SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
-----------------------------------
FORM 10-Q
QUARTERLY REPORTS UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended May 31, 2000
Commission File No. 0-6936-3
WD-40 COMPANY
(Exact Name of Registrant as specified in its charter)
Delaware 95-1797918
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1061 Cudahy Place, San Diego, California 92110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 275-1400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Stock as of July 7, 2000 15,433,654
<PAGE>
Part I Financial Information
Item 1. Financial Statements
WD-40 Company
Consolidated Condensed Balance Sheet
Assets
<TABLE>
<CAPTION>
(unaudited)
May 31, 2000 August 31, 1999
------------ ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,946,000 $ 9,935,000
Trade accounts receivable, less allowance for
cash discounts and doubtful accounts
of $890,000 and $710,000 26,197,000 28,646,000
Product held at contract packagers 1,308,000 1,868,000
Inventories 6,470,000 6,104,000
Other current assets 4,665,000 5,594,000
----------- -----------
Total current assets 41,586,000 52,147,000
Property, plant, and equipment, net 4,711,000 3,861,000
Low income housing investments 3,262,000 3,312,000
Goodwill, net 28,863,000 30,792,000
Other assets 2,045,000 1,845,000
----------- -----------
$80,467,000 $91,957,000
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 8,261,000 $11,262,000
Accrued payroll and related expenses 2,570,000 3,328,000
Income taxes payable 4,058,000 3,311,000
Line of credit 767,000 --
Current portion of long-term debt 1,600,000 2,461,000
----------- -----------
Total current liabilities 17,256,000 20,362,000
Long-term debt 9,936,000 14,065,000
Deferred employee benefits 1,472,000 1,356,000
----------- -----------
28,664,000 35,783,000
Shareholders' equity:
Common stock, no par value, 18,000,000 shares
authorized -- shares issued and outstanding
of 15,603,146 -- 10,143,000
Common stock, $.001 par value, 36,000,000 shares
authorized -- shares issued and outstanding
of 15,433,654 15,000 --
Paid-in capital 10,599,000 509,000
Retained earnings 41,509,000 45,208,000
Accumulated other comprehensive income (320,000) 314,000
----------- -----------
Total shareholders' equity 51,803,000 56,174,000
----------- -----------
$80,467,000 $91,957,000
=========== ===========
</TABLE>
(See accompanying notes to consolidated condensed financial statements.)
2
<PAGE>
WD-40 Company
Consolidated Condensed Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- ----------------------------------
May 31, 2000 May 31, 1999 May 31, 2000 May 31, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 38,300,000 $ 33,469,000 $ 113,084,000 $ 104,795,000
Cost of product sold 17,487,000 14,472,000 51,154,000 46,171,000
------------- ------------- ------------- -------------
Gross profit 20,813,000 18,997,000 61,930,000 58,624,000
------------- ------------- ------------- -------------
Operating expenses:
Selling, general & administrative 8,479,000 8,289,000 25,808,000 24,229,000
Advertising & sales promotions 4,073,000 2,989,000 11,436,000 9,872,000
Amortization 597,000 379,000 1,795,000 917,000
------------- ------------- ------------- -------------
Income from operations 7,664,000 7,340,000 22,891,000 23,606,000
------------- ------------- ------------- -------------
Other income (expense):
Interest income (expense), net (285,000) 103,000 (650,000) 233,000
Other income (expense), net 115,000 (168,000) 88,000 (33,000)
------------- ------------- ------------- -------------
Income before income taxes 7,494,000 7,275,000 22,329,000 23,806,000
Provision for income taxes 2,589,000 2,651,000 7,707,000 8,689,000
------------- ------------- ------------- -------------
Net Income $ 4,905,000 $ 4,624,000 $ 14,622,000 $ 15,117,000
============= ============= ============= =============
Basic earnings per share $ 0.32 $ 0.30 $ 0.94 $ 0.97
============= ============= ============= =============
Diluted earnings per share $ 0.32 $ 0.30 $ 0.94 $ 0.97
============= ============= ============= =============
Basic common equivalent shares 15,432,708 15,599,552 15,491,771 15,598,009
============= ============= ============= =============
Diluted common equivalent shares 15,434,203 15,657,755 15,494,314 15,652,130
============= ============= ============= =============
</TABLE>
(See accompanying notes to consolidated condensed financial statements.)
3
<PAGE>
WD-40 Company
Consolidated Condensed Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------
May 31, 2000 May 31, 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 14,622,000 $ 15,117,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,560,000 1,576,000
Loss on sale of equipment 7,000 34,000
Deferred income taxes 28,000 (16,000)
Changes in assets and liabilities:
Trade accounts receivable 1,838,000 3,803,000
Product held at contract packagers 560,000 470,000
Inventories (426,000) (3,793,000)
Other assets 979,000 384,000
Accounts payable and accrued expenses (3,531,000) (118,000)
Income taxes payable 794,000 (1,307,000)
Long-term deferred employee benefits 119,000 189,000
------------ ------------
Net cash provided by operating activities 17,550,000 16,339,000
------------ ------------
Cash flows from investing activities:
Decrease in short-term investments -- 5,946,000
Proceeds from sale of equipment 132,000 58,000
Business acquisition expenditures- Lava brand -- (19,830,000)
Capital expenditures (1,825,000) (701,000)
------------ ------------
Net cash used in investing activities (1,693,000) (14,527,000)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 90,000 633,000
Repurchase of common stock (3,590,000) (1,245,000)
Borrowings on line of credit, net 767,000 --
Repayment of long-term debt (4,984,000) (824,000)
Proceeds from issuance of long-term debt -- 16,000,000
Dividends paid (14,859,000) (14,969,000)
------------ ------------
Net cash used in financing activities (22,576,000) (405,000)
------------ ------------
Effect of exchange rate changes on cash
and cash equivalents (270,000) (149,000)
------------ ------------
(Decrease) increase in cash and cash equivalents (6,989,000) 1,258,000
Cash and cash equivalents at beginning of period 9,935,000 8,572,000
------------ ------------
Cash and cash equivalents at end of period $ 2,946,000 $ 9,830,000
============ ============
</TABLE>
(See accompanying notes to consolidated condensed financial statements.)
4
<PAGE>
WD-40 COMPANY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
May 31, 2000
(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 Manufacturing Company, 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 should be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
year ended August 31, 1999.
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
Common stock equivalents of 1,495 and 58,203 shares for the three months ended
May 31, 2000 and May 31, 1999 were used to calculate diluted earnings per share.
Common stock equivalents of 2,543 and 54,121 shares for the nine months ended
May 31, 2000 and May 31, 1999 were used to calculate diluted earnings per share.
Common stock equivalents are comprised of options granted under the Company's
stock option plan. There were no reconciling items in calculating the numerator
for basic and diluted earnings per share for any of the periods presented. For
the three months ended May 31, 2000 and May 31, 1999, 745,148 and 132,600
options outstanding were excluded from the calculation of diluted EPS, as their
effect would have been antidilutive. For the nine months ended May 31, 2000 and
May 31, 1999, 728,548 and 132,600 options outstanding were excluded from the
calculation of diluted EPS, as their effect would have been antidilutive.
5
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
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." 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 not
determined what impact, if any, the adoption of SFAS No. 133 will have on the
Company's consolidated financial position or results of operations.
Reclassifications
Certain fiscal year 1999 balances have been reclassified to conform to fiscal
year 2000 presentation.
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.
NOTE 3 - COMPREHENSIVE INCOME
WD-40 Company's total comprehensive income was as follows:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
May 31 May 31
----------- -----------
2000 1999
----------- -----------
<S> <C> <C>
Net income $ 4,905,000 $ 4,624,000
Other comprehensive income (loss):
Foreign currency translation adjustments (444,000) (21,000)
----------- -----------
Total comprehensive income $ 4,461,000 $ 4,603,000
=========== ===========
</TABLE>
6
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------------
May 31 May 31
------------ ------------
2000 1999
------------ ------------
<S> <C> <C>
Net income $ 14,622,000 $ 15,117,000
Other comprehensive income (loss):
Foreign currency translation adjustments (584,000) (255,000)
------------ ------------
Total comprehensive income $ 14,038,000 $ 14,862,000
============ ============
NOTE 4 - SELECTED FINANCIAL STATEMENT INFORMATION
<CAPTION>
May 31, 2000 August 31, 1999
------------ ---------------
<S> <C> <C>
Inventories
Raw materials $ 383,000 $ 520,000
Finished goods 6,087,000 5,584,000
------------ ------------
$ 6,470,000 $ 6,104,000
============ ============
May 31, 2000 August 31, 1999
------------ ---------------
Property, plant and equipment $ 8,539,000 $ 7,744,000
Accumulated depreciation (3,828,000) (3,883,000)
------------ ------------
$ 4,711,000 $ 3,861,000
============ ============
Goodwill $ 34,770,000 $ 34,991,000
Accumulated amortization (5,907,000) (4,199,000)
------------ ------------
$ 28,863,000 $ 30,792,000
============ ============
</TABLE>
NOTE 5 - SUBSEQUENT EVENTS
On June 27, 2000, the Company's Board of Directors declared a cash dividend of
$.32 per share payable on July 31, 2000 to shareholders of record on July 11,
2000.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THIRD QUARTER OF FISCAL YEAR 2000 COMPARED TO THIRD QUARTER OF FISCAL YEAR 1999
Net sales were $38.3 million in the quarter ended May 31, 2000 an increase of
14% from net sales of $33.5 million in the comparable prior year period. Sales
for the Company's three trading blocs are broken down as follows (in millions):
Three months ended
May 31, 2000 May 31, 1999
--------------------------------------------------------------------------------
Americas $ 27.5 72% $ 21.2 63%
Europe 7.9 20% 8.9 27%
Asia Pacific 2.9 8% 3.4 10%
--------------------------------------------------------------------------------
TOTAL $ 38.3 100 % $ 33.5 100%
--------------------------------------------------------------------------------
In the Americas region, sales for the third quarter ended May 31, 2000 increased
30% compared to the prior year period. U.S. sales increased 44%, while Latin
America and Canada sales were down by 46% and 15%, respectively. For the region,
91% of the sales in the third quarter came from the U.S., 9% came from Canada
and Latin America as compared to 82% and 18%, respectively for the same period
of fiscal 1999. The increase in the U.S. was driven by Lava sales of $5.6
million for the quarter versus $600,000 for the comparable period of fiscal
1999. While the prior year period included only one month of Lava sales, much of
the increase is attributable to expanded distribution channels for new Lava
products. In addition, the U.S. benefited from increases in WD-40 and 3-IN-ONE
sales of 16% and 36%, respectively. The increase in WD-40 sales can be
attributed primarily to promotional timing. WD-40 sales in the U.S. also
benefited from a February price increase. The increase in 3-IN-ONE is due to
early customer acceptance of the new telescoping spout packaging, as well as new
retail displays. The decrease in Latin America results from weaker sales of both
WD-40 and 3-IN-ONE. While weaker Latin American sales of WD-40 were recorded in
the quarter, year to date sales are up 8%.
In Europe, third quarter sales were 11% lower than sales in the comparable
period of fiscal 1999, primarily due to lower sales volumes in the mature
markets of the U.K. and the Middle East, which were down by 23% and 30%,
respectively. The slowdown in these markets was somewhat mitigated by the strong
sales in Germany, an increase of 22% over the prior year. Additionally, the
distributor markets in Europe continued to show steady growth and were up 6%
over the prior year.
In the Asia/Pacific region, total sales were off 14% from the prior year period.
For the quarter, sales were down in Australia as well as in the Pacific Rim
distributor markets. While the third quarter sales have fallen from the prior
year due to promotional timing, they remain strong year to date.
Gross profit was $20.8 million, or 54.3% of sales in the third quarter, up from
$19.0 million, or 56.8% of sales in the comparable period last year. The decline
in gross margin is mostly due to the Americas margins which were adversely
affected by the mix of products sold in the U.S., manufacturing and
transportation
8
<PAGE>
cost increases, and discounting of the 3-IN-ONE Brand in some Latin American
countries in response to competitive pressures.
Selling, general, & administrative expenses for the quarter ended May 31, 2000
increased to $8.5 million from $8.3 million for the comparable prior year
period. The increase in SG&A results from the Company's continued investment in
people and systems in support of improving the efficiency and productivity of
the supply chain. As a percentage of sales, SG&A decreased to 22.1% in the third
quarter from 24.8% last year.
Advertising and sales promotion expense increased to $4.1 million for the
quarter ended May 31, 2000 from $3.0 million in the prior year period.
Advertising and sales promotion as a percentage of sales increased to 10.6% in
the second quarter from 8.9% in the comparable prior year period. The increase
is primarily due to the timing of certain expenditures and promotions as well as
increases for Lava advertising, which was minimal in the prior year period. For
the year, the Company still expects advertising and sales promotion to be in the
historical range of about 10% of sales. However, this percentage is expected to
increase over the next few years as the Lava brand is introduced to new markets
around the world.
Amortization expense was $600,000 for the third quarter compared to $400,000 in
the comparable period last year. The increased expense is due to the
amortization of goodwill associated with the Lava acquisition.
Income from operations was $7.7 million, or 20.0% of sales in the third quarter,
compared to $7.3 million, or 21.9% of sales in the third quarter of fiscal 1999.
The decline in income from operations as a percentage of sales was due to the
items discussed above, namely the decrease in gross margins and the increases in
advertising and sales promotion and amortization costs.
The components of other income (expense) are shown below:
--------------------------------------------------------------------------------
For the three months ended
May 31, 2000 May 31, 1999
--------------------------------------------------------------------------------
Interest Income (Expense), net ($285,000) $ 103,000
Foreign Currency (Losses) 130,000 (187,000)
(Loss) on Disposal of PP&E (18,000) (34,000)
Other Income 3,000 53,000
----------------------------------
TOTAL ($170,000) ($ 65,000)
--------------------------------------------------------------------------------
The change in interest income (expense) net from $103,000 of income for the
quarter ended May 31, 1999 to $285,000 of expense for the quarter ended May 31,
2000 is due to the interest costs associated with funds borrowed to finance the
Lava acquisition. To finance this acquisition, the Company obtained a $16.0
million term loan from a bank. Foreign currency exchange, primarily between
European currencies, produced gains of $130,000 in the third quarter compared to
losses of $187,000 in fiscal 1999.
The Company's effective tax rate for the third quarter of fiscal 2000 is 34.5%
compared to 36.4% for the year ended August 31, 1999. The difference in the
effective tax rates is due to different allocations of taxable income between
taxing jurisdictions from year to year primarily as a result of operational
changes within the U.S.
Net income was $4.9 million, or $.32 per share on a fully diluted basis for the
third quarter of fiscal 2000, versus $4.6 million, or $.30 in the comparable
period last year.
9
<PAGE>
NINE MONTHS ENDED May 31, 2000 COMPARED TO NINE MONTHS ENDED MAY 31, 1999
Net sales were $113.1 million in the nine months ended May 31, 2000 an increase
of 7.9% from net sales of $104.8 million in the comparable prior year period.
Sales for the Company's three trading blocs are broken down as follows (in
millions):
Nine months ended
May 31, 2000 May 31, 1999
--------------------------------------------------------------------------------
The Americas $ 77.9 69% $ 66.7 66%
Europe 25.6 23% 27.5 26%
Asia Pacific 9.6 8% 8.6 8%
--------------------------------------------------------------------------------
Total $ 113.1 100% $ 104.8 100%
--------------------------------------------------------------------------------
In the Americas region, sales for the nine months ended May 31, 2000 were $77.9
million, up 13% over the prior year period. This increase is due to $9.6 million
of Lava sales for fiscal 2000 compared to $0.6 million in the prior year, as
well as increases in sales of WD-40 and 3-IN-ONE in the U.S. While Latin America
WD-40 sales increased 8%, the 3-IN-ONE sales decrease of 63% left sales flat in
comparison to the prior year. Canada sales were down by 6% in comparison to the
first nine months of the prior year.
In Europe, sales for the first nine months were down 7% from the same period in
the prior year primarily due to lower sales in the mature markets of the U.K.
and the Middle East.
In the Asia/Pacific region, total sales were up 12% over the first nine months
of the prior year. Strong sales during the last half of fiscal year 1999 have
continued throughout the first nine months of the year as the region continues
to rebound from its recent economic troubles.
Gross profit was $61.9 million, or 54.8% of sales for the first nine months,
versus $58.6 million, or 55.9% of sales in the comparable period last year. The
gross profit percentage decrease in the first nine months of fiscal 2000
compared to the prior year is primarily due to the same factors adversely
affecting the Americas third quarter gross margin. The mix of products,
manufacturing and transportation cost increases, and the discounting of 3-IN-ONE
in parts of Latin America contributed to the lower margins experienced in the
nine months ended May 31, 2000.
Selling, general, & administrative expenses for the nine months ended May 31,
2000 increased to $25.8 million from $24.2 million for the comparable prior year
period. As a percentage of sales, SG&A decreased slightly to 22.8% for the first
nine months from the 23.1% last year. The increase in SG&A is due to the
Company's continued investment in people and systems to improve the flexibility
and productivity of our supply chain.
Advertising and sales promotion expense rose to $11.4 million for the first nine
months of fiscal 2000 from $9.9 million for the same period of fiscal 1999.
Advertising and sales promotion as a percentage of sales increased to 10.1% for
the nine months ended May 31, 2000 from 9.4% in the comparable prior year
period.
10
<PAGE>
The increase is primarily due to the timing of certain expenditures and
promotions and the promotional activities for the Lava brand. Lava advertising
and sales promotion increased from $50,000 in the first nine months of fiscal
1999 to $900,000 for the current year period. The Company expects the year's
advertising and sales promotion expenses to be in the historical range of 10% of
sales. This percentage is expected to increase over the next few years as the
Lava brand is introduced to new markets around the world.
Amortization expense was $1.8 million for the first nine months of fiscal 2000
compared to $900,000 in the comparable period last year. The increased expense
is due to the amortization of goodwill associated with the Lava acquisition.
Income from operations was $22.9 million, or 20.2% of sales for the first nine
months of fiscal 2000, compared to $23.6 million, or 22.5% of sales for the
comparable period of fiscal 1999. The decline in income from operations as a
percentage of sales was due to the items discussed above, namely the decrease in
gross margin and the increases in advertising and sales promotion expense and
amortization costs.
The components of other income (expense) are shown below:
--------------------------------------------------------------------------------
For the nine months ended
May 31, 2000 May 31, 1999
--------------------------------------------------------------------------------
Interest Income (Expense), net ($650,000) $ 233,000
Foreign Currency Gains (Losses) 20,000 (96,000)
(Loss) on Disposal of PP&E (7,000) (34,000)
Other Income 75,000 97,000
----------------------------
TOTAL ($562,000) $ 200,000
--------------------------------------------------------------------------------
The change in interest income (expense) net from $233,000 of income for the nine
months ended May 31, 1999 to $650,000 of expense for the nine months ended May
31, 2000 is due to the interest costs incurred on the debt related to the Lava
acquisition. To finance this acquisition, the Company obtained a $16.0 million
term loan from a bank. Foreign currency exchange produced gains of $20,000 for
the first nine months of fiscal 2000 compared to losses of $96,000 for the
comparable prior year period.
The Company's effective tax rate through the third quarter of fiscal 2000 is
34.5% compared to 36.5% for the year ended August 31, 1999. The difference in
the effective tax rates is due to different allocations of taxable income
between taxing jurisdictions from year to year primarily as a result of
operational changes within the U.S.
Net income was $14.6 million, or $.94 per share on a fully diluted basis for the
first nine months of fiscal 2000, versus $15.1 million, or $.97 in the
comparable period last year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $7.0 million from $9.9 million at the end
of fiscal 1999 to $2.9 million at May 31, 2000. The decline in cash is primarily
due to the stock repurchases and loan repayments made during the year. For the
nine months ended May 31, 2000, the Company used $3.6 million of its cash to
acquire a portion of the outstanding common stock and used $4.2 million to pay
down bank debt.
11
<PAGE>
At May 31, 2000 working capital was $24.3 million, a decrease of $7.5 million
from $31.8 million at the end of fiscal 1999. The current ratio of 2.4 at May
31, 2000 is slightly lower than the 2.6 at the end of fiscal 1999 primarily due
to the Company's use of cash to repurchase shares of its common stock and to pay
down bank debt. On September 30, 1998, the Company announced that its board of
directors had authorized the Company to repurchase up to five percent of its
then outstanding common shares. In fiscal 1999, the Company repurchased 53,620
shares of the Company's common stock. During the first nine months of fiscal
2000, the Company repurchased 174,536 shares of the Company's common stock at a
cost of $3.6 million.
The Company has an unsecured $20.0 million credit facility with Union Bank of
California. The line is comprised of a $16.0 million term loan, which matures on
May 1, 2006 and a $4.0 million revolving line of credit facility, which matures
on April 30, 2001. At May 31, 2000, $11.5 million remained due under the term
loan, with $800,000 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. In an effort to augment the growth of the
business by leveraging its core competencies, the Company has announced that it
is seeking to make an acquisition of 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 financing may be required to support the acquisition.
The Company spent $1.8 million for new capital assets during the first nine
months, primarily in the area of computer hardware and software, manufacturing
equipment and vehicle replacements. In fiscal 2000, the Company expects to spend
approximately $2.2 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.
YEAR 2000 ISSUE
The Company has not experienced any business disruption due to year 2000 issues
in the period from January 1, 2000 to date.
MARKET RISK
The Company is exposed to a variety of risks, including foreign currency
fluctuations. In the normal course of its business, the Company employs
established policies and procedures to manage its exposure to fluctuations in
foreign currency values.
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
its exposure on converting cash balances maintained in French francs, German
marks, 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.
12
<PAGE>
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for certain forward-looking statements. This 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
rate of sales growth in the U.S., Latin America, the U.K., the Middle East, the
Asia/Pacific region and direct European countries, the impact of product mix,
increased manufacturing and transportation costs, and the discounting of
3-IN-ONE in Latin America on gross margins, the amount of future advertising and
promotional expenses, the effect of future income tax provisions, the impact of
one or more acquisitions, the amount of future capital expenditures, foreign
exchange rates and fluctuations in those rates, the effects of, and changes in,
worldwide economic conditions, the impact of the year 2000 issue, 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.
13
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PART II Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description
Certificate of Incorporation and Bylaws
3 (a) The Certificate of Incorporation of WD-40 Company is
incorporated by reference from the Registrant's Form
10-Q Quarterly Report filed January 14, 1999, Exhibit
3 (a) thereto.
3 (b) The Bylaws of WD-40 Company are
incorporated by reference from the Registrant's Form
10-Q Quarterly Report filed January 14, 1999, Exhibit
3 (b) thereto.
27 Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter
ended May 31, 2000.
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: July 14, 2000 /s/ Thomas J. Tranchina
-------------------------------
Thomas J. Tranchina
Chief Financial Officer
(Principal Financial Officer)
14
