SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------------- FORM 10-Q QUARTERLY REPORTS UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended November 30, 1996 Commission File No. 0-6936-3 WD-40 COMPANY (Exact Name of Registrant as specified in its charter) California 95-1797918 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1061 Cudahy Place, San Diego, California 92110 (Address of principal executive offices) (Zip Code) 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 January 10, 1997 7,746,082
Part I Financial Information Item 1. Financial Statements WD-40 COMPANY CONSOLIDATED CONDENSED BALANCE SHEET ------------------------------------ ASSETS ------ <TABLE> <CAPTION> (UNAUDITED) November 30, 1996 August 31, 1996 ----------------- --------------- <S> <C> <C> Current assets: Cash and cash equivalents $ 10,527,000 $ 6,748,000 Short-term investments 104,000 Trade accounts receivable, less allowance for cash discounts and doubtful accounts of $469,000 and $420,000 21,649,000 21,440,000 Product held at contract packagers 1,242,000 2,304,000 Inventories 3,966,000 3,867,000 Other current assets 2,911,000 3,170,000 ----------------- --------------- Total current assets 40,295,000 37,633,000 Property, plant, and equipment, net 4,076,000 3,938,000 Long-term investments 3,961,000 4,044,000 Goodwill 14,251,000 14,392,000 Other assets 1,929,000 1,651,000 ----------------- --------------- $ 64,512,000 $ 61,658,000 ================= =============== </TABLE> LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ <TABLE> <CAPTION> <S> <C> <C> Current liabilities: Accounts payable and accrued liabilities $ 5,844,000 $ 5,784,000 Accrued payroll and related expenses 1,645,000 2,737,000 Income taxes payable 3,820,000 1,879,000 Current portion of long-term debt 706,000 706,000 ----------------- --------------- Total current liabilities 12,015,000 11,106,000 Long-term debt: 2,427,000 2,427,000 Deferred income taxes 597,000 Deferred employee benefits 989,000 954,000 ----------------- --------------- 16,028,000 14,487,000 Shareholders' equity: Common stock, no par value, 9,000,000 shares authorized -- shares issued and outstanding of 7,744,712 and 7,720,953 7,572,000 6,603,000 Paid-in capital 321,000 321,000 Retained earnings 40,109,000 40,425,000 Cumulative translation adjustment 482,000 (178,000) ----------------- --------------- Total shareholders' equity 48,484,000 47,171,000 ----------------- --------------- $ 64,512,000 $ 61,658,000 ================= =============== </TABLE> (See accompanying notes to financial statements) 2
WD-40 COMPANY CONSOLIDATED CONDENSED STATEMENT OF INCOME ------------------------------------------ (UNAUDITED) <TABLE> <CAPTION> Three Months Ended November 30 ------------------------------ 1996 1995 ------------- ------------- <S> <C> <C> Net sales $ 28,265,000 $ 27,612,000 Cost of product sold 11,419,000 11,686,000 ------------- ------------- Gross profit 16,846,000 15,926,000 ------------- ------------- Operating expenses: Selling, general & administrative 7,279,000 5,772,000 Advertising & sales promotions 2,245,000 2,038,000 Amortization expense 335,000 ------------- ------------- Income from operations 6,987,000 8,116,000 ------------- ------------- Other income: Interest, net 21,000 238,000 Other, net (379,000) 42,000 ------------- ------------- Income before income taxes 6,629,000 8,396,000 Provision for income taxes 2,389,000 3,130,000 ------------- ------------- Net Income $ 4,240,000 $ 5,266,000 ============= ============= Earnings per share $ 0.55 $ 0.68 ============= ============= Average number of shares outstanding 7,730,878 7,704,477 ============= ============= </TABLE> (See accompanying notes to financial statements) 3
WD-40 COMPANY CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS ---------------------------------------------- (UNAUDITED) <TABLE> <CAPTION> Three Months Ended November 30 ----------------------------- 1996 1995 ------------- ----------- <S> <C> <C> Cash flows from operating activities: Net income $ 4,240,000 $ 5,266,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 214,000 165,000 Amortization expense 335,000 83,000 Loss on sale of equipment 8,000 16,000 Changes in assets and liabilities: Accounts receivable 261,000 1,427,000 Product held at contract packagers 1,062,000 440,000 Inventories 96,000 205,000 Other assets 547,000 747,000 Accounts payable and accrued expenses (1,300,000) (2,746,000) Income taxes payable 1,845,000 1,379,000 Long-term deferred employee benefits 35,000 4,000 Deferred taxes 295,000 ------------- ----------- Net cash provided by operating activities 7,638,000 6,986,000 ------------- ----------- Cash flows from investing activities: Decrease in short-term investments 104,000 8,807,000 Increase in deposits (1,600,000) Proceeds from sale of equipment 60,000 26,000 Capital expenditures (361,000) (294,000) ------------- ----------- Net cash (used in) provided by investing activities (197,000) 6,939,000 ------------- ----------- Cash flows from financing activities: Proceeds from issuance of common stock 969,000 108,000 Dividends paid (4,790,000) (4,776,000) ------------- ----------- Net cash used in financing activities (3,821,000) (4,668,000) ------------- ----------- Effect of exchange rate changes on cash 159,000 (88,000) ------------- ----------- Increase in cash 3,779,000 9,169,000 Cash at beginning of period 6,748,000 11,090,000 ------------- ----------- Cash at end of period $ 10,527,000 $20,259,000 ============= =========== </TABLE> (See accompanying notes to financial statements) 4
WD-40 COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 1996 ----------------- (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, WD-40 Company Ltd. (U.K.), WD-40 Products (Canada) Ltd. and WD-40 Company (Australia) Pty. Ltd. All significant intercompany transactions and balances have been eliminated. The financial statements included herein have been prepared by the Company, without audit, according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the unaudited financial information for the interim periods shown reflects all adjustments (which include only normal, recurring adjustments) necessary for a fair presentation thereof. These financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company's 1996 Annual Report to Shareholders, which statements and notes are incorporated by reference in the Company's Annual Report on Form 10-K for the year ended August 31, 1996. USE OF ESTIMATES The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. EARNINGS PER SHARE Earnings per share are based upon the weighted average number of shares outstanding during the period increased by the effect of dilutive stock options, when applicable, using the treasury stock method. NOTE 2 - COMMITMENTS AND CONTINGENCIES The Company is party to various claims, legal actions and complaints, including product liability litigation, arising in the ordinary course of business. In the opinion of management, all such matters are adequately covered by insurance or will not have a material adverse effect on the Company's financial position or results of operations. 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - --------------------- FIRST QUARTER OF FISCAL YEAR 1997 COMPARED TO FIRST QUARTER OF FISCAL YEAR 1996 - ------------------------------------------------------------------------------- Consolidated net sales for the quarter were $28,265,000, an increase of 2.4% or $653,000 from a year ago. Currency exchange losses amounted to $432,000 for the quarter, versus no effect in the prior year. Management anticipates sales continuing to improve in subsequent quarters. Cost of product sold declined to 40.4% of net sales this quarter versus 42.3% a year ago. Management believes that costs have stabilized and that there will be minimal inflationary impact for the remainder of fiscal year 1997. Selling, general and administrative expenses increased $1,507,000 or 26.1% in the first quarter of fiscal year 1997 as compared to the same period in 1996. Such expenses as a percentage of net sales increased this quarter to 25.8% versus 20.9% last year. In addition to the normal increases in general overheads, the company experienced inflationary pressure on freight, airfares, and fuel surcharges due to increased petroleum prices. Advertising and sales promotion expenses increased $207,000 or 10.2% due to the timing of overall promotional activities. Net income decreased $1,026,000 or 19.5% due primarily to higher S, G & A expenses, foreign exchange losses, and amortization of goodwill related to the acquisition of 3-IN-ONE Oil. Net income as a percentage of net sales this quarter was 15.0% versus 19.1% in fiscal year 1996. WD-40 COMPANY (U.S.) - -------------------- Net sales decreased $610,000 or 3.2% compared to last year. The primary reason for the sales decline of WD-40 was due to the change over to the CO/2/ propellant. The Company chose not to plan any major promotions during the first quarter because of the differences in pricing with the older WD-40. Export sales to the Pacific Rim were lower due to heavy purchasing during August, 1996. Cost of product sold decreased to 40.8% of net sales this quarter as compared to 43.1% in fiscal year 1996. Selling, general and administrative expenses increased $620,000 or 15.2%, to 25.7% of sales versus 21.9% last year. Advertising and sales promotion expenses decreased $32,000 or 2.0% but remained flat at 8.3% of sales compared to 8.3% in the prior year. Amortization expenses related to the acquisition of 3-IN-ONE Oil were $307,000 for this quarter, compared to zero for 1996. As a result, net income was down by $2,720,000 or 45.5%. 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS WD-40 COMPANY LTD. (U.K.) - ------------------------- Net sales for the quarter increased $1,609,000 or 23.7% compared to the same quarter in fiscal 1996. 3-IN-ONE sales combined with strong WD-40 sales into the Middle East prior to a price increase accounted for the gain. Cost of product sold increased to 41.3% of net sales versus 38.9% in fiscal year 1996. As a percentage of net sales, selling, general, and administrative expenses were 26.6% versus 20.1% last year, and advertising and sales promotion expenses increased to 6.0% versus 4.6% in 1996. Foreign exchange activity resulted in a loss of $432,000 compared to a gain of $139,000 for the first quarter of 1996. As a result of the factors described above, net income decreased $727,000 or 54.3%. OTHER FOREIGN SUBSIDIARIES - -------------------------- Net sales decreased $113,000 or 5.2%. Cost of product sold as a percentage of net sales was 47.0% versus 46.6% last year. Net income was down 27.5% or $98,000 due primarily to the foreign exchange losses. PRICE INCREASES - --------------- Prices increased 5%-9% worldwide in the first quarter of fiscal 1997, providing an approximate overall 6% increase compared to last year. CASH AND CASH EQUIVALENTS - ------------------------- Cash and cash equivalents increased $3,779,000 during the three months ended November 30, 1996 versus an increase of $9,169,000 for the same period of last year. The increase in the prior year was primarily due to the liquidation of short-term investments. INTEREST AND OTHER INCOME, NET - ------------------------------ Net interest income decreased by $217,000 due to reduced short-term investments. Other income, net, increased by $151,000. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The current ratio of 3.4-to-one on November 30, 1996 was unchanged from the current ratio on August 31, 1996. The Company's primary source of liquidity are funds provided by operations. The Company's cash flows from operations are expected to provide sufficient funds to meet both short and long-term operating needs, as well as future dividends. Capital expenditures for fiscal year 1997 are expected to total approximately $1,200,000 principally for replacement of aged vehicles and updating of computer equipment. 7
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. <TABLE> <CAPTION> Exhibit No. Description ---------- ----------- <S> <C> Articles of Incorporation and By-Laws 3 (a) The Restated Articles of Incorporation are incorporated by reference from the Registrant's Form 10-K Annual Report filed November 13, 1995, Exhibit 3 (a) thereto. 3 (b) The Restated By-Laws are incorporated by reference from the Registrant's Form 10-K Annual Report filed November 13, 1995, Exhibit 3 (b) thereto. 27 Financial Data Schedule (electronic filing only) (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended November 30, 1996. </TABLE> SIGNATURES - ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WD-40 COMPANY Registrant Date: January 13, 1997 /s/ PETER E. WILLIAMS --------------------------------- Peter E. Williams Chief Financial Officer (Principal Financial Officer) 8