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 February 28, 1997
Commission File No. 0-6936-3
WD-40 COMPANY
(Exact Name of Registrant as specified in its charter)
California 95-1797918
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1061 Cudahy Place, San Diego, California 92110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 275-1400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Stock as of April 10, 1997 7,761,255
Part I Financial Information
Item 1. Financial Statements
WD-40 COMPANY
CONSOLIDATED CONDENSED BALANCE SHEET
------------------------------------
ASSETS
------
(UNAUDITED)
FEBRUARY 28, 1997 AUGUST 31, 1996
----------------- ---------------
Current assets:
Cash and cash equivalents $ 4,961,000 $ 6,748,000
Short-term investments 104,000
Trade accounts receivable, less allowance for
cash discounts and doubtful accounts
of $533,000 and $469,000 31,139,000 21,440,000
Product held at contract packagers 2,539,000 2,304,000
Inventories 3,948,000 3,867,000
Other current assets 3,313,000 3,170,000
------------ ------------
Total current assets 45,900,000 37,633,000
Property, plant, and equipment, net 3,969,000 3,938,000
Long-term investments 3,878,000 4,044,000
Goodwill, net 13,951,000 14,392,000
Other assets 1,421,000 1,651,000
------------ ------------
$ 69,119,000 $ 61,658,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 9,912,000 $ 5,784,000
Accrued payroll and related expenses 1,151,000 2,737,000
Income taxes payable 3,636,000 1,879,000
Current portion of long-term debt 706,000 706,000
------------ ------------
Total current liabilities 15,405,000 11,106,000
Long-term debt: 2,427,000 2,427,000
Deferred employee benefits 992,000 954,000
------------ ------------
18,824,000 14,487,000
Shareholders' equity:
Common stock, no par value, 9,000,000 shares
authorized -- shares issued and outstanding
of 7,757,023 and 7,720,953 8,011,000 6,603,000
Paid-in capital 321,000 321,000
Retained earnings 41,872,000 40,425,000
Cumulative translation adjustment 91,000 (178,000)
------------ ------------
Total shareholders' equity 50,295,000 47,171,000
------------ ------------
$ 69,119,000 $ 61,658,000
============ ============
(See accompanying notes to consolidated condensed financial statements)
2
WD-40 COMPANY
CONSOLIDATED CONDENSED STATEMENT OF INCOME
------------------------------------------
(UNAUDITED)
Three Months Ended Six Months Ended
---------------------------- ----------------------------
February 28 February 29 February 28 February 29
------------ ------------ ------------ ------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
Net sales $ 39,806,000 $ 35,080,000 $ 68,071,000 $ 62,692,000
Cost of product sold 17,472,000 15,100,000 28,891,000 26,786,000
------------ ------------ ------------ ------------
Gross profit 22,334,000 19,980,000 39,180,000 35,906,000
------------ ------------ ------------ ------------
Operating expenses:
Selling, general & administrative 7,532,000 6,914,000 14,811,000 12,603,000
Advertising & sales promotions 3,741,000 3,216,000 5,986,000 5,254,000
Amortization expense 336,000 260,000 671,000 333,000
------------ ------------ ------------ ------------
Income from operations 10,725,000 9,600,000 17,712,000 17,716,000
------------ ------------ ------------ ------------
Other income:
Interest, net 25,000 177,000 46,000 415,000
Other, net (485,000) 106,000 (864,000) 148,000
------------ ------------ ------------ ------------
Income before income taxes 10,265,000 9,883,000 16,894,000 18,279,000
Provision for income taxes 3,700,000 4,000,000 6,089,000 7,131,000
------------ ------------ ------------ ------------
Net Income $ 6,565,000 $ 5,883,000 $ 10,805,000 $ 11,148,000
============ ============ ============ ============
Earnings per share $ 0.85 $ 0.77 $ 1.40 $ 1.45
============ ============ ============ ============
Average number of shares
outstanding 7,749,667 7,707,585 7,740,272 7,706,043
============ ============ ============ ============
(See accompanying notes to consolidated condensed financial statements)
3
WD-40 COMPANY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
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(UNAUDITED)
Six Months Ended
-------------------------------------
February 28, February 29,
---------------- ----------------
1997 1996
---------------- ----------------
Cash flows from operating activities:
Net income $ 10,805,000 $ 11,148,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 395,000 332,000
Amortization expense 671,000 333,000
Loss on sale of equipment 61,000 34,000
Changes in assets and liabilities:
Accounts receivable (9,473,000) (9,049,000)
Product held at contract packagers (235,000) (480,000)
Inventories 29,000 (429,000)
Other assets 126,000 806,000
Accounts payable and accrued expenses 2,392,000 493,000
Income taxes payable 1,706,000 (5,000)
Long-term deferred employee benefits 38,000 23,000
Deferred taxes 226,000 900,000
------------ ------------
Net cash provided by operating activities 6,741,000 4,106,000
------------ ------------
Cash flows from investing activities:
Decrease in short-term investments 104,000 13,227,000
Non-cash intangible assets of business acquired (15,047,000)
Proceeds from sale of equipment 197,000 60,000
Capital expenditures (657,000) (618,000)
------------ ------------
Net cash used in investing activities (356,000) (2,378,000)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,408,000 148,000
Repayment of long-term debt (659,000)
Dividends paid (9,592,000) (9,554,000)
------------ ------------
Net cash used in financing activities (8,184,000) (10,065,000)
------------ ------------
Effect of exchange rate changes on cash
and cash equivalents 12,000 (37,000)
------------ ------------
Decrease in cash and cash equivalents (1,787,000) (8,374,000)
Cash and cash equivalents at beginning of period 6,748,000 11,090,000
------------ ------------
Cash and cash equivalents at end of period $ 4,961,000 $ 2,716,000
============ ============
(See accompanying notes to consolidated condensed financial statements)
4
WD-40 COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1997
-----------------
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, WD-40 Company Ltd. (U.K.), WD-40 Products
(Canada) Ltd. and WD-40 Company (Australia) Pty. Ltd. All significant
intercompany transactions and balances have been eliminated.
The financial statements included herein have been prepared by the Company,
without audit, according to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of management, the unaudited financial information for the
interim periods shown reflects all adjustments (which include only normal,
recurring adjustments) necessary for a fair presentation thereof. These
financial statements and notes thereto should be read in conjunction with the
financial statements and notes thereto included in the Company's 1996 Annual
Report to Shareholders, which statements and notes are incorporated by reference
in the Company's Annual Report on Form 10-K for the year ended August 31, 1996.
USE OF ESTIMATES
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
EARNINGS PER SHARE
Earnings per share are based upon the weighted average number of shares
outstanding during the period increased by the effect of dilutive stock options,
when applicable, using the treasury stock method.
In March 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No.
128 will be adopted by the Company as required in the second quarter of fiscal
1998. Upon adoption of SFAS No. 128, the Company will present basic earnings
per share and diluted earnings per share. Basic earnings per share will be
computed based on the weighted average number of shares outstanding during the
period. Diluted earnings per share will be computed based on the weighted
average number of shares outstanding during the period increased by the effect
of dilutive stock options using the treasury stock method. Pro forma basic
earnings per share for the three and six months ended February 28, 1997 and 1996
are $.85 and $1.40, and $.77 and $1.45, respectively. Pro forma diluted
earnings per share for the same periods are $.84 and $1.39, and $.76 and $1.44,
respectively.
RECLASSIFICATIONS
Certain fiscal 1996 amounts have been reclassified to conform to the current
year 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.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
SECOND QUARTER OF FISCAL YEAR 1997 COMPARED TO SECOND QUARTER OF FISCAL YEAR
- ----------------------------------------------------------------------------
1996
- ----
Consolidated net sales for the quarter were $39,806,000, an increase of 13.5% or
$4,726,000 from a year ago. Management anticipates that sales will continue to
grow.
Cost of product sold increased to 43.9% of net sales this quarter versus 43.0% 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 $618,000 or 8.9% in the
second quarter of fiscal year 1997 as compared to the same period in 1996.
Such expenses as a percentage of net sales decreased this quarter to 18.9%
versus 19.7% last year.
Advertising and sales promotion expenses increased $525,000 or 16.3%, (9.4% of
sales) due to the timing of overall promotional activities. These expenses are
expected to be with historical levels of 9% to 10% of sales at fiscal year end.
Net interest income decreased by $152,000 due to reduced short-term investments.
Other income, net, decreased by $591,000, resulting primarily from losses
realized on the sale of fixed assets and currency translation losses of
$459,000 for the quarter, versus currency translation gains of $34,000 in the
prior year.
Net income increased $682,000 or 11.6%. Net income as a percentage of net sales
this quarter was 16.5% versus 16.8% in fiscal year 1996.
WD-40 COMPANY (U.S.)
- --------------------
Net sales increased $2,894,000 or 11.5% compared to last year. The primary
reason for the sales increase was an improvement in the US domestic market and
increased export sales to Latin America and the Pacific Rim.
Cost of product sold increased to 45.8% of net sales this quarter as compared to
43.9% in fiscal year 1996, primarily due to the mix of sales generated by
promotional packaging, export sales and 3-IN-ONE Oil.
Selling, general and administrative expenses decreased $250,000 or 5.0%, to
17.1% of sales versus 20.0% last year, reflecting the reorganization of our US
sales department. Prior year results also included a number of "one-time"
expenses related to the purchase of the 3-IN-ONE brand.
Advertising and sales promotion expenses increased 34.5%, or $709,000 to 9.9% of
sales compared to 8.3% in the prior year, primarily due to the timing of
promotional activities.
Amortization expenses related to the acquisition of 3-IN-ONE Oil were $307,000
for this quarter, compared to $149,000 for 1996.
As a result, net income was up by $935,000 or 20.4%.
6
ITEM 2. (CONTINUED) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
WD-40 COMPANY LTD. (U.K.)
- -------------------------
Net sales for the quarter increased $1,895,000 or 23.9% compared to the same
quarter in fiscal 1996, benefiting from a 6.5% favorable currency exchange rate
on consolidation. 3-IN-ONE sales combined with strong WD-40 sales into the
Middle East and European markets accounted for the gain.
Cost of product sold increased to 42.0% of net sales versus 38.8% in fiscal year
1996 primarily due to increased sales to European and distributor markets in the
Middle East.
As a percentage of net sales, selling, general, and administrative expenses were
24.3% versus 20.1% last year, resulting from increased overhead due to the
additional infrastructure put in place to manage the growth of the business.
Advertising and sales promotion expenses decreased to 7.7% versus 12.4% in 1996,
primarily due to the timing of promotional activities.
Foreign exchange activity resulted in a loss of $459,000 compared to a gain of
$34,000 in the second quarter of 1996.
As a result of the factors described above, net income decreased $282,000 or
28.4%.
OTHER FOREIGN SUBSIDIARIES
- --------------------------
Net sales increased $337,000 or 14.1% due primarily to increased sales in the
Canadian Market.
Cost of product sold as a percentage of net sales was 46.1% versus 48.4% last
year, principally from an increase in pricing for the Canadian market.
Net income increased by 6.4%, or $28,000 due primarily to increased sales in the
Canadian market and the higher gross profit percentage.
SIX MONTHS FISCAL YEAR 1997 VERSUS SIX MONTHS FISCAL YEAR 1996
- --------------------------------------------------------------
Consolidated net sales were $68,071,000 an increase of $5,379,000 or 8.6% over
the same fiscal year period in 1996. Management anticipates that sales will
continue to grow.
Cost of product sold as a percentage of net sales has remained relatively
consistent at 42.4% versus 42.7% in the prior year period.
Selling, general, and administrative expenses increased $2,208,000 or 17.5% and,
as a percentage of sales, increased to 21.8% of sales, in comparison to 20.1% in
the prior year period.
Advertising and sales promotion expenses increased $732,000 or 13.9% and, as a
percentage of sales increased to 8.8% of sales, in comparison to 8.4% in the
prior year period. The increase is due to the timing of overall promotional
activities.
Amortization of goodwill increased $338,000 due to being only a partial-period
expense in the second quarter of fiscal year 1996.
Net interest income decreased by $369,000 due to reduced short-term investments.
Other income, net, decreased by $1,012,000 due to losses realized on the sale of
fixed assets and foreign currency translation losses.
Net income decreased $343,000 or 3.1% due the items described above.
7
ITEM 2. (CONTINUED) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
WD-40 COMPANY (U.S.)
- --------------------
Net sales increased $2,284,000 or 5.2%. The primary reason for the sales
increase was an improvement in the U.S. domestic market and increased export
sales to Latin America and the Pacific Rim.
Cost of product sold as a percent of net sales remained relatively consistent at
43.4% versus 43.5% in the prior year period.
Selling, general, and administrative expenses as a percentage of net sales
remained relatively consistent at 20.5% versus 20.3% in the prior year period.
Advertising and promotion expenses as a percentage of net sales increased to
9.3% versus 8.3% in the prior year period primarily due to the timing of
promotional activities.
Amortization expense increased $298,000 due to being only a partial-period
expense in the second quarter of fiscal year 1996.
Net interest income decreased $237,000 due to reduced short-term investments.
Net income decreased $1,784,000 or 16.9% due to increased expenses as described
above.
WD-40 COMPANY LTD. (U.K.)
- -------------------------
Net sales increased $3,504,000 or 23.8% compared to the prior year period,
primarily attributed to 3-IN-ONE sales and strong WD-40 sales into the Middle
East and European markets.
Cost of product sold as a percent of net sales increased to 41.7% versus 38.8%
in the prior year period primarily due to increased sales to European and
distributor markets in the Middle East.
Selling, general, and administrative expenses as a percentage of net sales
increased to 25.4% versus 20.0% in the prior year period primarily from
increased overheads resulting from the additional infrastructure put in place to
manage the growth of the business.
Advertising and promotional expense as a percentage of net sales decreased to
6.9% versus 8.8% in the prior year period primarily due to the timing of
promotional activities.
Foreign currency fluctuations resulted in translation losses of $891,000
compared to translation gains of $173,000 in the prior year period.
Net income decreased $1,009,000 or 43.2% due to the items described above.
8
ITEM 2. (CONTINUED) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OTHER FOREIGN SUBSIDIARIES
- --------------------------
Net sales increased $224,000 or 4.9% due primarily to increased sales in the
Canadian market.
Cost of product sold as a percentage of sales decreased to 46.5% from 47.6% in
the prior year period.
Advertising and sales promotion expenses increased $91,000 or 26.1%, primarily
due to the timing of promotional activities.
Net interest income decreased by $84,000 due to reduced short-term investments.
Net interest income decreased by $70,000 or 8.8% due to increased expenses as
described above.
PRICE INCREASES
- ---------------
The company is in the process of increasing prices globally during FY 1997 to
compensate for the additional costs incurred due to the conversion to a CO/2/
propellant. During the second quarter, prices to Middle-East distributors were
increased approximately 9%.
CASH AND CASH EQUIVALENTS
- -------------------------
Cash and cash equivalents decreased $5,566,000 during the three months ended
February 28, 1997 versus a decrease of $17,543,000 for the same period of last
year. The decrease in the current quarter was due to increased working capital
requirements. The decrease in the prior year was primarily due to the
acquisition of the 3-IN-ONE brand.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The current ratio of 3.0 on February 28, 1997 represents a decrease from the
current ratio of 3.4 at August 31, 1996. An increase in trade accounts
receivable related to promotional activities was responsible for the ratio
decrease.
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 computer
equipment.
9
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit No. Description
----------- -----------
Articles of Incorporation and By-Laws
3 (a) The Restated Articles of Incorporation are incorporated by
reference from the Registrant's 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
February 28, 1997.
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WD-40 COMPANY
Registrant
Date: April 14, 1997 /s/ Peter e. Williams
-----------------------------------
Peter E. Williams
Chief Financial Officer
(Principal Financial Officer)
10