<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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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, 2000 0-6936-3
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WD-40 COMPANY
(Exact Name of Registrant as specified in Charter)
Delaware 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
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(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
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Securities registered pursuant to Section 12(g) of the Act:
Title of Class: Common Stock, $.001 par value
-----------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K: X .
---
The aggregate market value (closing price) of the voting stock held by
non-affiliates of the Registrant as of October 13, 2000 was $305,358,000.
As of October 13, 2000 the Registrant had 15,434,304 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the annual meeting of stockholders on December
12, 2000 is incorporated by reference into PART III, Items 10-12.
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PART I
ITEM 1 - BUSINESS
(a) General Development of Business.
For more than four decades, WD-40 Company sold only one petroleum-based
product, known as "WD-40." WD-40 is a multi-purpose product which acts as a
lubricant, rust preventative, penetrant, cleaner 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
that is useful when precise applications of a lubricant are needed. In April
1999, the Company acquired the Lava brand of heavy-duty hand cleaners from Block
Drug Company. The three brands complement each other, providing the Company with
a line of both lubricant and heavy-duty hand cleaning products aimed at the
Do-It-Yourself (DIY), hardware, automotive and other retail and industrial
markets.
Shortly after the Lava acquisition, the Company decided to discontinue
marketing the T.A.L 5 lubricant which had been developed internally. During
fiscal 1999, the Company determined that the market potential for the T.A.L 5
product was below the level that would warrant further allocation of resources.
A thorough analysis of the potential for this brand led to the decision to
discontinue marketing the product.
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 has been 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. This
trend has caused a reduction in 3-IN-ONE sales in certain markets as sales of
those products are replaced by sales of WD-40.
In fiscal 1999, the Company acquired the Lava brand of heavy-duty hand
cleaners from Block Drug Company, Inc. The Lava brand is more than 100 years old
and is well recognized by U.S. consumers. Because the characteristics of the
Lava consumer are very similar to those of the WD-40 consumer, the Company feels
that the strength of the WD-40 brand name will be an effective vehicle in
promoting the growth of Lava in the U.S. In addition, the Company saw
opportunities to develop the brand internationally and in distribution channels
in which the brand has not yet been sold. In August 1999, the Company announced
the introduction of several new products to augment the Lava product line,
including the Lava Heavy-Duty Hand Cleaner Towel and several new sizes of the
Lava Liquid Hand Soap. Also, during fiscal 2000, the Company announced plans for
introducing the Lava brand into the U.K. market and the acquisition of the
Solvol brand of heavy duty hand cleaners in Australia from Unilever Australia
Ltd. during the first quarter of fiscal 2001.
(b) Financial Information About Industry Segments.
The Company operates in two markets - the manufacture and sale of
multi-purpose lubricants and the manufacture and sale of heavy-duty hand
cleaners. Both are marketed primarily through retail chain stores, hardware
stores, automotive parts outlets, and industrial distributors and suppliers.
(c) Narrative Description of Business.
WD-40 Company manufactures and markets two multi-purpose lubricant
products known as "WD-40" and "3-IN-ONE Oil," and the Lava brand of heavy-duty
hand cleaners. WD-40 is sold
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primarily in aerosol cans through retail chain stores, hardware and sporting
goods stores, automotive parts outlets and industrial distributors and
suppliers. It has a wide variety of consumer uses in, for example, household,
marine, automotive, sporting goods, and gardening applications. The product also
has 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 have
enabled the product to gain international acceptance. In fiscal 2000, the
Company introduced the a patented new telescoping package for 3-IN-ONE that
allows precise delivery of oil in tight, hard-to-reach places.
The Company purchased the Lava brand of heavy-duty hand cleaners from
Block Drug Company in April 1999. The Lava brand is more than 100 years old and
has exceptional awareness among American consumers. At the time of the
acquisition, the brand was comprised of two sizes of bar soap and one size of
liquid soap. In August 1999, the Company augmented the brand with the addition
of the Lava Towel, a waterless hand cleaning towel and two new sizes of Liquid
Lava. The Company's strategy in acquiring this brand was to first expand
distribution in the U.S. and then begin to market Lava internationally. Prior to
the Company's acquisition, the brand had been sold in a limited number of
domestic trade channels, notably supermarkets and drug stores. The Company
believes that the Lava brand, because of its heavy-duty characteristics, will
have greater appeal to consumers who shop in other channels such as hardware,
automotive and club stores. The Company intends to develop distribution in these
channels where, with its WD-40 and 3-IN-ONE brands, it has considerable
marketing experience. In addition, the Company has announced plans to market the
Lava brand in the U.K. and Canada in fiscal 2001.
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 Lava. The
Company is aware of many competing products, some of which sell for lower
prices, however, the Company relies on the awareness of its brands among
consumers and the value offered by those brands as perceived by consumers as its
primary competitive strategy. 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 trend toward consolidation in the retail marketplace, the
Company's customer base is shifting toward fewer, but larger, customers who
purchase in larger volumes. To support this trend, the Company has had to expand
its use of customer- and market-specific promotions and allowances, which has
negatively impacted and will continue to impact, the Company's ability to
maintain existing profit margins.
Alternate sources of constituent chemicals are readily available and
there are no current or anticipated shortages of any raw materials considered
essential to the business. There are no environmental laws or regulations
currently affecting capital expenditures. Recent focus on environmental
regulations relating to VOCs (Volatile Organic Compounds) resulted in a change
in the formulation of the WD-40 product whereby CO2 was chosen as the aerosol
propellant in late 1996. As a result of this change, the cost of manufacturing
WD-40 was increased and the Company increased its selling prices to offset the
increased cost. In the event of future increases in product cost, the Company
may not be in a position to increase selling prices, and therefore an increase
in costs could have an adverse effect on the Company's profitability.
3
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The Company has a patent pending, but relies primarily 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 Lava trademarks are registered in the United States and in various foreign
countries.
At August 31, 2000 the Company employed 184 people throughout the
world: 105 by the United States parent corporation, 5 of which are based in the
Malaysian sales office; 10 by the Company's Canadian subsidiary; 60 by the
United Kingdom subsidiary, including 11 in Germany, 7 in France, 3 in Italy and
7 in Spain; 6 by the Australian subsidiary; and 3 by the Company's Manufacturing
subsidiary. The majority of the Company's employees are engaged in sales and/or
marketing activities.
(d) Financial Information About Foreign and Domestic Operations and
Export Sales.
The information required by this item is included in Note 5 - Business
Segments and Foreign Operations, of the Company's consolidated financial
statements, which have been included in ITEM 8, Financial Statements and
Supplementary Data. The Company is subject to a variety of risks due to its
foreign operations, including currency risk and credit risk. The Company
attempts to minimize its exposure to foreign currency exchange fluctuations by
the use of forward contracts to hedge non-functional currency cash balances.
With the continuing expansion of the Company's business in Asia, Latin America,
Eastern Europe and various states in the former Soviet Union, the Company is
subject to increased credit risk for product sold to customers in these areas.
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 2,000 square feet of office space in
Etobicoke, Ontario, Canada and approximately 2,500 square feet of office space
in Epping, New South Wales, Australia.
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 1,800 square feet of office space for a sales
office in Kuala Lumpur, Malaysia. In addition, the Company leases space for the
branch offices in Germany, France, Spain and Italy. The Company believes that
these properties should be sufficient to meet its needs for office and plant
facilities for several years.
ITEM 3 - LEGAL PROCEEDINGS
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.
4
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ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names and ages of, and the positions
and offices held by, all executive officers within the Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Garry O. Ridge 44 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.
Thomas J. Tranchina 52 Vice President Finance, Chief Financial
Officer and Treasurer. Mr. Tranchina joined
the Company in April, 1998. Prior to joining
WD-40 Company, Mr. Tranchina held a variety
of senior financial and operating positions
for several companies, including eight years
with Spectragraphics Corporation in San
Diego, California.
Graham P. Milner 46 Senior Vice President, Sales and Marketing,
The Americas. Mr. Milner joined the Company
in 1992 as International Director, was
appointed Vice President, Sales and
Marketing, The Americas in March, 1997 and
became Senior Vice President, The Americas,
in April, 1998.
Michael L. Freeman 47 Vice President Operations, Chief Information
Officer. Mr. Freeman joined the Company in
1990 as Director of Marketing and was named
Director of Operations in 1994. He was
promoted to Vice President Administration
and Chief Information Officer in December,
1996.
Geoffrey J. Holdsworth 38 Managing Director, WD-40 Company (Australia)
Pty. Limited. Mr. Holdsworth joined the
Company's Australian subsidiary, WD-40
Company (Australia) Pty. Limited, in 1996 as
General Manager. Prior to joining WD-40
Company, Mr. Holdsworth held sales
management positions at Columbia Pelikan
Pty. Ltd., Australia.
William B. Noble 42 Managing Director, 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.
Michael J. Irwin 37 Vice President Marketing, The Americas. Mr.
Irwin joined the Company in May 1995 as
Director of U.S. Marketing, and later served
as Director of Marketing for The Americas.
In April 1998 he was promoted to Vice
President Marketing for The Americas.
</TABLE>
All executive officers hold office at the pleasure of the Board of
Directors. In addition, Mr. Ridge and Mr. Tranchina, have employment agreements
for three year terms ending August 1, 2002.
5
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PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded in the over-the-counter market
(Nasdaq National Market System). As of August 31, 2000, the approximate number
of holders of record of the Company's common stock was 2,041. The following
table sets forth the range of high and low sales prices on the Nasdaq National
Market of the Company's common stock for the periods indicated, as reported by
Nasdaq.
<TABLE>
<CAPTION>
SELECTED STOCK INFORMATION
FISCAL 2000 FISCAL 1999
--------------------------------------- --------------------------------------
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
--------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $24 23/32 $ 21 5/8 $ .32 $31 1/4 $20 1/2 $.32
Second Quarter 24 17 1/2 .32 31 1/8 22 7/8 .32
Third Quarter 22 9/16 17 1/2 .32 29 24 3/4 .32
Fourth Quarter 21 1/2 18 .32 27 9/16 24 3/16 .32
</TABLE>
ITEM 6 - SELECTED FINANCIAL DATA
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth certain unaudited quarterly financial information
for each of the two years in the period ending August 31, 2000:
<TABLE>
<CAPTION>
DILUTED
NET GROSS NET EARNINGS
QUARTER ENDED: SALES PROFIT INCOME PER SHARE
------------------- ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
November 30, 1998 $ 29,617,000 $ 16,501,000 $ 3,702,000 $ .24
February 28, 1999 41,709,000 23,126,000 6,791,000 .43
May 31, 1999 33,469,000 18,997,000 4,624,000 .30
August 31, 1999 41,553,000 23,166,000 6,948,000 .44
------------------- ------------------ ------------------ ----------------
$ 146,348,000 $ 81,790,000 $ 22,065,000 $ 1.41
=================== ================== ================== ================
November 30, 1999 $ 32,182,000 $ 17,447,000 $ 3,053,000 $ .20
February 29, 2000 42,602,000 23,670,000 6,664,000 .43
May 31, 2000 38,300,000 20,813,000 4,905,000 .32
August 31, 2000 39,614,000 21,354,000 5,936,000 .38
------------------- ------------------ ------------------ ----------------
$ 152,698,000 $ 83,284,000 $ 20,558,000 $ 1.33
=================== ================== ================== ================
</TABLE>
The following data has been derived from the Company's audited
financial statements. The balance sheets at August 31, 2000 and 1999 and the
related statements of income, of cash flows and of shareholders' equity of the
Company for the three years ended August 31, 2000 and notes thereto appear
elsewhere herein. The data should be read in conjunction with such financial
statements and other financial information appearing elsewhere herein.
6
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<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Net sales $ 152,698,000 $ 146,348,000 $ 144,397,000 $ 137,893,000 $ 130,912,000
Cost of product sold 69,414,000 64,558,000 62,984,000 59,286,000 57,925,000
-----------------------------------------------------------------------------------
Gross profit 83,284,000 81,790,000 81,413,000 78,607,000 72,987,000
Operating expenses 51,661,000 47,846,000 47,253,000 43,959,000 40,311,000
Interest and other income
(expense), net (495,000) 256,000 96,000 (1,288,000) 736,000
-----------------------------------------------------------------------------------
Income before income taxes 31,128,000 34,200,000 34,256,000 33,360,000 33,412,000
Provision for income taxes 10,570,000 12,135,000 12,368,000 11,997,000 12,115,000
-----------------------------------------------------------------------------------
Net Income $ 20,558,000 $ 22,065,000 $ 21,888,000 $ 21,363,000 $ 21,297,000
===================================================================================
Earnings per share (diluted) $ 1.33 $ 1.41 $ 1.40 $ 1.37 $ 1.38
Dividends per share $ 1.28 $ 1.28 $ 1.28 $ 1.25 $ 1.24
Total assets $ 84,950,000 $ 91,957,000 $ 70,945,000 $ 65,418,000 $ 61,658,000
Number of employees 184 177 167 165 149
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net sales were $152.7 million in fiscal 2000, $146.3 million in 1999 and $144.4
million in 1998, representing increases over the prior year of 4.3% in fiscal
2000 and 1.4% in fiscal 1999. Sales for the Company's three trading blocs are
broken down as follows ($ in millions):
<TABLE>
<CAPTION>
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2000 1999 1998
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<S> <C> <C> <C> <C> <C> <C>
Americas $104.5 68% $ 96.9 66% $ 98.6 68%
Europe 34.3 23% 37.3 26% 34.9 24%
Asia/Pacific 13.9 9% 12.1 8% 10.9 8%
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TOTAL $152.7 100% $146.3 100% $144.4 100%
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</TABLE>
In the Americas region, sales increased in 2000 by 7.7% from $96.9 million in
fiscal 1999 to $104.5 million in fiscal 2000. The increase in sales is primarily
due to Lava sales in the U.S., which were $11.1 million for the year, higher
than the level of sales achieved by Block Drug when the brand was purchased in
April of 1999. Sales of Lava products accounted for $3.5 million in sales within
the U.S. during the last four months of fiscal 1999. In the region, sales of
WD-40 increased by 1% over the prior year with sales increases in Latin America
and Canada of 5% and 2%, respectively, while sales in the U.S. were unchanged.
Sales of 3-IN-ONE in The Americas remained flat compared to the prior year. In
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the U.S., 3-IN-ONE sales increased by 26% primarily due to both new retail
displays and the introduction of the new telescoping package. 3-IN-ONE sales in
Canada increased by 10%, but sales in Latin America decreased by 68%. This
decrease was primarily the result of competition from lower-priced
locally-produced products. To counter this competition, the Company has entered
into licensing agreements with local Latin American manufacturers/distributors
in key countries for the local production of 3-IN-ONE. Local manufacture of
3-IN-ONE will allow a more competitive pricing structure because all
manufacturing costs will be based on local currency. Latin American sales are
expected to remain at these lower levels as royalty revenue from licensing
replaces sales revenue in these markets. In the region, 86% of the sales in 2000
came from the U.S., and 14% from Canada and Latin America. This reflects a
change in sales from 1999 and 1998 when 84% of the sales came from the U.S., and
16% from Canada and Latin America. As the U.S. and Canada are both mature and
well-developed markets for the WD-40 brand, near-term growth in the region
should come primarily from sales of the Lava brand of heavy-duty hand cleaner
products which the Company acquired in April 1999.
Within the European region, sales declined by 7.9% to $34.3 million in fiscal
2000 after growth of 6.9% from 1998 to 1999 and 8.4% from 1997 to 1998. The
decline in the region's sales for fiscal 2000 is in part due to the weakness of
the Euro and the British pound against the dollar. Sales in local currencies
were considerably better year to year. In spite of the currency translation
issues, Germany managed 10% growth in dollars and 26% in local currency. Sales
from the U.K., which is a mature and well-established market for the Company's
products, accounted for 33% of the region's sales in 2000, down from 34% in 1999
and 37% in 1998. The principal European countries where the Company sells
through a direct sales force - France, Germany, Spain and Italy together
accounted for 31% of the region's sales in 2000 and 1999, up from 27% in 1998.
The Company expects the majority of its growth in Europe to come from these four
countries during the coming fiscal year.
In the Asia/Pacific region, sales grew by 15% from 1999 to 2000 after growing by
11% from 1998 to 1999. Of the sales in the region, 18% were from Australia in
2000, down from 21% in 1999 and 22% in 1998. The Company expects continued
growth in sales from this region in the coming year. During 2000, sales in the
Asia/Pacific region have passed the levels achieved prior to the Asian economic
and political crisis which severely impacted the economies of several countries
in the region in 1998.
Gross profit was $83.3 million, or 54.5% of sales in fiscal 2000, $81.8 million,
or 55.9% in 1999 and $81.4 million, or 56.4% in 1998. Changes in gross profit
percentage from year to year are due primarily to changes in average selling
prices arising from changes in both the mix of products sold and the mix of
customers and trade channels in which the products are sold. In addition, the
Company has begun to experience increases in the cost of certain raw materials
as a result of the worldwide increase in oil prices. Due to the consolidation of
companies in the retailing industry, increasing portions of the Company's sales
are made to fewer, but larger, customers with greater purchasing power,
negatively impacting selling prices and margins.
A breakdown of gross profit and gross profit percentage by trading bloc by year
follows:
<TABLE>
<CAPTION>
----------------------- ----------------------- ------------------------ -----------------------
2000 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Americas $56.7 54.3% $53.8 55.5% $55.8 56.6%
Europe 19.9 58.1% 22.0 58.9% 20.0 57.5%
Asia/Pacific 6.7 47.7% 6.0 49.7% 5.6 50.7%
----------------------- ----------- ----------- ----------- ------------ ----------- -----------
Total $83.3 54.5% $81.8 55.9% $81.4 56.4%
----------------------- ----------- ----------- ----------- ------------ ----------- -----------
</TABLE>
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Selling, general, & administrative expenses were $34.1 million in fiscal 2000,
or 22.3% of sales compared to $32.4 million in fiscal 1999, or 22.1% of sales
and $31.1 million or 21.5% of sales in 1998. The increase in SG&A expenses in
2000 and in 1999 is due primarily to continued investment in employee related
expenses, supply chain restructuring, and information systems required to
support future growth. In addition, FY 2000 also had increased freight and
warehousing costs associated with Lava inventories.
Advertising and sales promotion expense was $15.2 million, or 10.0% of sales in
2000, $14.0 million, or 9.5% of sales in 1999 and $14.8 million, or 10.3% of
sales in 1998. While the change in advertising and sales promotion as a
percentage of sales has not been significant over the three years and reflects
historical levels, the Company expects next year's advertising and promotion
expenses to be a greater percentage of sales. The expected increase will result
primarily from the introduction of the Lava brand to new markets around the
world. Greater spending in mature markets continues to be needed to support the
changing mix in the Company's customer base towards fewer but larger customers
with greater purchasing power. Supporting these larger customers requires
additional spending in customer-specific marketing and promotional programs.
Amortization expense was $2.4 million for fiscal 2000, up $.9 million from $1.5
million in 1999 and $1.3 million in 1998. The increase is due to the
amortization of goodwill attributable to the purchase of the Lava brand in April
1999. Amortization expense also includes amortization of goodwill attributable
to the purchase of the 3-IN-ONE brand in December 1995.
Income from operations was $31.6 million or 20.7% of sales in 2000, $33.9
million, or 23.2% of sales in 1999 and $34.2 million, or 23.7% of sales in 1998.
The decline in income from operations as a percentage of sales from 1999 to 2000
was due to the items discussed above, namely the lower gross profit percentage
and higher SG&A, advertising and sales promotion and amortization expenses.
Other income (expense) was ($495,000) in fiscal 2000, $256,000 in fiscal 1999
and $96,000 in 1998. The components of other income (expense) are shown below:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------------------------------------
<S> <C> <C> <C>
Interest (expense) income, net $ (662,000) $ 38,000 $ 551,000
Foreign currency losses (23,000) (67,000) (41,000)
Gain (loss) on disposal of property and
equipment 13,000 30,000 (392,000)
Other income (expense) 177,000 255,000 (22,000)
-------------------------------------------------------------------------------------------------------
TOTAL $ (495,000) $ 256,000 $ 96,000
-------------------------------------------------------------------------------------------------------
</TABLE>
The increase in interest expense in fiscal 2000 compared to 1999 and the
decrease in interest income from 1998 to 1999 are due to the acquisition of the
Lava brand. As a result of this acquisition, the Company used cash on hand
resulting in less cash invested while borrowing funds and incurring higher
interest costs. Foreign currency exchange produced a net loss of $23,000 in
fiscal 2000, a loss of $67,000 in fiscal 1999 and a loss of $41,000 in 1998.
Exchange losses have been limited due to programs put in place, particularly in
the UK, to better manage currency conversion. The loss on disposal of property,
plant and equipment in 1998 was due largely to a decision to convert company
owned vehicles in the U.S. to leased vehicles and was partially offset by lower
depreciation expense. Other income in 2000 includes $57,000 in insurance
dividends from key man life insurance policies and $99,000 in increased cash
surrender value from key man life insurance policies.
The provision for income taxes was 34.0% of taxable income in fiscal 2000,
$35.5% in 1999, and 36.0% in 1998. The declining income tax rate over the past
three fiscal years is due to tax savings arising from
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a recent restructuring of the Company's operations, which was intended to
improve efficiency and visibility in the manufacture of the Company's products.
Net income was $20.6 million or $1.33 per share on a fully diluted basis in 2000
down from $22.1 million, or $1.41 per share on a fully diluted basis in 1999 and
$21.9 million, or $1.40 per share in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased from $9.7 million at the end of fiscal 1999
to $2.6 million at the end of fiscal 2000. This decrease in cash resources is
primarily attributable to stock repurchases and loan repayments made during the
year. During fiscal 2000, the Company used $3.6 million of its cash to acquire
approximately 175,000 shares of its outstanding common stock and used $5.3
million to pay down debt. The stock repurchases were made pursuant to a plan
authorized by the Board of Directors allowing management to acquire up to five
percent of the outstanding shares from time to time in the open market subject
to available cash flow and market conditions.
At August 31, 2000, working capital was $25.1 million, a decrease of $6.7
million from $31.8 million at the end of 1999 and the current ratio of 2.2 at
August 31, 2000 is down from 2.6 at August 31, 1999. These decreases are largely
due to the stock repurchases and loan repayments discussed above. Additionally,
part of the reduction in working capital is due to the Company's acquisition of
capital assets.
The Company has an unsecured credit facility with a bank. The credit facility
consists of a term loan, which matures on May 1, 2006 and a $6.0 million
revolving line of credit, which matures on April 30, 2001. At August 31, 2000,
$11.1 million remained due under the term loan, and $2.8 million in borrowings
were outstanding under the revolving line of credit.
The Company's primary source of funds is cash flow from operations, which is
expected to provide sufficient funds to meet both short and long-term operating
needs, as well as future dividends. However, in an effort to augment the growth
of the existing business by leveraging its core competencies, the Company has
announced that it is seeking to acquire one or more branded products in related
markets. If the Company is successful in doing so, existing cash flow may not be
sufficient and additional outside financing may be required to support the
acquisition.
The Company spent $2.2 million for new capital assets during fiscal 2000,
primarily for computer hardware and software in support of sales and operations,
production molds for new products, and vehicle replacements in Europe. In fiscal
2001, the Company expects to spend approximately $1.5 million for new capital
assets, primarily for computer hardware and software in support of sales and
operations, production molds for new products, and vehicle replacements in
Europe.
MARKET RISK
The Company is exposed to a variety of risks, including foreign currency
fluctuations and changes in the market value of its investments. In the normal
course of its business, the Company employs established policies and procedures
to manage its exposure to fluctuations in foreign currency values and changes in
the market value of its investments.
The Company's objective in managing its exposure to foreign currency exchange
rate fluctuations is to reduce the impact of adverse fluctuations in earnings
and cash flows associated with foreign currency exchange rate changes.
Accordingly, the Company's U.K. subsidiary utilizes forward contracts to hedge
10
<PAGE>
its exposure on converting cash balances maintained in French francs, German
deutschmarks, Italian lira and Spanish pesetas into sterling. The Company
regularly monitors its foreign exchange exposures to ensure the overall
effectiveness of its foreign currency hedge positions. However, there can be no
assurance the Company's foreign currency hedging activities will substantially
offset the impact of fluctuations in currency exchange rates on its results of
operations and financial position.
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for certain forward-looking statements. This annual report contains
forward-looking statements, which reflect the Company's current views with
respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties.
The words "aim," "believe," "expect," "anticipate," "intend," "estimate" and
other expressions that indicate future events and trends identify
forward-looking statements.
Actual future results and trends may differ materially from historical results
or those anticipated depending upon factors including, but not limited to, the
impact of local production of 3-IN-ONE on competitive pricing in Latin America,
the reduced sales levels of 3-IN-ONE as royalty revenue replaces sales in
certain Latin American countries, the growth expectations of the Lava brand, the
rate of sales growth in direct European countries, the rate of sales growth in
the Asia/Pacific region, the impact of customer mix and raw material costs on
gross margins, the impact of one or more acquisitions, the amount of future
capital expenditures, foreign exchange rates and fluctuations in those rates,
expected increases in Advertising and Promotion expenses, the appeal of the Lava
brand to consumers in trade channels other than grocery and drug stores, and
legal proceedings.
Readers also should be aware that while the Company does, from time to time,
communicate with securities analysts, it is against the Company's policy to
disclose to them any material non-public information or other confidential
commercial information. Accordingly, shareholders should not assume that the
Company agrees with any statement or report issued by any analyst irrespective
of the content of the statement or report. Further, the Company has a policy
against issuing or confirming financial forecasts or projections issued by
others. Accordingly, to the extent that reports issued by securities analysts
contain any projections, forecasts or opinions, such reports are not the
responsibility of the Company.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements at August 31, 2000 and 1999 and for
each of the three years in the period ended August 31, 2000, and the Report of
PricewaterhouseCoopers LLP, Independent Accountants, are included in this Report
on pages i through xvi.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
11
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth under the captions
"Security Ownership of Directors and Executive Officers," "Nominees for Election
as Directors," "Compensation, Committees and Meetings of the Board of
Directors," "Compensation Committee Interlocks and Insider Participation" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy
Statement to be filed with the Securities and Exchange Commission in connection
with the 2000 Annual Meeting of Shareholders, December 12, 2000 (the "Proxy
Statement"), which information is incorporated by reference herein.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
the Proxy Statement under the headings "Executive Compensation," "Compensation
Committee Report on Executive Compensation" and "Stock Performance Graph."
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
the Proxy Statement under the headings "Principal Security Holders" and
"Security Ownership of Directors and Executive Officers."
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page
----
<S> <C>
(a) Documents filed as part of this report
(1) Report of Independent Accountants i
Consolidated Balance Sheet at August 31, 2000 and 1999 ii
Consolidated Statement of Income for Fiscal 2000, 1999 and 1998 iii
Consolidated Statement of Shareholders' Equity for Fiscal 2000, 1999
and 1998 iv
Consolidated Statement of Cash Flows for Fiscal 2000, 1999 and 1998 v
Notes to Consolidated Financial Statements vi
(2) Financial Statement Schedule for Fiscal 2000, 1999 and 1998
Schedule II - Consolidated Valuation and Qualifying Accounts and Reserves xvii
</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.
12
<PAGE>
(3) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
Articles of Incorporation and By-Laws.
3(a) The Certificate of Incorporation is incorporated by reference
from the Registrant's Form 10-Q filed January 14, 2000,
Exhibit 3(a) thereto.
3(b) The By-Laws are incorporated by reference from the
Registrant's Form 10-Q filed January 14, 2000, Exhibit 3(b)
thereto.
Material contracts.
Executive Compensation Plans and Arrangements (Exhibits 10(a)
through 10(g) are management contracts and compensatory plans
or arrangements required to be filed as exhibits pursuant to
ITEM 14(c)).
10(a) 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(b) 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(c) The Second Amendment and Restatement, WD-40 Company 1990
Incentive Stock Option Plan is incorporated by reference from
the Form 10-K/A filed December 5, 1997, Exhibit 10(d) thereto.
10(d) The Employment Agreement between WD-40 Company and Garry O.
Ridge dated August 2, 1999 is incorporated by reference from
the Registrant's Form 10-K Annual Report filed November 23,
1999, Exhibit 10(d) thereto.
10(e) The Employment Agreement between WD-40 Company and Thomas J.
Tranchina dated August 2, 1999 is incorporated by reference
from the Registrant's Form 10-K Annual Report filed November
23, 1999, Exhibit 10(e) thereto.
10(f) The form of Indemnity Agreement between the Registrant and its
executive officers and directors is incorporated herein by
reference from the Registrant's Proxy Statement filed on
November 9, 1999 (Appendix D thereto).
10(g) 1999 Non-Employee Director Restricted Stock Plan dated
February 5, 1999 and Amendment thereto dated June 27, 2000.
10(h) The Asset Purchase Agreement between Block Drug Company, Inc.
and WD-40 Company dated March 25, 1999 is incorporated by
reference from the Registrant's Form 10-K Annual Report filed
November 23, 1999, Exhibit 10(f) thereto.
</TABLE>
13
<PAGE>
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
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
August 31, 2000.
14
<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 annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
WD-40 COMPANY
Registrant
By /s/ Thomas J. Tranchina
--------------------------------
Thomas J. Tranchina
Vice President Finance
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Date 10/20/00
------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ GARRY O. RIDGE
------------------------------------
GARRY O. RIDGE
Chief Executive Officer and Director
(Principal Executive Officer)
Date 10/20/00
--------
/s/ HARLAN F. HARMSEN
------------------------------------
HARLAN F. HARMSEN, Director
Date 10/20/00
--------
/s/ MARIO L. CRIVELLO
------------------------------------
MARIO L. CRIVELLO, Director
Date 10/20/00
--------
/s/ JACK L. HECKEL
------------------------------------
JACK L. HECKEL, Director
Date 10/20/00
--------
15
<PAGE>
/s/ GARY L. LUICK
------------------------------------
GARY L. LUICK, Director
Date 10/19/00
--------
/s/ GERALD C. SCHLEIF
------------------------------------
GERALD C. SCHLEIF, Director
Date 10/19/00
--------
/s/ EDWARD J. WALSH
------------------------------------
EDWARD J. WALSH, Director
Date 10/20/00
--------
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of WD-40 Company
In our opinion, the accompanying consolidated balance sheets 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, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended August 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. 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 auditing standards generally
accepted in the United States of America, 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 our opinion.
PricewaterhouseCoopers LLP
San Diego, California
October 1, 2000
-i-
<PAGE>
WD-40 COMPANY
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2000 AND 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,619,000 $ 9,741,000
Short-term investments - 194,000
Trade accounts receivable, less allowance for cash discounts
and doubtful accounts of $662,000 and $710,000 29,544,000 28,646,000
Product held at contract packagers 1,377,000 1,868,000
Inventories 7,000,000 6,104,000
Other current assets 5,822,000 5,594,000
--------------- ----------------
Total current assets 46,362,000 52,147,000
Property, plant and equipment, net 4,835,000 3,861,000
Low income housing investment 3,246,000 3,312,000
Goodwill, net 28,254,000 30,792,000
Other assets 2,253,000 1,845,000
--------------- ----------------
$ 84,950,000 $ 91,957,000
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 11,335,000 $ 11,262,000
Accrued payroll and related expenses 3,394,000 3,328,000
Income taxes payable 2,021,000 3,311,000
Line of credit 2,757,000 -
Current portion of long-term debt 1,740,000 2,461,000
--------------- ----------------
Total current liabilities 21,247,000 20,362,000
Long-term debt 9,531,000 14,065,000
Deferred employee benefits 1,380,000 1,356,000
--------------- ----------------
Total long-term liabilities 10,911,000 15,421,000
Commitments and contingencies (Note 13)
Shareholders' equity
Common stock, no par value, 18,000,000 shares authorized -
15,603,146 shares issued and outstanding - 10,143,000
Common stock, $.001 par value, 36,000,000 shares authorized -
15,434,304 shares issued and outstanding 15,000 -
Paid-in capital 10,612,000 509,000
Retained earnings 42,507,000 45,208,000
Accumulated other comprehensive income (342,000) 314,000
--------------- ----------------
Total shareholders' equity 52,792,000 56,174,000
--------------- ----------------
$ 84,950,000 $ 91,957,000
=============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-ii-
<PAGE>
WD-40 COMPANY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED AUGUST 31, 2000, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Net sales $ 152,698,000 $ 146,348,000 $ 144,397,000
Cost of product sold 69,414,000 64,558,000 62,984,000
----------------- ----------------- -----------------
Gross profit 83,284,000 81,790,000 81,413,000
----------------- ----------------- -----------------
Operating expenses
Selling, general and administrative 34,067,000 32,362,000 31,098,000
Advertising and sales promotion 15,204,000 13,969,000 14,811,000
Amortization expense 2,390,000 1,515,000 1,344,000
----------------- ----------------- -----------------
51,661,000 47,846,000 47,253,000
----------------- ----------------- -----------------
Income from operations 31,623,000 33,944,000 34,160,000
Interest income (expense), net (662,000) 38,000 551,000
Other income (expense), net 167,000 218,000 (455,000)
----------------- ----------------- -----------------
Income before income taxes 31,128,000 34,200,000 34,256,000
Provision for income taxes 10,570,000 12,135,000 12,368,000
----------------- ----------------- -----------------
Net income $ 20,558,000 $ 22,065,000 $ 21,888,000
================= ================= =================
Earnings per common share
Basic $ 1.33 $ 1.41 $ 1.40
================= ================= =================
Diluted $ 1.33 $ 1.41 $ 1.40
================= ================= =================
Common equivalent shares
Basic 15,477,250 15,599,501 15,604,160
================= ================= =================
Diluted 15,479,437 15,652,004 15,664,119
================= ================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-iii-
<PAGE>
WD-40 COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 2000, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
<S> <C> <C> <C> <C>
Balance at September 1, 1997 15,561,942 $ 8,459,000 $ 321,000 $ 42,403,000
Issuance of common stock upon exercise of options 119,856 2,640,000
Exchange of common stock upon exercise of options (48,490) (1,419,000)
Cash dividends (19,973,000)
Equity adjustment from foreign currency translation,
net
Net income 21,888,000
-------------- --------------- --------------- ---------------
Balance at August 31, 1998 15,633,308 9,680,000 321,000 44,318,000
Issuance of common stock upon exercise of options 24,448 525,000
Issuance of restricted common stock 750 20,000
Exchange of common stock upon exercise of options (1,740) (48,000)
Stock repurchased (53,620) (34,000) (1,212,000)
Tax benefit on exercise of stock options 188,000
Cash dividends (19,963,000)
Equity adjustment from foreign currency translation,
net
Net income 22,065,000
-------------- --------------- --------------- ---------------
Balance at August 31, 1999 15,603,146 10,143,000 509,000 45,208,000
Issuance of common stock upon exercise of options 2,944 47,000
Stock repurchased (174,536) (129,000) (3,462,000)
Recapitalization (Note 1) (10,046,000) 10,046,000
Issuance of restricted common stock 2,750 57,000
Cash dividends (19,797,000)
Equity adjustment from foreign currency translation,
net
Net income 20,558,000
-------------- --------------- --------------- ---------------
Balance at August 31, 2000 15,434,304 $ 15,000 $ 10,612,000 $ 42,507,000
============== =============== =============== ===============
<CAPTION>
ACCUMULATED CURRENT
OTHER YEAR'S
COMPREHENSIVE COMPREHENSIVE
INCOME TOTAL INCOME
<S> <C> <C> <C>
Balance at September 1, 1997 $ 157,000 $ 51,340,000 $ 21,698,000
===============
Issuance of common stock upon exercise of options 2,640,000
Exchange of common stock upon exercise of options (1,419,000)
Cash dividends (19,973,000)
Equity adjustment from foreign currency translation,
net 522,000 522,000 $ 522,000
Net income 21,888,000 21,888,000
------------- ---------------- ---------------
Balance at August 31, 1998 679,000 54,998,000 $ 22,410,000
===============
Issuance of common stock upon exercise of options 525,000
Issuance of restricted common stock 20,000
Exchange of common stock upon exercise of options (48,000)
Stock repurchased (1,246,000)
Tax benefit on exercise of stock options 188,000
Cash dividends (19,963,000)
Equity adjustment from foreign currency translation,
net (365,000) (365,000) $ (365,000)
Net income 22,065,000 22,065,000
------------- ---------------- ---------------
Balance at August 31, 1999 314,000 56,174,000 $ 21,700,000
===============
Issuance of common stock upon exercise of options 47,000
Stock repurchased (3,591,000)
Recapitalization (Note 1) -
Issuance of restricted common stock 57,000
Cash dividends (19,797,000)
Equity adjustment from foreign currency translation,
net (656,000) (656,000) $ (656,000)
Net income 20,558,000 20,558,000
------------- ---------------- ---------------
Balance at August 31, 2000 $(342,000) $ 52,792,000 $ 19,902,000
============= ================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-iv-
<PAGE>
WD-40 COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 2000, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 20,558,000 $ 22,065,000 $ 21,888,000
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 3,409,000 2,422,000 2,161,000
(Gain) loss on sale of equipment (13,000) (12,000) 392,000
Deferred income tax expense (benefit) 63,000 (58,000) (305,000)
Tax benefit from exercise of stock options - 188,000 -
Non-cash compensation - 20,000 -
Changes in assets and liabilities
Trade accounts receivable (1,852,000) (1,863,000) (4,406,000)
Product held at contract packagers 491,000 62,000 94,000
Inventories (1,017,000) (815,000) 1,668,000
Other assets (312,000) (956,000) (365,000)
Accounts payable and accrued expenses 515,000 4,471,000 913,000
Income taxes payable (1,214,000) 93,000 1,551,000
Long-term deferred employee benefits 26,000 232,000 85,000
---------------- ---------------- ----------------
Net cash provided by operating activities 20,654,000 25,849,000 23,676,000
---------------- ---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease (increase) in short-term investments 194,000 5,899,000 (6,093,000)
Assets of business acquired - (23,283,000) -
Proceeds from sale of equipment 166,000 127,000 624,000
Capital expenditures (2,233,000) (1,308,000) (1,271,000)
---------------- ---------------- ----------------
Net cash used in investing activities (1,873,000) (18,565,000) (6,740,000)
---------------- ---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 104,000 477,000 1,221,000
Stock repurchase (3,591,000) (1,246,000) -
Proceeds from issuance of long-term debt - 16,000,000 -
Borowings on line of credit, net 2,757,000 - -
Repayments of long-term debt (5,255,000) (1,229,000) (669,000)
Dividends paid (19,797,000) (19,963,000) (19,973,000)
---------------- ---------------- ----------------
Net cash used in financing activities (25,782,000) (5,961,000) (19,421,000)
---------------- ---------------- ----------------
Effect of exchange rate changes on cash (121,000) (154,000) 189,000
---------------- ---------------- ----------------
Increase (decrease) in cash and cash equivalents (7,122,000) 1,169,000 (2,296,000)
Cash and cash equivalents at beginning of year 9,741,000 8,572,000 10,868,000
---------------- ---------------- ----------------
Cash and cash equivalents at end of year $ 2,619,000 $ 9,741,000 $ 8,572,000
================ ================ ================
NON-CASH INVESTING AND FINANCING ACTIVITIES
Exchange of common stock upon exercise of options $ - $ 48,000 $ 1,419,000
================ ================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-v-
<PAGE>
WD-40 COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000, 1999, AND 1998
--------------------------------------------------------------------------------
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 Manufacturing Company,
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.
FINANCIAL STATEMENT PRESENTATION
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid investments purchased with an
original maturity of three months or less.
SHORT-TERM INVESTMENTS
Short-term investments consist principally of variable rate demand
notes issued by state, county and municipal governments. While these
notes have contractual maturities of up to 30 years, they also provide
liquidity at regularly scheduled auction dates, which typically occur
every one to five weeks. Such investments are considered short-term due
to the auction dates and the Company's intent is to sell the securities
from time to time during the year. The Company has classified its
investment portfolio as available-for-sale. Additionally, the cost of
securities sold is based upon the specific identification method.
PRODUCT HELD AT CONTRACT PACKAGERS
Product held at contract packagers represents 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 products to rigid
specifications, and upon order from WD-40 Company, ship ready-to-sell
inventory to the Company's customers. The 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 customers.
INVENTORIES
Inventories are stated at the lower of average cost or market. The
inventory balance primarily represents hand cleaning products owned by
WD-40 Company (U.S.), lubricant inventory owned by WD-40 Company Ltd.
(U.K.) and concentrate owned by WD-40 Manufacturing Company (U.S.) and
WD-40 Company (U.S.).
PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment is stated at cost. Depreciation has been
computed principally using the straight-line method based upon
estimated useful lives of ten to thirty years for buildings and
improvements, three to fifteen years for machinery and equipment, five
years for vehicles and three to ten years for furniture and fixtures.
Upon the disposition of an asset, its accumulated depreciation is
deducted from the original cost, and any gain or loss is reflected in
current earnings.
-vi-
<PAGE>
WD-40 COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000, 1999, AND 1998
--------------------------------------------------------------------------------
GOODWILL
Goodwill represents the excess of the purchase cost over the fair value
of identifiable assets at the date of acquisition of the 3-IN-ONE brand
and the Lava brand (Note 2) and is amortized on a straight-line basis
over their estimated useful lives of 15 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
The Company assesses potential impairments to its long-lived assets
when there is evidence that events or changes in circumstances have
made recovery of the asset's carrying value unlikely. An impairment
loss would be recognized when the sum of the expected future
undiscounted net cash flows is less than the carrying amount of the
asset. No impairment losses have been identified by the Company.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At August 31, 2000, the carrying amounts of the Company's other
financial instruments, include cash equivalents, trade receivables,
accounts payable, forward foreign currency exchange contracts and
long-term debt. The carrying amounts of these instruments approximate
fair value because of their short maturities and variable interest
rates. Management believes that the estimated fair value of the
Company's low income housing investment approximates its carrying value
at August 31, 2000.
DIVERSIFICATION OF CREDIT RISK
The Company's policy is to place its cash, cash equivalents and
investments in high credit quality financial institutions, in
investment grade commercial paper and in securities of various
government agencies. Additionally, the Company limits its credit
exposure from trade receivables by performing on-going credit
evaluations of customers.
REVENUE RECOGNITION
Revenues are recognized upon the shipment of product to customers.
ADVERTISING COSTS
The Company expenses advertising costs when incurred.
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.
COMPREHENSIVE INCOME
The Company discloses all components of comprehensive income in the
financial statements in the period in which they are recognized. The
components of comprehensive income for the Company include net income
and foreign currency translation adjustments. The foreign currency
translation adjustments are reported net of the effect of income tax
expense (benefit) of $(377,000), $(201,000) and $295,000 for the years
ended August 31, 2000, 1999 and 1998, respectively.
-vii-
<PAGE>
WD-40 COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000, 1999, AND 1998
--------------------------------------------------------------------------------
EARNINGS PER SHARE
Basic earnings per common share is calculated by dividing net income
for the period by the weighted-average number of common shares
outstanding during the period. Diluted earnings per common share is
calculated by dividing net income for the period by the
weighted-average number of common shares outstanding during the period
increased by dilutive potential common shares ("dilutive securities")
that were outstanding during the period. Dilutive securities are
comprised of options granted under the Company's stock option plan
(Note 6).
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
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 accumulated other
comprehensive income in 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 losses were $23,000, $67,000 and $41,000
for the years ended August 31, 2000, 1999 and 1998, respectively.
During 2000, the Company entered into forward foreign currency exchange
rate contracts to hedge cash balances denominated in various currencies
held by one of its wholly owned foreign subsidiaries, WD-40 Company
Ltd. (U.K.). Realized and unrealized gains and losses on these
contracts are recorded in income. The effect of this practice is to
minimize variability in the Company's operating results arising from
foreign exchange rate movements. The Company does not engage in foreign
currency speculation. These foreign exchange contracts do not subject
the Company to significant risk from exchange rate movements, because
gains and losses on these contracts offset losses and gains on the
balances being hedged. The Company does not purchase contracts which
exceed the amount of the balances being hedged. At August 31, 2000, the
Company had approximately $927,654 of foreign exchange contracts
outstanding, which mature starting in September 2000 and continue to
mature through January 2001. The amount of net realized and unrealized
gains on the foreign exchange contracts was not material during the
year ended August 31, 2000.
STOCK-BASED COMPENSATION
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method. The Company is
presenting pro forma disclosures of net income and earnings per share,
as if the fair value method had been applied in measuring compensation
expenses (Note 8).
SEGMENT INFORMATION
The Company discloses certain information about the Company's operating
segments, products, geographical areas in which it operates and its
major customers (Note 5).
NEW PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as
amended by SFAS No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT
NO. 133, AN AMENDMENT OF FASB STATEMENT NO. 133 AND SFAS NO. 138,
ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING
ACTIVITIES - AN AMENDMENT OF FASB STATEMENT NO. 133. SFAS No. 133
standardizes the accounting for derivative instruments by requiring
that all derivatives be recognized as assets and liabilities and
measured at fair value. The Company will be required to adopt this
standard during the year ending August 31, 2001. The Company has
determined that the adoption of SFAS No. 133 will not have a material
impact on the Company's financial statements.
-viii-
<PAGE>
WD-40 COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000, 1999, AND 1998
--------------------------------------------------------------------------------
RECAPITALIZATION
In December 1999, the Company filed a Certificate of Merger with the
Secretary of State of Delaware to change the Company's state of
incorporation from California to Delaware as authorized by the
shareholders of the Company. The Company's common stock now has a par
value of $0.001 per share.
The Company's shareholders also approved an increase in the authorized
number of shares of common stock from eighteen million (18,000,000) to
thirty-six million (36,000,000).
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to classifications used in the current year.
These reclassifications had no effect on reported earnings.
2. ACQUISITION
On April 30, 1999, the Company acquired all of the worldwide trademarks
and other intangible assets of the Lava brand of heavy-duty hand
cleaners from Block Drug Company, Inc. The Company paid cash in the
amount of $19,000,000 for the Lava brand, including intangible assets.
In addition, the Company incurred $724,000 in transaction costs related
to the acquisition and paid $3,453,000 for inventory. To finance the
transactions, the Company borrowed $16,000,000 from a commercial bank
and used cash from the liquidation of short-term investments for the
balance.
3. SHORT-TERM INVESTMENTS
The cost of the Company's investment portfolio by type of security is
as follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Type of Security
Other securities $ - $ 194,000
--------------- ----------------
</TABLE>
The realized gain on disposal of securities in 2000, as well as the
unrealized gain on investments as of August 31, 2000, was not material.
4. SELECTED FINANCIAL STATEMENT INFORMATION
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Inventories
Raw materials $ 575,000 $ 520,000
Finished goods 6,425,000 5,584,000
--------------- ----------------
$ 7,000,000 $ 6,104,000
--------------- ----------------
</TABLE>
-ix-
<PAGE>
WD-40 COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000, 1999, AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Property, Plant and Equipment, Net
Land $ 254,000 $ 254,000
Buildings and improvements 2,239,000 2,209,000
Furniture and fixtures 4,303,000 3,570,000
Machinery, equipment and vehicles 2,009,000 1,711,000
--------------- ----------------
8,805,000 7,744,000
Less accumulated depreciation (3,970,000) (3,883,000)
--------------- ----------------
$ 4,835,000 $ 3,861,000
=============== ================
</TABLE>
Depreciation expense for the years ended August 31, 2000, 1999 and 1998
was $1,020,000, $907,000 and $817,000, respectively.
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Goodwill, net
Goodwill $ 34,724,000 $ 34,991,000
Accumulated amortization (6,470,000) (4,199,000)
--------------- ----------------
$ 28,254,000 $ 30,792,000
=============== ================
</TABLE>
5. BUSINESS SEGMENTS AND FOREIGN OPERATIONS
The accounting policies of the segments are the same as those described
in the SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Note 1). Segment
data does not include intersegment revenues, or charges allocating
corporate-headquarters costs to each of its operating segments. The
Company evaluates the performance of its segments and allocates
resources to them based on sales. The Company is organized based on
geographic location.
The table below presents information about reported segments for the
years ended August 31:
<TABLE>
<CAPTION>
THE ASIA-
AMERICAS EUROPE PACIFIC TOTAL
<S> <C> <C> <C> <C>
2000
Net sales $ 104,440,000 $ 34,340,000 $ 13,918,000 $ 152,698,000
Operating income 20,063,000 7,146,000 4,414,000 31,623,000
Total assets 68,944,000 15,228,000 778,000 84,950,000
1999
Net sales 96,954,000 37,293,000 12,101,000 146,348,000
Operating income 20,848,000 9,482,000 3,614,000 33,944,000
Total assets 74,744,000 16,409,000 804,000 91,957,000
1998
Net sales 98,566,000 34,885,000 10,946,000 144,397,000
Operating income 22,906,000 8,084,000 3,170,000 34,160,000
Total assets 55,580,000 14,666,000 699,000 70,945,000
</TABLE>
-x-
<PAGE>
WD-40 COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000, 1999, AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SALES
--------------------------------------------------------
2000 1999 1998
<S> <C> <C> <C>
PRODUCT LINE INFORMATION
Lubricants $ 141,527,000 $ 142,836,000 $ 144,397,000
Hand cleaning products 11,171,000 3,512,000 -
--------------- ---------------- -----------------
$ 152,698,000 $ 146,348,000 $ 144,397,000
=============== ================ =================
GEOGRAPHICAL INFORMATION
United States $ 89,353,000 $ 81,796,000 $ 83,139,000
International 63,345,000 64,552,000 61,258,000
--------------- ---------------- -----------------
$ 152,698,000 $ 146,348,000 $ 144,397,000
=============== ================ =================
LONG-LIVED ASSETS
--------------------------------------------------------
2000 1999 1998
GEOGRAPHICAL INFORMATION
United States $ 35,339,000 $ 36,203,000 $ 17,800,000
International 3,249,000 3,607,000 3,379,000
--------------- ---------------- -----------------
$ 38,588,000 $ 39,810,000 $ 21,179,000
=============== ================ =================
</TABLE>
6. EARNINGS PER COMMON SHARE
The schedule below summarizes the elements included in the calculation
of basic and diluted earnings per common share for the years ended
August 31, 2000, 1999 and 1998.
<TABLE>
<CAPTION>
NET PER SHARE
INCOME SHARES AMOUNT
<S> <C> <C> <C>
2000
Net income $ 20,558,000
Basic EPS 15,477,250 $1.33
Dilutive securities 2,187
----------------
Diluted EPS 15,479,437 $1.33
================
1999
Net income $ 22,065,000
Basic EPS 15,599,501 $1.41
Dilutive securities 52,503
----------------
Diluted EPS 15,642,004 $1.41
================
1998
Net income $ 21,888,000
Basic EPS 15,604,160 $1.40
Dilutive securities 59,959
----------------
Diluted EPS 15,664,119 $1.40
================
</TABLE>
-xi-
<PAGE>
WD-40 COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000, 1999, AND 1998
--------------------------------------------------------------------------------
For the years ended August 31, 2000, 1999 and 1998, 706,734, 134,114
and 137,400 options outstanding were excluded from the calculation of
diluted EPS, as their effect would have been antidilutive.
7. INCOME TAXES
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
2000 1999 1998
<S> <C> <C> <C>
CURRENT TAX PROVISION
United States $ 7,540,000 $ 8,188,000 $ 7,911,000
State 890,000 1,510,000 1,964,000
Foreign 1,929,000 2,650,000 2,798,000
----------------- --------------- ----------------
Total current 10,359,000 12,348,000 12,673,000
----------------- --------------- ----------------
DEFERRED TAX PROVISION (BENEFIT)
United States $ 211,000 (156,000) (343,000)
Foreign - (57,000) 38,000
----------------- --------------- ----------------
Total deferred 211,000 (213,000) (305,000)
----------------- --------------- ----------------
$ 10,570,000 $ 12,135,000 $ 12,368,000
================= =============== ================
</TABLE>
Deferred tax assets included in other current assets are comprised of
the following:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
2000 1999
<S> <C> <C>
Accrued employee benefits $ 401,000 $ 422,000
State income taxes 177,000 221,000
Reserves and allowances 633,000 604,000
---------------- ----------------
$ 1,211,000 $ 1,247,000
================ ================
</TABLE>
Long-term deferred tax assets and (liabilities) included in other
assets are comprised of the following:
<TABLE>
<CAPTION>
August 31,
2000 1999
<S> <C> <C>
Depreciation $ (207,000) $ (161,000)
Deferred compensation 565,000 557,000
Investment in low income housing (305,000) (168,000)
---------------- ----------------
$ 53,000 $ 228,000
================ ================
</TABLE>
-xii-
<PAGE>
WD-40 COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000, 1999, AND 1998
--------------------------------------------------------------------------------
Following is a reconciliation of the amount computed by applying the
statutory federal income tax rate to income before income taxes to the
provision for income taxes:
<TABLE>
<CAPTION>
Year Ended August 31,
2000 1999 1998
<S> <C> <C> <C>
Amount computed at U.S. statutory
federal tax rate $ 10,895,000 $ 11,970,000 $ 11,990,000
State income taxes, net of federal
benefit 841,000 1,445,000 1,257,000
Affordable housing credits (739,000) (738,000) (717,000)
Other (427,000) (542,000) (162,000)
----------------- --------------- ----------------
$ 10,570,000 $ 12,135,000 $ 12,368,000
================= =============== ================
</TABLE>
Income taxes paid during the years ended August 31, 2000, 1999 and 1998
amounted to $9,721,381, $10,563,000 and $11,638,000, respectively.
8. STOCK OPTIONS
Under the Company's current stock option plan, the Board of Directors
may grant officers and key employees options to purchase up to
1,480,000 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, 2000, options
for 472,182 shares were exercisable, and options for 370,491 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, 2000 is as
follows:
<TABLE>
<CAPTION>
OPTIONS OPTION PRICE
OUTSTANDING PER SHARE
<S> <C> <C>
Balance at August 31, 1997 375,050 $15.44 - $23.75
Granted 147,800 $31.75
Exercised (119,856) $16.13 - $23.75
Canceled (26,157) $17.13 - $31.75
--------------- --------------------
Balance at August 31, 1998 376,837 $15.44 - $31.75
Granted 165,999 $23.06
Exercised (24,448) $15.94 - $23.75
Canceled (4,792) $23.06 - $31.75
--------------- --------------------
Balance at August 31, 1999 513,596 $15.44 - $31.75
Granted 247,600 $23.50
Exercised (2,944) $15.94
Canceled (22,400) $23.06 - $31.75
--------------- --------------------
Balance at August 31, 2000 735,852 $15.44 - $31.75
=============== ====================
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options as of August 31, 2000:
-xiii-
<PAGE>
WD-40 COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000, 1999, AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ----------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C>
$15.44 - $21.25 100,304 4.00 $20.61 100,304 $20.61
$23.00 - $31.75 635,548 7.76 $25.06 371,878 $25.86
--------------- ------------- ------------- ------------- ------------
735,852 7.25 $24.45 472,182 $24.74
=============== =============
</TABLE>
If the Company had elected to recognize compensation expense for its
stock option plan using the fair value method, the Company's net income
and earnings per share would be reduced to the pro forma amounts
indicated below.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
2000 1999 1998
<S> <C> <C> <C>
NET INCOME
As reported $ 20,558,000 $ 22,065,000 $ 21,888,000
Pro forma 19,729,000 21,651,000 21,561,000
DILUTED EARNINGS PER SHARE
As reported $ 1.33 $ 1.41 $ 1.40
Pro forma $ 1.27 $ 1.38 $ 1.38
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions used for the years ended August 31, 2000, 1999 and 1998:
expected volatility ranging from 17% to 37.5%, risk-free interest rate
ranging from 4.62% to 5.96%, an average expected life of three years
and a dividend yield of 5.6%. The weighted average fair value of stock
options granted during the years ended August 31, 2000, 1999 and 1998
was $5.71, $3.65 and $3.23 per share, respectively.
9. COMMON STOCK
The Company has a stock repurchase plan authorized by the Board of
Directors for management to acquire up to 5% of the outstanding common
stock from time to time in the open market subject to available cash
flow and market conditions. The Company repurchased 174,536 shares of
common stock for $3,591,000 during the year ended August 31, 2000.
10. EMPLOYEE BENEFIT PLANS
The Company has a combined WD-40 Company Money Purchase Pension Plan
and Trust and WD-40 Company Profit Sharing Plan (the "Plans") for the
benefit of its regular full-time employees who meet certain criteria.
The Plans provide for annual contributions into a trust to the extent
of 10% of covered employee compensation for the WD-40 Company Money
Purchase Pension Plan and Trust and as approved by the Board of
Directors for the WD-40 Company Profit Sharing Plan and Trust, 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 in the years ended
August 31, 2000, 1999 and 1998 totaled $1,491,000, $1,211,000 and
$1,376,000 respectively.
-xiv-
<PAGE>
WD-40 COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000, 1999, AND 1998
--------------------------------------------------------------------------------
The Company has a WD-40 Company 401(k) Plan and Trust whereby regular
full-time employees who have completed certain minimum service
requirements 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 50% 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
during the years ended August 31, 2000, 1999 and 1998 was approximately
$182,000, $161,000 and $123,000, 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 $5,138,000, of which $1,510,000, representing
the present value of these obligations to employees for service through
August 31, 2000, has been accrued.
The Company has life insurance policies on certain of its key
executives. As of August 31, 2000, the aggregate cash surrender value
of these policies is $1,700,017, which is included in other assets.
Keyman life insurance premiums paid by the Company during the years
ended August 31, 2000, 1999 and 1998 were $35,000, $35,000 and $30,000,
respectively.
In February 1999, the Board of Directors adopted a Non-Employee
Director Restricted Stock Plan to provide for the issuance of
restricted common stock of the Company to each non-employee member of
the Board of Directors in lieu of $5,000 of cash compensation. The
issuance of shares in lieu of cash compensation is mandatory for any
director who does not hold shares of the Company having a fair market
value of at least $50,000 and optional for all other directors. The
shares do not become vested for resale for a period of five years,
except in the event of death or retirement from the Board of Directors.
In March 2000, the Board of Directors increased the number of
restricted shares to be issued from 250 to 350. The Board of Directors
also further amended the Plan in June 2000 to permit each Director to
elect, at such Director's option, to receive 1,000 shares of the
restricted Company stock in lieu of a full year's compensation. At
August 31, 2000, the Company had 3,500 shares of restricted stock
outstanding.
11. LOW INCOME HOUSING 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 with an estimated
salvage value of $2,750,000. Amortization expense during the years
ended August 31, 2000, 1999 and 1998 were $66,000, $66,000 and
$333,000, respectively.
The Company entered into seven-year promissory notes to fund its
investments in the affordable housing tax credit fund. Each note is
secured by the corresponding investment and bears interest at 7.0%. In
January 2000, the Company paid off the promissory notes. Interest paid
during the years ended August 31, 2000, 1999 and 1998 was $62,000,
$126,000 and $173,000, respectively.
12. DEBT
In March 1999, the Company obtained a revolving loan with a commercial
bank which expires on April 30, 2002. In July 2000, the loan was
amended to increase the amount that may be borrowed under the terms of
the loan from up to $4,000,000 to up to $6,000,000 at the bank's
reference rate (8.22% at August 31, 2000) or LIBOR plus 1.25%. The
agreement requires the Company to maintain minimum income levels and
meet certain other restrictive covenants. Borrowings at August 31, 2000
were $2,757,000.
-xv-
<PAGE>
WD-40 COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000, 1999, AND 1998
--------------------------------------------------------------------------------
In March 1999, the Company obtained a term loan with a commercial bank
which expires on May 1, 2006. The Company has borrowed $16,000,000
under the term loan at either the bank's reference rate (8.47% at
August 31, 2000) or LIBOR plus 1.50%. During the year ended August 31,
2000, the Company paid $954,000 of interest incurred under the term
loan. The term loan is payable in monthly principal installments of
$133,000, plus interest. Principal payments in the amount of $1,600,000
will be due under the term loan for each of the years ending August 31,
2001 through 2005 and principal in the amount of $3,066,667 will be due
thereafter. The agreement requires the Company to maintain minimum
income levels and meet certain other restrictive covenants.
13. 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, 2000 which provide for the following future minimum lease
payments: 2001, $290,000; 2002, $130,000; 2003, $19,000. Rent expense
for the years ended August 31, 2000, 1999 and 1998 was $768,000,
$564,000 and $267,000, respectively.
14. SUBSEQUENT EVENTS
On September 26, 2000, the Company declared a cash dividend of $.32 per
share payable on October 30, 2000 to shareholders of record on October
13, 2000.
On September 26, 2000, the Company granted 420,600 stock options to
purchase shares of the Company's common stock.
On October 1, 2000, the Company completed the acquisition of the Solvol
brand heavy-duty hand cleaner for $1.1 million from Unilever Australia
Ltd.
-xvi-
<PAGE>
WD-40 COMPANY
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
OF PERIOD EXPENSES DEDUCTIONS* PERIOD
<S> <C> <C> <C> <C>
Reserve for bad debts and sales discounts:
Year ended
August 31, 1998 $ 495,000 $ 1,647,000 $ 1,557,000 $ 585,000
========== ============ ============ ==========
Year ended
August 31, 1999 $ 585,000 $ 1,422,000 $ 1,169,000 $ 838,000
========== ============ ============ ==========
Year ended
August 31, 2000 $ 838,000 $ 1,534,000 $ 1,659,000 $ 713,000
========== ============ ============ ==========
</TABLE>
* Write-off of doubtful accounts and sales discounts taken.
-xvii-
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Incorporated
By Reference
No. Exhibit Page
--- ------- ----
<S> <C> <C>
3(a) Restated Articles of Incorporation 13
3(b) Certificate of Amendment of Restated Articles of Incorporation 13
3(c) Restated By-Laws 13
10(a) WD-40 Company Supplemental Death Benefit Plan 13
10(b) WD-40 Company Supplemental Retirement Benefit Plan 13
10(c) Second Amendment and Restatement, WD-40 Company 1990
Incentive Stock Option Plan 13
10(d) Employment Agreement between WD-40 Company and Garry O. Ridge 13
dated August 2, 1999
10(e) Employment Agreement between WD-40 Company and Thomas J. 13
Tranchina dated August 2, 1999
10(f) Indemnity Agreement between the Registrant and its executive officers 13
and directors
10(g) 1999 Non-Employee Director Restricted Stock Plan dated February 5, 2000
and Amendment thereto dated June 27, 2000
10(h) Asset Purchase Agreement between Block Drug Company, Inc. and 13
WD-40 Company dated March 25, 1999
</TABLE>
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
27 Financial Data Schedule (electronic filing only)
