference in the Company's Annual Report on Form 10-K/A for the year ended
August 31, 1997.
RECLASSIFICATIONS
Certain fiscal 1997 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 months ended November 30, 1997
and 1996 are $.34 and $.27, respectively. Pro forma diluted earnings per
share for the same periods are $.33 and $.27, respectively.
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.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER OF FISCAL YEAR 1998 COMPARED TO FIRST QUARTER OF FISCAL YEAR 1997
Consolidated net sales for the quarter were a record $33,597,000, an increase
of 18.9% or $5,332,000 from the prior-year period. The record level was due
to better overall market penetration in all trading blocs. The substantial
increase was primarily due to first quarter sales in the prior year period
being below normal due to promotional phasing with the introduction of CO(2)
propellant.
Cost of product sold increased to 42.6% of net sales this quarter versus
40.4% in the prior-year quarter. The increase is primarily attributed to the
mix of customers. The increased export sales in this quarter yielded a lower
gross margin, however, the sales generate operating income consistent with
domestic sales.
Selling, general, administrative, and amortization expenses increased
$296,000 or 3.9% in the first quarter of fiscal year 1998 as compared to the
same period in 1997. However, these expenses as a percentage of net sales
decreased this quarter to 23.5% versus 26.9% in the comparable prior-year
period. Amortization expense related to the goodwill associated with the
purchase of 3-IN-ONE Oil was unchanged.
Advertising and sales promotion expenses increased $826,000 or 36.8% due to
the timing of overall promotional activities. Management had limited these
activities during the first quarter a year ago because of anticipated lower
sales.
Foreign currency translation losses amounted to $80,000 for the current
quarter, versus $432,000 in the prior year period.
Net income increased $985,000 or 23.2% due primarily to the combination of
higher sales and lower S, G, & A expenses and lower foreign currency
translation losses. Net income as a percentage of net sales this quarter was
15.6% versus 15.0% in the comparable prior-year period.
WD-40 COMPANY (U.S.)
Net sales increased $3,884,000 or 21.3% compared to the comparable prior-year
period. The primary reason for the increased sales was a return to a more
normal business environment than existed a year ago due to the Company's
transition from hydro-carbon propellant to CO(2) in anticipation of future
changes to Federal Standards related to the emission of VOC's (Volatile
Organic Compounds).
Cost of product sold increased to 43.3% of net sales this quarter as compared
to 40.8% in the first quarter of fiscal year 1997 due primarily to
promotional phasing and customer mix.
Selling, general, administrative, and amortization expenses increased
$255,000 or 5.1% over the same period last year, however, as a percentage of
net sales they decreased to 23.8% versus 27.4% in the comparable prior-year
period. The expense increase is primarily attributable to an increase in the
allowance for doubtful accounts in distributor markets.
Advertising and sales promotion expenses increased $567,000 or 37.2% due to
increased promotional activity this quarter.
As a result, net income increased by $838,000 or 25.8%.
6
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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 increased $1,344,000 or 16.0% compared to the same
quarter in fiscal 1997. Strong growth was experienced in the UK, Germany,
and Spain as well as distributor markets in other areas of Europe, especially
Eastern Europe.
Cost of product sold increased to 42.0% of net sales versus 41.3% in the
comparable prior-year period. This increase was primarily due to the
customer mix resulting from the timing and phasing of promotional activities.
As a percentage of net sales, selling, general, administrative, and
amortization expenses were 23.4%, down from 27.0% in the comparable
prior-year period, due to fixed costs being absorbed by the higher sales
base. Advertising and sales promotion expenses increased to 8.3% versus 6.0%
in the comparable prior-year period due to the timing of promotional
activities.
Foreign currency movements resulted in translation losses of $80,000 for the
current quarter compared to losses of $432,000 for the first quarter of 1997.
Currency movements against the British Pound have been less significant in
the current quarter compared to the comparable prior-year period.
As a result of the factors described above, net income increased $418,000 or
68.2%.
OTHER FOREIGN SUBSIDIARIES
Net sales decreased $79,000 or 3.8% and cost of product sold as a percentage
of net sales decreased slightly to 46.0% versus 47.0% in the comparable
prior-year period. Net income increased $17,000 or 6.5%. These fluctuations
are not significant and are well within normal operating ranges.
PRICE INCREASES
No price increases were initiated during the quarter ended November 30, 1997.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents increased $3,723,000 during the three months ended
November 30, 1997 versus an increase of $3,779,000 for the same period of
last year.
INTEREST AND OTHER INCOME (EXPENSE), NET
Net interest income increased by $29,000 due to increased short-term
investments during the quarter. Other expenses, net, decreased by $195,000
primarily due to lower foreign currency losses in the U.K.
LIQUIDITY AND CAPITAL RESOURCES
The current ratio of 3.7-to-one on November 30, 1997 was consistent with the
current ratio of 3.7-to-one on August 31, 1997.
The Company's primary source of liquidity are funds provided by operations.
The Company's cash flows from operations are expected to provide sufficient
funds to meet both short and long-term operating needs, as well as future
dividends. Capital expenditures for fiscal year 1998 are expected to total
approximately $1,000,000 principally for improving management information
systems and facility upgrades in Europe and the United States.
7
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
EXHIBIT NO. DESCRIPTION
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Articles of Incorporation and By-Laws
3 (a) The Restated Articles of Incorporation are incorporated
by reference from the Registrant's Form 10-K Annual Report
filed November 13, 1995, Exhibit 3 (a) thereto.
3 (b) The Certificate of Amendment of Restated Articles of
Incorporation is incorporated by reference from the
Registrant's Form 10-K/A filed December 5, 1997, Exhibit 3
(b) thereto.
3 (c) The Restated By-Laws are incorporated by reference from the
Registrant's Form 10-K Annual Report filed November 13,
1995, Exhibit 3 (b) thereto.
3 (d) Amendment No. 1 to Restated By-Laws is incorporated by
reference from the Registrant's Form 10-K/A filed December
5, 1997, Exhibit 3 (d) 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
November 30, 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
Date: January 13, 1997 /s/ PETER E. WILLIAMS
-----------------------------
Peter E. Williams
Chief Financial Officer
(Principal Financial Officer)
8
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 14,591,000
<SECURITIES> 0
<RECEIVABLES> 25,310,000
<ALLOWANCES> 730,000
<INVENTORY> 2,044,000
<CURRENT-ASSETS> 45,820,000
<PP&E> 7,272,000
<DEPRECIATION> 3,678,000
<TOTAL-ASSETS> 67,787,000
<CURRENT-LIABILITIES> 12,519,000
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<COMMON> 8,508,000
<OTHER-SE> 44,027,000
<TOTAL-LIABILITY-AND-EQUITY> 67,787,000
<SALES> 33,597,000
<TOTAL-REVENUES> 33,597,000
<CGS> 14,318,000
<TOTAL-COSTS> 10,981,000
<OTHER-EXPENSES> 184,000
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<INCOME-PRETAX> 8,164,000
<INCOME-TAX> 2,939,000
<INCOME-CONTINUING> 5,225,000
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