-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ijz3NexyOoXTMkkOfc1gvTz0rDPYFvXlZZ6LJ/vHQqbWU8P1ZXPGKrkOGyEkaz2y QwR7ZhZJF6oNrE75BxykNw== 0001017062-96-000626.txt : 19961202 0001017062-96-000626.hdr.sgml : 19961202 ACCESSION NUMBER: 0001017062-96-000626 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960831 FILED AS OF DATE: 19961126 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WD 40 CO CENTRAL INDEX KEY: 0000105132 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS CHEMICAL PRODUCTS [2890] IRS NUMBER: 951797918 STATE OF INCORPORATION: CA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-06936 FILM NUMBER: 96672667 BUSINESS ADDRESS: STREET 1: 1061 CUDAHY PL CITY: SAN DIEGO STATE: CA ZIP: 92110 BUSINESS PHONE: 6192751400 MAIL ADDRESS: STREET 1: 1061 CUDAHY PLACE CITY: SAN DIEGO STATE: CA ZIP: 92110 10-K405 1 10-K405 DATED 08-31-96 FORM 10-K ---------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ---------------------------------- 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, 1996 0-6936-3 --------------- -------- WD-40 COMPANY ------------- (Exact Name of Registrant as specified in Charter) California 95-1797918 ---------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1061 Cudahy Place, San Diego, California 92110 - ---------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (619) 275-1400 -------------- Securities registered pursuant to Section 12(b) of the Act: Title of Class: None ---- Securities registered pursuant to Section 12(g) of the Act: Title of Class: Common Stock, no 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 10, 1996 was $319,060,000. As of October 10, 1996 the Registrant had 7,725,653 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE - ----------------------------------- The Proxy Statement for the annual meeting of shareholders on November 26, 1996 is incorporated by reference into PART III, Items 10-13. The Annual Report to Shareholders for the fiscal year ended August 31, 1996 is incorporated by reference into PART I, ITEM 1, PART II, ITEMS 5-8, and PART IV. -1- 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 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. During the fiscal year ended August 31, 1996, the Company developed a third product, T.A.L 5, to be introduced to the market in fiscal year 1997. T.A.L 5 is an extra-strength synthetic lubricant for heavy-duty applications. The acquisition of the 3-IN-ONE Oil brand was completed on December 8, 1995. WD-40 company acquired all of the worldwide trademarks and other intangible assets relating to the sale of 3-IN-ONE Oil brand lubricating oil products from Reckitt & Colman, Inc., a Delaware corporation, Reckitt & Colman (Overseas) Limited, an English corporation, and other affiliates of Reckitt & Colman P.L.C., an English corporation. The acquisition of assets included inventory and the rights to manufacture, sell and distribute this product line. No other physical property, plant or equipment was acquired. The Company paid cash in the amount of $15,047,000 for the trademarks and other intangible assets and approximately $400,000 for inventory. The Company's objective is to dominate the entire category of lubrication products by combining the smaller niche markets targeted by 3-IN-ONE Oil and T.A.L 5 with the broad-based market held by the WD-40 brand. The three brands complement each other, providing the Company with a complete line of lubricants that is intended to obviate the need for distributors to stock, and consumers to buy, other brands. The acquisition of the 3-IN-ONE Oil brand and the introduction of T.A.L 5 will allow the Company to pursue a comprehensive and targeted marketing strategy. 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 will be 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. At the same time, the 3-IN-ONE Oil brand will be introduced to the Company's existing distribution system on a targeted basis. The 3-IN-ONE Oil brand will offer the greatest potential in developing economies worldwide where it can be sold in small, affordable units that may provide people in these markets with an introduction to lubricants. In maturing, industrial markets, including North America, the U.K. and Australia, the Company will focus on growth in sales of the WD-40 brand and the introduction of the T.A.L 5 brand to the distribution system. T.A.L 5 will be offered to industrial users and other consumers in need of an extra-strength lubricant. -2- (b) Financial Information About Industry Segments. Not applicable. (c) Narrative Description of Business. WD-40 Company manufactures and markets three multi-purpose lubricant products known as "WD-40", "3-IN-ONE Oil", and "T.A.L 5". WD-40 is sold primarily in aerosol cans through chain stores, hardware and sporting goods stores, automotive parts outlets as well as through industrial distributors and suppliers. It has a wide variety of consumer uses (including household use, the care and protection of sporting goods, and marine and automotive equipment) as well as 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 trademarks have enabled the product to gain international acceptance. T.A.L 5 was developed during the Company's last fiscal year as an extra- strength synthetic spray lubricant for heavy-duty applications. Marketing for T.A.L 5, commencing in fiscal year 1997, will be targeted at specialized users in the trades and general industry, especially manufacturing. T.A.L 5, which stands for "Triple Additive Lubricant / 5 functions", resists breakdown due to corrosion, friction, temperature, load and motion. It provides long-lasting film strength and durability which can ultimately help prolong the life of equipment. There are numerous competing heavy-duty spray lubricant products, none of which are seen as being dominant. T.A.L 5 is designed be competitive as a high quality multi-application product that can be funneled into the Company's existing distribution network. 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 T.A.L 5. The Company is aware of at least 250 competing products, some of which sell for lower prices. 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 ongoing consolidation in the marketplace, many of the major retailers are aggressively pursuing additional trade allowances. These demands could produce a long-term negative impact on both sales and profits. Alternate sources of constituent chemicals are readily available and there are no current or anticipated shortages of any raw materials essential to the business. There are no environmental laws or regulations currently affecting capital expenditures. Recent focus on environmental regulations relating to VOC's (Volatile Organic Compounds) have resulted in a change in the formulation of the WD-40 brand product resulting in increases in product cost and product pricing. Such increases could have an adverse affect on the Company's competitive position. -3- The Company has no patents, but relies 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 T.A.L 5 trademarks are registered in the United States and in various foreign countries. Ninety-eight (98) persons are employed by the United States parent corporation, nine (9) by the Company's Canadian subsidiary, thirty-six (36) by the United Kingdom subsidiary and six (6) by the Australian subsidiary. The Company operates in one business segment - the manufacture and sale of multi-purpose lubricants. (d) Financial Information About Foreign and Domestic Operations and Export Sales. The information required by this item is incorporated by reference from Pages 11 and 12 of the Annual Report to Shareholders for the fiscal year ended August 31, 1996 under Note 4 - Business Segment and Foreign Operations. There are no material risks attendant to the Registrant's foreign operations. 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, MKll 3LF, England. The building consists of approximately 7,000 square feet of office space and 4,400 square feet of plant and storage area. The Company leases approximately 1,300 square feet of office space for sales offices in each of the following cities: Atlanta, Georgia; Northbrook, Illinois; Philadelphia, Pennsylvania; and Thousand Oaks, California. The Company leases approximately 1,900 square feet of office space in Etobicoke, Ontario, Canada. The Company leases approximately 2,000 square feet of office space in Epping, New South Wales, Australia. The Company leases approximately 1,800 square feet of office space in Kuala Lumpur, Malaysia. The Company believes that these properties should be sufficient to meet the Company's needs for office and plant facilities for several years. -4- ITEM 3 - Legal Proceedings - ------ ----------------- Not Applicable. 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: Name Age Position --- -------- Gerald C. Schleif 61 President and Chief Executive Officer; Mr. Schleif joined the Company in 1969 and has held the elected offices of Vice President-Marketing, Executive Vice President, Chief Operating Officer and Treasurer. He has been President since 1990 and Chief Executive Officer since September 1992. Mr. Schleif has been a Director since 1989. Paul A. Thompsen 60 Vice President-Sales; Mr. Thompsen joined the Company in 1982 as National Sales Manager and was elected Vice President-Sales in 1987. Garry O. Ridge 40 Vice President-International; Mr. Ridge joined the Company's Australian subsidiary, WD-40 Company (Australia) Pty. Limited, in 1987 as Managing Director and was elected Vice President-International in June 1995. Robert D. Gal 62 Former Treasurer and Assistant Secretary; Mr. Gal joined the Company in 1986 as Controller and Assistant Secretary. He was named Treasurer in 1993. Mr. Gal retired as of October 9, 1996. Peter E. Williams 53 Treasurer; Mr. Williams joined the Company in August, 1996 as Controller and was named Treasurer on September 25, 1996. All officers hold office at the pleasure of the Board of Directors. -5- 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, 1996, the approximate number of holders of record of the Company's common stock was 2,280. Other information required in this item is incorporated by reference from Page 16 of the Annual Report to Shareholders for the year ended August 31, 1996 under the heading, "Stock Information". ITEM 6 - Selected Financial Data - ------ ----------------------- See ITEM 7. ITEM 7 - Management's Discussion and Analysis of Financial Condition and - ------ --------------------------------------------------------------- Results of Operations --------------------- The information required in ITEMS 6 and 7 is incorporated by reference from Pages 19 and 20 and Pages 17 and 18, respectively, of the Annual Report to Shareholders for the fiscal year ended August 31, 1996. ITEM 8 - Financial Statements and Supplementary Data - ------ ------------------------------------------- See the Index to Consolidated Financial Statements and Financial Statement Schedule on Page 7 of this report (ITEM 14(a)). Other information required by this item is incorporated by reference from Page 16 of the Annual Report to Shareholders for the fiscal year ended August 31, 1996. ITEM 9 - Changes in and Disagreements With Accountants on Accounting and - ------ --------------------------------------------------------------- Financial Disclosure -------------------- Not applicable. PART III -------- ITEM 10 - Directors and Executive Officers of the Registrant - ------- -------------------------------------------------- See ITEM 13. ITEM 11 - Executive Compensation - ------- ---------------------- See ITEM 13. ITEM 12 - Security Ownership of Certain Beneficial Owners and Management - ------- -------------------------------------------------------------- See ITEM 13. -6- ITEM 13 - Certain Relationships and Related Transactions - ------- ---------------------------------------------- The information required in ITEMS 10, 11, 12 and 13 is incorporated by reference from Pages 3, 4 and 5, Pages 5, 6, 7, 8 and 9, Pages 2 and 3, and Page 5, respectively, of the Proxy Statement for the annual meeting of shareholders, November 26, 1996. PART IV ------- ITEM 14 - Exhibits, Financial Statement Schedule, and Reports on - ------- ------------------------------------------------------ Form 8-K -------- (a) Documents filed as part of this report WD-40 COMPANY INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE The following consolidated financial statements of WD-40 Company and its subsidiaries, included in PART II, ITEM 8, are incorporated by reference from Pages 6-16 of the Annual Report to Shareholders for the fiscal year ended August 31, 1996: 1. Financial Statements Report of Independent Accountants Consolidated Statement of Income for the three years ended August 31, 1996 Consolidated Balance Sheet at August 31, 1996 and 1995 Consolidated Statement of Shareholders' Equity for the three years ended August 31, 1996 Consolidated Statement of Cash Flows for the three years ended August 31, 1996 Notes to Consolidated Financial Statements The following financial statement schedule of WD-40 Company for the three years ended August 31, 1996 is included in PART II, ITEM 8: Page ---- 2. Financial Statement Schedule Report of Independent Accountants on Financial Statement Schedule 11 II - Consolidated Valuation and Qualifying Accounts and Reserves 12 All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. -7- 3. Exhibits Exhibit No. Description - ---------- ----------- Articles of Incorporation and By-Laws. Articles of Incorporation. 3(a) Restated Articles of Incorporation are incorporated by reference from the Form 10-K Annual Report dated November 9, 1995, Exhibit 3(a) thereto. 3(b) Restated By-Laws are incorporated by reference from the Form 10-K Annual Report dated November 9, 1995, Exhibit 3(b) thereto. Material contracts. Executive Compensation Plans and Arrangements (Exhibits 10(a) through 10(d) are management contracts and compensatory plans or arrangements required to be filed as exhibits pursuant to ITEM 14(c)). 10(a) The Restated WD-40 Company Incentive Stock Option Plan is incorporated by reference from the Form 10-K Annual Report dated November 9, 1995, Exhibit 10(a) thereto. 10(b) 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(c) 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(d) The Restated WD-40 Company 1990 Incentive Stock Option Plan is incorporated by reference from the Form 10-K Annual Report dated November 9, 1995, Exhibit 10(d) thereto. 13 Annual Report to Shareholders for the fiscal year ended August 31, 1996; incorporated by reference in this report. 21 Subsidiaries of the Registrant. 23 Consent of Independent Accountants. 27 Financial Data Schedule (electronic filing only). -8- (b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the Registrant's fiscal year ended August 31, 1996. 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/ Peter E. Williams -------------------------------- PETER E. WILLIAMS, Treasurer (Principal Financial Officer and Principal Accounting Officer) November 26, 1996 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/ Gerald C. Schleif ------------------------------------ GERALD C. SCHLEIF Chief Executive Officer and Director (Principal Executive Officer) November 26, 1996 /s/ John S. Barry ------------------------------------ JOHN S. BARRY, Director November 26, 1996 /s/ Harlan E. Harmsen ------------------------------------ HARLAN F. HARMSEN, Director November 26, 1996 -9- /s/ Mario L. Crivello ------------------------------------ MARIO L. CRIVELLO, Director November 26, 1996 /s/ Margaret L. Roulette ------------------------------------ MARGARET L. ROULETTE, Director November 26, 1996 /s/ C. Fredrick Sehnert ------------------------------------ C. FREDRICK SEHNERT, Director November 26, 1996 /s/ Daniel W. Derbes ------------------------------------ DANIEL W. DERBES, Director November 26, 1996 /s/ Jack L. Heckel ------------------------------------ JACK L. HECKEL, Director November 26, 1996 /s/ Edward J. Walsh ------------------------------------ EDWARD J. WALSH, Director November 26, 1996 -10- REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of WD-40 Company Our audits of the consolidated financial statements referred to in our report dated October 4, 1996 appearing on Page 6 of the 1996 Annual Report to Shareholders of WD-40 Company (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICE WATERHOUSE LLP San Diego, California October 4, 1996 -11- SCHEDULE II WD-40 COMPANY CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS AND RESERVES - --------------------------------------------------------------------------------
ADDITIONS BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND AT END OF OF PERIOD EXPENSES DEDUCTIONS* PERIOD Reserve for bad debts and sales discounts: Year ended August 31, 1994 $ 553,000 $ 1,116,000 $ 1,226,000 $ 443,000 ========== =========== =========== ========== Year ended August 31, 1995 $ 443,000 $ 984,000 $ 951,000 $ 476,000 ========== =========== =========== ========== Year ended August 31, 1996 $ 476,000 $ 1,085,000 $ 1,141,000 $ 420,000 ========== =========== =========== ========== * Write-off of doubtful accounts and sales discounts taken.
-12- INDEX TO EXHIBITS -----------------
Incorporated By Reference No. Exhibit Page - -- ------- ------------ 3(a) Restated Articles of Incorporation 8 3(b) Restated By-Laws 8 10(a) Restated WD-40 Company Incentive Stock Option Plan 8 10(b) WD-40 Company Supplemental Death Benefit Plan 8 10(c) WD-40 Company Supplemental Retirement Benefit Plan 8 10(d) Restated WD-40 Company 1990 Incentive Stock Option Plan 8 13 Annual Report to Shareholders for the fiscal year ended August 31, 1996 21 Subsidiaries of the Registrant 23 Consent of Independent Accountants 27 Financial Data Schedule (electronic filing only).
-13- EX-13 2 ANNUAL REPORT EXHIBIT 13 REPORT OF INDEPENDENT ACCOUNTANTS - -------------------------------------------------------------------------------- PRICE WATERHOUSE LLP To the Board of Directors and Shareholders of WD-40 Company In our opinion, the accompanying consolidated balance sheet 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 1996, in conformity with generally accepted accounting principles. 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 generally accepted auditing standards 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 the opinion expressed above. Price Waterhouse LLP San Diego, California October 4, 1996
WD-40 COMPANY CONSOLIDATED STATEMENT OF INCOME - ------------------------------------------------------------------------------------------------ Year ended August 31, --------------------------------------------- 1996 1995 1994 ------------- ------------- ------------- Net sales ................................. $ 130,912,000 $ 116,776,000 $ 112,166,000 Cost of product sold ...................... 57,925,000 50,229,000 47,028,000 ------------- ------------- ------------- Gross profit .............................. 72,987,000 66,547,000 65,138,000 ------------- ------------- ------------- Operating expenses: Selling, general and administrative .. 27,027,000 23,759,000 21,896,000 Advertising and sales promotion ...... 12,219,000 10,973,000 10,570,000 Amortization expense ................. 1,065,000 333,000 289,000 Litigation settlement (Note 11) ...... 12,628,000 ------------- ------------- ------------- 40,311,000 35,065,000 45,383,000 ------------- ------------- ------------- Income from operations .................... 32,676,000 31,482,000 19,755,000 ------------- ------------- ------------- Interest income, net ...................... 398,000 1,118,000 621,000 Other income, net ......................... 338,000 53,000 107,000 ------------- ------------- ------------- Income before income taxes ................ 33,412,000 32,653,000 20,483,000 Provision for income taxes ................ 12,115,000 12,200,000 7,800,000 ------------- ------------- ------------- Net income ................................ $ 21,297,000 $ 20,453,000 $ 12,683,000 ============= ============= ============= Earnings per share ........................ $ 2.76 $ 2.66 $ 1.65 ============= ============= ============= Average number of shares outstanding ...... 7,711,864 7,700,239 7,686,124 ============= ============= =============
See accompanying notes to consolidated financial statements. WD-40 COMPANY ANNUAL REPORT Page 6 WD-40 COMPANY CONSOLIDATED BALANCE SHEET - -------------------------------------------------------------------------------
Assets August 31, --------------------------------- 1996 1995 ----------- ----------- Current assets: Cash and cash equivalents............................................. $ 6,748,000 $11,090,000 Short-term investments................................................ 104,000 13,227,000 Trade accounts receivable, less allowance for cash discounts and doubtful accounts of $420,000 and $476,000.................... 21,440,000 17,088,000 Product held at contract packagers.................................... 2,304,000 2,307,000 Inventories........................................................... 3,867,000 2,570,000 Other current assets.................................................. 3,170,000 3,298,000 ----------- ----------- Total current assets.............................................. 37,633,000 49,580,000 Property, plant and equipment, net....................................... 3,938,000 3,467,000 Long-term investments.................................................... 4,044,000 4,378,000 Goodwill, net............................................................ 14,392,000 Other assets............................................................. 1,651,000 2,154,000 ----------- ----------- $61,658,000 $59,579,000 =========== =========== Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities.............................. $ 5,784,000 $ 4,749,000 Accrued payroll and related expenses.................................. 2,737,000 2,619,000 Income taxes payable.................................................. 1,879,000 3,053,000 Current portion of long-term debt..................................... 706,000 659,000 ----------- ----------- Total current liabilities....................................... 11,106,00 11,080,000 Long-term debt........................................................... 2,427,000 3,132,000 Deferred employee benefits............................................... 954,000 862,000 ----------- ----------- 3,381,000 3,994,000 Shareholders' equity: Common stock, no par value, 9,000,000 shares authorized - 7,720,953 and 7,703,155 shares issued and outstanding.............. 6,603,000 6,083,000 Paid-in capital....................................................... 321,000 321,000 Retained earnings..................................................... 40,425,000 38,251,000 Cumulative translation adjustment..................................... (178,000) (150,000) ----------- ----------- Total shareholders' equity...................................... 47,171,000 44,505,000 Commitments and contingencies (Note 12) ----------- ----------- $61,658,000 $59,579,000 =========== ===========
See accompanying notes to consolidated financial statements. WD-40 COMPANY ANNUAL REPORT PAGE 7 WD-40 COMPANY CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - -------------------------------------------------------------------------------
Common Stock Cumulative ----------------------------- Paid-in Retained translation Shares Amount capital earnings adjustment ------ ------ ------- -------- ---------- Balance at August 31, 1993 7,670,781 $5,180,000 $221,000 $41,428,000 $(1,136,000) Issuance of common stock upon exercise of options 30,965 961,000 Repurchase of common stock upon exercise of options (8,771) (421,000) Cash dividends (17,678,000) Compensatory stock options 71,000 Change in cumulative translation adjustment 786,000 Net income 12,683,000 --------- ---------- -------- ----------- ----------- Balance at August 31, 1994 7,692,975 5,720,000 292,000 36,433,000 (350,000) Issuance of common stock upon exercise of options 10,180 363,000 Cash dividends (18,635,000) Compensatory stock options 29,000 Change in cumulative translation adjustment 200,000 Net income 20,453,000 --------- ---------- -------- ----------- ----------- Balance at August 31, 1995 7,703,155 6,083,000 321,000 38,251,000 (150,000) Issuance of common stock upon exercise of options 22,696 747,000 Repurchase of common stock upon exercise of options (4,898) (227,000) Cash dividends (19,123,000) Change in cumulative translation adjustment (28,000) Net income 21,297,000 --------- ---------- -------- ----------- ----------- Balance at August 31, 1996 7,720,953 $6,603,000 $321,000 $40,425,000 $ (178,000) ========= ========== ======== =========== ===========
See accompanying notes to consolidated financial statements. WD-40 COMPANY ANNUAL REPORT PAGE 8 WD-40 COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS - --------------------------------------------------------------------------------
Year ended August 31, --------------------------------------------- 1996 1995 1994 ------------- ------------- ------------- Cash flows from operating activities: Net income .................................................... $ 21,297,000 $ 20,453,000 $ 12,683,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization .............................. 1,760,000 996,000 844,000 Loss on sale of equipment .................................. 32,000 124,000 39,000 Non-cash compensation ...................................... 29,000 71,000 Decrease (increase) in long-term deferred income taxes ..... 585,000 (639,000) (37,000) Changes in assets and liabilities: Trade accounts receivable ............................. (4,276,000) (2,205,000) (838,000) Product held at contract packagers .................... 3,000 1,460,000 (3,767,000) Inventories ........................................... (1,270,000) (78,000) 3,103,000 Other assets .......................................... (308,000) (1,585,000) 47,000 Accounts payable and accrued expenses ................. 1,109,000 650,000 (427,000) Income taxes payable .................................. (832,000) 2,166,000 (1,483,000) Long-term deferred employee benefits .................. 92,000 63,000 98,000 ------------- ------------- ------------- Net cash provided by operating activities .......... 18,192,000 21,434,000 10,333,000 ------------- ------------- ------------- Cash flows from investing activities: Decrease (increase) in short-term investments .............. 13,123,000 (4,077,000) 1,739,000 Non-cash intangible assets of business acquired ............ (15,047,000) Decrease in investment with bonding agency ................. 8,117,000 Proceeds from sale of equipment ............................ 163,000 307,000 170,000 Capital expenditures ....................................... (1,353,000) (1,371,000) (796,000) ------------- ------------- ------------- Net cash (used in) provided by investing activities ........................... (3,114,000) (5,141,000) 9,230,000 ------------- ------------- ------------- Cash flows from financing activities: Proceeds from issuance of common stock ........................ 520,000 363,000 540,000 Repayments of long-term debt .................................. (658,000) (615,000) (594,000) Dividends paid ................................................ (19,123,000) (18,635,000) (17,678,000) ------------- ------------- ------------- Net cash used in financing activities .............. (19,261,000) (18,887,000) (17,732,000) ------------- ------------- ------------- Effect of exchange rate changes on cash ............................ (159,000) 169,000 802,000 ------------- ------------- ------------- (Decrease) increase in cash and cash equivalents ................... (4,342,000) (2,425,000) 2,633,000 Cash and cash equivalents at beginning of year ..................... 11,090,000 13,515,000 10,882,000 ------------- ------------- ------------- Cash and cash equivalents at end of year ........................... $ 6,748,000 $ 11,090,000 $ 13,515,000 ============= ============= ============= Non-cash investing and financing activities: Repurchase of common stock upon exercise of options ................................................. $ 227,000 $ -0- $ 421,000 ============= ============= ============= Long-term investment in low income housing (Note 9) ........................................... $ -0- $ -0- $ 2,000,000 ============= ============= ============= Long-term debt related to low income housing investment (Note 9) ................................ $ -0- $ -0- $ 2,000,000 ============= ============= =============
See accompanying notes to consolidated financial statements. WD-40 COMPANY ANNUAL REPORT PAGE 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, 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. Cash and Cash Equivalents Cash equivalents are highly liquid investments purchased with an original maturity of three months or less. Diversification of Credit Risk The Company's policy is to place its cash, cash equivalents and investments in high credit quality financial institutions, government agencies and corporate entities and to limit the amount of credit exposure. 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 reported period. Actual results could differ from those estimates. Revenue Recognition Revenues are recognized upon the shipment of product to third party wholesalers. Product Held at Contract Packagers Product held at contract packagers represents the 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 WD-40 products to rigid specifications, and upon order from WD-40 Company, ship ready-to-sell inventory to the Company's customers. The United States 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 purchased by third party wholesalers. Inventories Inventories are stated at the lower of average cost or market. The inventory balance primarily represents inventory owned by WD-40 Company Ltd. (U.K.) and concentrate owned by WD-40 Company (U.S.). Property, Plant and Equipment Property, plant, and equipment are stated at cost. Depreciation has been computed principally using the straight-line method based upon estimated useful lives of thirty to forty years for buildings and improvements and three to fifteen years for machinery and equipment. Goodwill Goodwill represents the excess of purchase cost over the fair value of identifiable assets at the date of acquisition (Note 2) and is amortized on a straight-line basis over its estimated useful life of fifteen 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. Advertising Costs The Company expenses advertising costs when the liabilities arise. Fair Value of Financial Instruments At August 31, 1996, the carrying amounts of the Company's financial instruments, including cash equivalents, short-term investments, trade receivables and accounts payable, approximated their fair values due to their short-term maturities. Management believes that the estimated fair value of the Company's long-term investments and debt approximated their carrying values at August 31, 1996. 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. Foreign Currency 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 a separate component of 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 and are not material. Earnings Per Share Earnings per share are based upon the weighted average number of shares outstanding during each year increased by the effect of dilutive stock options, when applicable, using the treasury stock method. WD-40 COMPANY ANNUAL REPORT PAGE 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- Stock-Based Compensation In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." SFAS 123 will be adopted by the Company as required for its fiscal 1997 financial statements. Upon adoption of SFAS 123, the Company will continue to measure compensation expense for its stock-based employee compensation plans using the intrinsic value method prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees," and will provide pro forma disclosure of net income and earnings per share as if the fair value-based method prescribed by SFAS 123 had been applied in measuring compensation expense. Accordingly, the adoption of SFAS 123 will not impact the Company's financial position or results of operations. Long-Lived Assets In March 1995, the Financial Accounting Standards Board Issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which the Company will adopt prospectively as required in fiscal 1997. Pursuant to this Statement, companies are required to investigate potential impairments of long- lived assets, certain identifiable intangibles, and associated goodwill, on an exception basis, when there is evidence that events or changes in circumstances have made recovery of an asset's carrying value unlikely. An impairment loss would be recognized when the sum of the undiscounted expected future net cash flows is less than the carrying amount of the asset. The adoption of SFAS 121 is not expected to have a significant impact on the Company's financial position or results of operations. Reclassifications Certain 1995 and 1994 balances have been classified to conform to the 1996 presentation. NOTE 2 - ACQUISITION On December 8, 1995, the Company acquired all of the worldwide trademarks and other intangible assets relating to the sale of 3-IN-ONE brand lubricating oil products from Reckitt & Colman, Inc., a Delaware corporation, Reckitt & Colman (Overseas) Limited, an English corporation, and other affiliates of Reckitt & Colman P.L.C., an English corporation, (collectively, Reckitt & Colman) under an asset purchase and sale agreement. The acquisition of assets included inventory and the rights to manufacture, sell and distribute this product line. No other physical property, plant or equipment was acquired. The Company paid cash in the amount of $15,047,000 for the trademarks and other intangible assets and approximately $400,000 for inventory. None of the funds required for the acquisition were borrowed. Accumulated amortization of goodwill at August 31, 1996 and the related amortization expense for the year then ended was $732,000. NOTE 3 - SELECTED FINANCIAL STATEMENT INFORMATION
August 31, -------------------------------- 1996 1995 ---------- ----------- Inventories: Raw materials..................... $ 333,000 $ 373,000 Finished goods.................... 3,534,000 2,197,000 ---------- ---------- $3,867,000 $2,570,000 ========== ========== Property, plant and equipment: Land.............................. $ 254,000 $ 254,000 Building and improvements......... 1,746,000 1,721,000 Machinery and equipment........... 5,141,000 4,529,000 ---------- ---------- 7,141,000 6,504,000 Accumulated depreciation................. (3,203,000) (3,037,000) ---------- ---------- $3,938,000 $3,467,000 ========== ==========
NOTE 4 - BUSINESS SEGMENT AND FOREIGN OPERATIONS The Company operates in one business segment - the manufacture and sale of multi-purpose lubricants principally through retail chain stores, automotive parts outlets, and industrial distributors and suppliers. Information regarding the Company's operations in different geographic areas is summarized below. WD-40 Company (U.S.) includes all domestic and intercompany sales, as well as sales to the Caribbean, Mexico, South America, and the Pacific Rim, except for Australia and New Zealand. WD-40 Company (U.S.) export sales were $18,163,000, $13,413,000, and $10,663,000 in fiscal 1996, 1995, and 1994, respectively. WD-40 Company Ltd. (U.K.) includes sales to Europe, the Middle East, and Africa. WD-40 Products (Canada) Ltd. and WD-40 Company (Australia) Pty. Ltd. are included in other foreign subsidaries. Substantially all sales by these operations are to customers within Canada, Australia, and New Zealand. WD-40 COMPANY ANNUAL REPORT PAGE 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
Year ended August 31, ------------------------------------------ 1996 1995 1994 ------------ ------------ ------------ Net sales: WD-40 Company (U.S.) ............................. $ 93,487,000 $ 86,547,000 $ 83,550,000 WD-40 Company Ltd. (U.K.) ........................ 29,949,000 24,116,000 20,129,000 Other foreign subsidiaries ....................... 8,751,000 6,978,000 9,577,000 Intercompany ..................................... (1,275,000) (865,000) (1,090,000) ------------ ------------ ------------ $130,912,000 $116,776,000 $112,166,000 ============ ============ ============
Year ended August 31, ------------------------------------------ 1996 1995 1994 ------------ ------------ ------------ Operating profit: WD-40 Company (U.S.) ............................. $ 22,352,000 $ 23,391,000 $ 24,480,000 WD-40 Company Ltd. (U.K.) ........................ 8,134,000 6,693,000 5,462,000 Other foreign subsidiaries ....................... 2,190,000 1,398,000 2,441,000 Interest income, net ............................. 398,000 1,118,000 621,000 Other income, net ................................ 338,000 53,000 107,000 Litigation settlement ............................ (12,628,000) ------------ ------------ ------------ Income before income taxes ............................ $ 33,412,000 $ 32,653,000 $ 20,483,000 ============ ============ ============ August 31, ------------------------------------------ 1996 1995 1994 ------------ ------------ ------------ Identifiable assets: WD-40 Company (U.S.) ............................. $ 44,876,000 $ 45,587,000 $ 42,421,000 WD-40 Company Ltd. (U.K.) ........................ 14,949,000 12,443,000 8,810,000 Other foreign subsidiaries ....................... 1,833,000 1,549,000 3,641,000 ------------ ------------ ------------ $ 61,658,000 $ 59,579,000 $ 54,872,000 ============ ============ ============
NOTE 5 - INCOME TAXES The provision for income taxes includes the following:
Year ended August 31, ------------------------------------------ 1996 1995 1994 ------------ ------------ ------------ Current tax provision: United States .................................... $ 6,812,000 $ 8,021,000 $ 3,531,000 State ............................................ 1,818,000 1,971,000 1,600,000 Foreign .......................................... 2,866,000 2,995,000 2,796,000 ------------ ------------ ------------ Total current ............................... 11,496,000 12,987,000 7,927,000 ------------ ------------ ------------ Deferred tax provision (benefit): United States .................................... 563,000 (792,000) (131,000) Foreign .......................................... 56,000 5,000 4,000 ------------ ------------ ------------ Total deferred .............................. 619,000 (787,000) (127,000) ------------ ------------ ------------ $ 12,115,000 $ 12,200,000 $ 7,800,000 ============ ============ ============
WD-40 COMPANY ANNUAL REPORT PAGE 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Deferred tax assets included in other current assets are comprised of the following:
August 31, 1996 August 31, 1995 --------------- --------------- Accrued employee benefits ......................................................... $ 375,000 $ 329,000 State income taxes ................................................................ 273,000 275,000 Reserves and allowances ........................................................... 104,000 180,000 --------------- --------------- $ 752,000 $ 784,000 =============== ===============
Long-term deferred tax assets and (liabilities) included in other assets are comprised of the following:
August 31, 1996 August 31, 1995 --------------- --------------- Depreciation ...................................................................... $ (283,000) $ (216,000) Foreign tax credit ................................................................ 586,000 Deferred compensation ............................................................. 395,000 362,000 Other ............................................................................. 118,000 85,000 --------------- --------------- $ 230,000 $ 817,000 =============== ===============
A reconciliation of the provision for income taxes to the amount computed by applying the statutory federal income tax rate to income before income taxes follows:
Year ended August 31, ------------------------------------------------------- 1996 1995 1994 ----------------- ------------------ ---------------- Amount computed at U.S. statutory federal rate ............................................ $ 11,694,000 $ 11,429,000 $ 7,169,000 State income taxes, net of federal benefit ................................................. 1,182,000 1,235,000 1,040,000 Affordable housing credits ................................... (499,000) (111,000) (85,000) Competent authority refund ................................... (345,000) Other ........................................................ (262,000) (353,000) 21,000 ----------------- ------------------ ---------------- $ 12,115,000 $ 12,200,000 $ 7,800,000 ================= ================== ================
Income taxes paid in fiscal 1996, 1995, and 1994 amounted to $12,329,000, $11,643,000 and $9,221,000, respectively. NOTE 6 - STOCK OPTIONS The Company has an incentive stock option plan whereby the Board of Directors may grant officers and key employees options to purchase an aggregate of not more than 440,000 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, 1996 options for 148,453 shares were exercisable and options for 140,700 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, 1996 is as follows: WD-40 COMPANY ANNUAL REPORT PAGE 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------
Number of Option price shares per share --------- ------------ Outstanding at August 31, 1993................................... 132,596 $24.50 - $40.00 Options granted............................................. 54,700 $47.50 Options exercised........................................... (30,965) $24.50 - $40.00 Options canceled............................................ (7,011) $30.88 - $47.50 ------- --------------- Outstanding at August 31, 1994................................... 149,320 $24.50 - $47.50 Options granted............................................. 58,900 $42.50 Options exercised........................................... (10,180) $30.68 - $40.00 Options canceled............................................ (5,381) $40.00 - $47.50 ------- --------------- Outstanding at August 31, 1995................................... 192,659 $24.50 - $47.50 Options granted............................................. 62,400 $42.38 Options exercised........................................... (22,696) $24.50 - $42.50 Options canceled............................................ (11,497) $42.38 - $47.50 ------- --------------- Outstanding at August 31, 1996................................... 220,866 $24.50 - $47.50 ======= ===============
NOTE 7 - EMPLOYEE BENEFIT PLANS The Company has a combined Money Purchase Pension Plan and Profit Sharing Plan for the benefit of its regular full-time employees who meet certain minimum criteria. The Plans provide for annual contributions into a trust to the extent of 10% of covered employee compensation for the Money Purchase Pension Plan and as approved by the Board of Directors for the Profit Sharing Plan, 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 for fiscal 1996, 1995, and 1994 approximated $1,029,000, $1,029,000 and $987,000, respectively. The Company has a Salary Deferral Employee Stock Ownership Plan whereby regular full-time employees who have completed at least one year of service 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 fifty percent 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 for fiscal 1996, 1995, and 1994 was approximately $118,000, $104,000, and $118,000, 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 $2,461,000 of which $954,000, representing the present value of these obligations to employees for service through August 31, 1996, has been accrued. The Company has life insurance policies on certain of its key executives. As of August 31, 1996, the aggregate cash surrender value of these policies is $1,421,000 which is included in other assets. Keyman Life Insurance Premiums paid by the Company in fiscal 1996, 1995, and 1994 were $46,000, $91,000, and $91,000, respectively. NOTE 8 - INVESTMENTS Effective September 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Investments subject to the standard are required to be carried at fair value, unless they are held-to-maturity. Adoption of this accounting treatment had no effect on the Company's financial position or results of operations as all of the Company's investments that are subject to this standard are classified as held-to-maturity and are carried at amortized cost. Following is a summary of held-to-maturity securities all of which mature in one year or less: WD-40 COMPANY ANNUAL REPORT PAGE 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
Held-to-Maturity Securities ------------------------------------------------------ Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Values ----------- ---------- ---------- ----------- August 31, 1996 U.S. Corporate Securities..................... $ 104,000 $ -0- $ -0- $ 104,000 =========== ======== ======= =========== Held-to-Maturity Securities ------------------------------------------------------ Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Values ----------- ---------- ---------- ----------- August 31, 1995 U.S. Treasury Securities...................... $ 5,883,000 $171,000 $ 1,000 $ 6,053,000 State and local government securities......... 5,045,000 1,000 13,000 5,033,000 U.S. Corporate securities..................... 2,299,000 42,000 2,341,000 ----------- -------- ------- ----------- $13,227,000 $214,000 $14,000 $13,427,000 =========== ======== ======= ===========
NOTE 9 - LONG-TERM 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. Amortization expense for the years ended August 31, 1996, 1995, and 1994 was $333,000, $333,000, and $289,000, 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%. Interest and principal payments on each note are $559,000 and $370,000, respectively, due annually each January through 2000. Interest paid in fiscal 1996, 1995, and 1994 was $270,000, $314,000, and $98,000, respectively. NOTE 10 - BANK LINE OF CREDIT In April of 1996, the Company obtained an unsecured line of credit with a commercial bank which is subject to renegotiation on an annual basis and expires on February 1, 1997. Under the terms of the credit agreement, the Company may borrow up to $5,000,000 at the bank's prime rate (8.25% at August 31, 1996), or LIBOR plus 2.5% if a minimum of $100,000 is borrowed. The credit agreement requires the Company to maintain certain minimum income levels and meet certain other restrictive covenants. There were no borrowing on this line at August 31, 1996 and the Company was in compliance with all covenants of the credit agreement at August 31, 1996. NOTE 11 - SETTLEMENT OF LITIGATION In February 1989, an action was filed against the Company in the Superior Court of California by eight former commissioned sales representatives. The plaintiffs alleged that their contracts were wrongfully terminated when the Company replaced all of its United States commissioned sales representatives with an in-house sales force. In January 1992, a jury awarded the plaintiffs damages for breach of contract in the amount of $10,291,000. Subsequent to the California Supreme Court's denial of the Company's petition for review in April 1994, the Company paid the original judgment, accrued interest and court costs of $12,628,000 in final settlement of this matter. NOTE 12 - 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. WD-40 COMPANY ANNUAL REPORT PAGE 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The Company was committed under certain noncancelable operating leases at August 31, 1996 which provide for the following future minimum lease payments: 1997, $143,000; 1998, $83,000; 1999, $37,000; 2000, $2,000. Rent expense for the years ended August 31, 1996, 1995, and 1994 was $273,000, $192,000, and $154,000, respectively. NOTE 13 - SUBSEQUENT EVENT On September 23, 1996, the Company declared a cash dividend of $.62 per share payable on October 30, 1996 to shareholders of record on October 10, 1996. - -------------------------------------------------------------------------------- QUARTERLY FINANCIAL INFORMATION (UNAUDITED) - -------------------------------------------------------------------------------- The following table sets forth certain unaudited quarterly financial information for each of the two years in the period ended August 31, 1996.
Net Gross Net Earnings Quarter ended: sales profit income per share ------------ ------------ ------------ --------- November 30, 1994 ............................. $ 29,769,000 $ 17,133,000 $ 5,519,000 $ .72 February 28, 1995 ............................. 29,389,000 17,092,000 5,608,000 .73 May 31, 1995 .................................. 29,916,000 16,696,000 4,896,000 .63 August 31, 1995 ............................... 27,702,000 15,626,000 4,430,000 .58 ------------ ------------ ------------ --------- $116,776,000 $ 66,547,000 $ 20,453,000 $ 2.66 ============ ============ ============ ========= November 30, 1995 ............................. $ 27,612,000 $ 15,926,000 $ 5,266,000 $ .68 February 28, 1996 ............................. 35,080,000 19,980,000 5,883,000 .77 May 31, 1996 .................................. 34,228,000 18,744,000 5,036,000 .65 August 31, 1996 ............................... 33,992,000 18,337,000 5,112,000 .66 ------------ ------------ ------------ --------- $130,912,000 $ 72,987,000 $ 21,297,000 $ 2.76 ============ ============ ============ =========
STOCK INFORMATION - --------------------------------------------------------------------------------
Fiscal 1996 Fiscal 1995 -------------------------- -------------------------- Period: High Low Dividend High Low Dividend ------ ------ -------- ------ ------ -------- First Quarter ......................... 42 3/4 38 3/4 .62 43 5/8 41 1/2 .60 Second Quarter ........................ 49 40 1/2 .62 44 3/4 39 .60 Third Quarter ......................... 49 1/2 45 3/4 .62 44 1/4 39 .60 Fourth Quarter ........................ 48 1/2 41 3/4 .62 44 3/4 41 1/4 .62
The high and low closing prices are as quoted in the Wall Street Journal. WD-40 COMPANY ANNUAL REPORT PAGE 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- WD-40 Company (US) 1996 vs 1995 Net sales reached yet another record high of $92.2 million, an increase of $6.5 million or 7.6% over the previous year. Domestic net sales increased a modest $2.5 million or 3.4% due to the ebb and flow of business in our retail environment. Export sales to Latin America and the Pacific Rim continue to grow at a very rapid rate. Sales to these areas are now $18.2 million, up 36% from last year. These export sales now account for approximately 20% of the U.S. total. 3-IN-ONE sales accounted for $2.5 million of this gain. Cost of product sold continues to escalate as a percentage of sales and was 46.1% versus 43.9% in fiscal 1995. Increase in raw material and component costs and higher costs for promotional packaging, combined with an increase in export sales which carry a lower gross margin accounts for the increase. Selling, general, and administrative expenses as a percentage of net sales were 20.2% versus 19.7% in fiscal year 1995. A general increase in overheads, higher legal costs, and the establishment of our national computer network and disaster recovery plans were the reasons for these higher expenses. Advertising expenses as a percentage of net sales were stable at 8.8% versus 9.1% last year. 1995 vs 1994 Net sales reached another record high of $85.7 million, an increase of $3.2 million or 3.9% over the previous year. Domestic net sales showed a modest gain of $485,000 or 0.7% as the retail segment of the marketplace continued to be sluggish. Export sales to the Pacific Rim and Latin America, on the other hand, hit $13.4 million, up almost 26% over fiscal 1994. Cost of product sold as a percentage of net sales increased significantly to 43.9% versus 42.0% in fiscal 1994. Inflationary pressures and higher costs associated with promotional packaging accounted for this steep rise. Selling, general, and administrative expenses increased by $1.1 million, and as a percentage of net sales was 19.7% versus 19.1% the prior year. This increase is also primarily attributable to inflation which impacted many of our overhead items including compensation and shipping charges. Advertising and sales promotion expenses increased $254 thousand over fiscal 1994, equating to 9.1% of net sales versus 9.2% in the prior year. Primarily as a result of the inflationary trend in operating expenses, operating income was off $1.1 million or 4.5% compared to fiscal 1994. However, net income increased more than 100% because of the $12.6 million legal expense incurred in fiscal 1994. (See Note 11.) WD-40 Company Ltd. (UK) 1996 vs 1995 Net sales increased across all of the subsidiary's territories by $5.8 million, or 24.2%, even though the currency exchange rate was a negative 3% for the year. Prime European sales increased 53%, Eastern European sales were up 43%, and sales in the Middle East increased 10%. 3-IN-ONE sales were $2.5 million of this gain. Cost of sales increased to 39.8% of net sales versus 38.3% in fiscal 1995 due to a shift in the product range. Selling, general, and administrative expenses as a percentage of net sales decreased to 22.5% versus 23.9% in fiscal year 1995 due to the increased sales. Advertising was on budget at 10.1% of net sales versus 10.1% a year ago. Operating income increased $1.4 million or 21.5% primarily due to increased sales and controlled overheads. 1995 vs 1994 Net sales for the subsidiary increased $4.0 million or 19.8% over fiscal 1994. This increase was comprised of higher net sales across the subsidiary's entire territory with Prime Europe up 47%, Eastern Europe up 100%, and the Middle East up 15%. These increases included a positive currency exchange effect of 5.5%. Cost of products sold remained stable at 38.3% of net sales versus 38.2% in fiscal 1994. Selling, general, and administrative expenses also decreased as a percent of net sales to 23.9% versus 24.3% in fiscal 1994. This decrease reflected increased productivity. Advertising and sales promotion expenses also decreased slightly as a percentage of net sales to 10.1% versus 10.4% in fiscal 1994. This reflected our ongoing effort to focus advertising expenditures on only the most cost beneficial promotional opportunities. Operating income increased $1.2 million or 22.5% over fiscal 1994 as a result of the increased net sales and stable operating costs described above. WD-40 COMPANY ANNUAL REPORT PAGE 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Other Subsidiaries 1996 vs 1995 Net sales increased $1.8 million or 25% due mainly to the rebound of the retail economy in Canada. Cost of product sold as a percentage of sales was down slightly to 48.4% versus 49.1% last year. Selling, general, and administrative expenses along with advertising and promotion as a cost of sales was down significantly to 15.8% versus 20.5% in fiscal 1995 due to the strong rebound in the Canadian sales. 1995 vs 1994 Net sales were down $2.6 million or 27.1% due entirely to Canada where retail sales were extremely soft. Cost of product sold was stable at 49.1% of net sales versus 49.0% in fiscal 1994. Selling, general and administrative expenses increased to 20.5% of net sales versus 15.8% in the prior year due entirely to the shortfall of net sales in Canada. Advertising and sales promotion expenses were also up slightly as a percentage of net sales at 10.3% versus 9.7% again due to the lower net sales in Canada. Operating income was down $1.0 million or 42.7% primarily due to the soft retail economy in Canada. Price Increases The introduction of CO\2\ propellant did increase the cost of product sold and as a result the pricing to our customers was adjusted accordingly. This will impact our sales revenue in North America by approximately 9%, however it will have only a minor effect on net income. Cash and Cash Equivalents Cash and cash equivalents decreased $4.3 million during fiscal 1996 versus a decrease of $2.4 million in the prior year. Cash provided by operations was $18.2 million in fiscal 1996. The decrease of $3.2 million from fiscal 1995 was primarily due to the increase in accounts receivable and product inventories. Cash used for investing activities totaled $104 thousand at the end of fiscal 1996, compared with short-term investments of $13.2 million in fiscal 1995. This change is primarily attributable to funds utilized in the purchase of 3-IN-ONE Oil in fiscal 1996. Interest and Other Income, Net 1996 vs 1995 Net interest income declined $720 thousand due to less funds being available for short-term investment. Other income, net, increased $285 thousand primarily due to increases in international commission income. 1995 vs 1994 Interest income, net, increased $497 thousand due to higher interest rates and increased short-term investment balances. Other income, net, decreased $54 thousand primarily due to lower exchange gains in the U.K. Liquidity and Capital Resources The Current Ratio of 3.4-to-one on August 31, 1996, was less than the Current Ratio of 4.5-to-one on August 31, 1995, due mainly to the decrease in short-term investments. The Company has notes outstanding on August 31, 1996 for $2.4 million. The proceeds from these notes were used to purchase partnership units in a Low Income Housing Tax Credit Fund in fiscal 1993 and fiscal 1994 (See Note 9). 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 1997 are expected to total approximately $1.2 million principally for replacing aged vehicles and updating computer equipment. WD-40 COMPANY ANNUAL REPORT PAGE 18 TEN YEAR SUMMARY - -------------------------------------------------------------------------------- Fiscal Year Ended August 31
1987 1988 1989 ----------- ----------- ----------- Net sales......................................................... $70,879,000 $80,005,000 $83,932,000 Cost of product sold.............................................. 30,185,000 33,931,000 36,347,000 ----------- ----------- ----------- Gross profit...................................................... 40,694,000 46,074,000 47,585,000 ----------- ----------- ----------- Selling, general and administrative, and advertising and sales promotion expenses........................................ 21,009,000 21,891,000 23,744,000 Interest and other income (expense), net.......................... 988,000 1,235,000 2,084,000 ----------- ----------- ----------- Income before income taxes........................................ 20,673,000 25,418,000 25,925,000 Provision for income taxes........................................ 9,663,000 9,870,000 10,170,000 ----------- ----------- ----------- Net income........................................................ $11,010,000 $15,548,000 $15,755,000 =========== =========== =========== Earnings per share................................................ $1.46 $2.06 $2.08 =========== =========== =========== Average number of shares outstanding.............................. 7,516,652 7,527,507 7,552,114 Dividends per share............................................... $1.47 $1.63 $1.90 =========== =========== =========== Total assets...................................................... $39,149,000 $43,312,000 $44,640,000 =========== =========== =========== Number of employees............................................... 61 79 133
NET SALES - --------- Thousands of Dollars 1987 $ 70,879 1988 80,005 1989 83,932 1990 90,990 1991 89,833 1992 99,964 1993 108,964 1994 112,166 1995 116,776 1996 130,912 WD-40 COMPANY ANNUAL REPORT PAGE 19 TEN YEAR SUMMARY - -------------------------------------------------------------------------------- Fiscal Year Ended August 31
1990 1991 1992 ----------- ----------- ----------- Net sales.............................................................. $90,990,000 $89,833,000 $99,964,000 Cost of product sold................................................... 40,446,000 39,828,000 42,217,000 ----------- ----------- ----------- Gross profit........................................................... 50,544,000 50,005,000 57,747,000 ----------- ----------- ----------- Selling, general and administrative, and advertising and sales promotion expenses............................................. 27,274,000 26,305,000 29,537,000 Interest and other income (expense), net............................... 1,910,000 1,406,000 1,263,000 ----------- ----------- ----------- Income before income taxes............................................. 25,180,000 25,106,000 29,473,000 Provision for income taxes............................................. 9,690,000 9,800,000 11,400,000 ----------- ----------- ----------- Net income............................................................. $15,490,000 $15,306,000 $18,073,000 =========== =========== =========== Earnings per share..................................................... $2.05 $2.02 $2.38 =========== =========== =========== Average number of shares outstanding................................... 7,554,154 7,555,948 7,594,243 Dividends per share.................................................... $2.02 $1.72 $2.16 =========== =========== =========== Total assets........................................................... $46,785,000 $47,752,000 $53,596,000 =========== =========== =========== Number of employees.................................................... 136 134 136 1993 1994 1995 1996 ------------ ------------ ------------ ------------ Net sales.................................................. $108,964,000 $112,166,000 $116,776,000 $130,912,000 Cost of product sold....................................... 44,686,000 47,028,000 50,229,000 57,925,000 ------------ ------------ ------------ ------------ Gross profit............................................... 64,278,000 65,138,000 66,547,000 72,987,000 ------------ ------------ ------------ ------------ Selling, general and administrative, and advertising and sales promotion expenses................................. 31,242,000 32,755,000 35,065,000 40,311,000 Interest and other income (expense), net................... (1,306,000) (11,900,000) 1,171,000 736,000 ------------ ------------ ------------ ------------ Income before income taxes................................. 31,730,000 20,483,000 32,653,000 33,412,000 Provision for income taxes................................. 12,400,000 7,800,000 12,200,000 12,115,000 ------------ ------------ ------------ ------------ Net income................................................. $ 19,330,000 $ 12,683,000 $ 20,453,000 $ 21,297,000 ============ ============ ============ ============ Earnings per share......................................... $2.52 $1.65 $2.66 $2.76 ============ ============ ============ ============ Average number of shares outstanding....................... 7,660,462 7,686,124 7,700,239 7,711,864 Dividends per share........................................ $2.30 $2.30 $2.42 $2.48 ============ ============ ============ ============ Total assets............................................... $ 58,784,000 $ 54,872,000 $ 59,579,000 $ 61,658,000 ============ ============ ============ ============ Number of employees........................................ 143 144 148 149
EARNINGS - -------- Net Income: Earnings per Thousands of Share: Dollars Dollars 1987 $11,010 $1.46 1988 15,548 2.06 1989 15,755 2.08 1990 15,490 2.05 1991 15,306 2.02 1992 18,073 2.38 1993 19,330 2.52 1994 12,683 1.65 1995 20,453 2.66 1996 21,297 2.76 WD-40 COMPANY ANNUAL REPORT PAGE 20 EX-21 3 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 ---------- Subsidiaries of the Registrant ------------------------------ The Registrant has the following wholly owned subsidiaries which do business under their respective legal names: Name Place of Incorporation - ---- ---------------------- WD-40 Products (Canada) Ltd. Ontario, Canada WD-40 Company Limited London, England WD-40 Company (Australia) Pty. Limited New South Wales, Australia EX-23 4 CONSENT - INDEPENDENT ACCOUNTANTS EXHIBIT 23 ---------- Consent of Independent Accountants ---------------------------------- We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-43174) of WD-40 Company of our report dated October 4, 1996 appearing on page 6 of the Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page 11 of this Form 10-K. PRICE WATERHOUSE LLP San Diego, California November 26, 1996 EX-27 5 FDS ART 5
5 12-MOS AUG-31-1996 SEP-01-1995 AUG-31-1996 6,748,000 104,000 24,164,000 420,000 3,867,000 37,633,000 7,141,000 3,203,000 61,658,000 11,106,000 2,427,000 0 0 6,603,000 40,568,000 61,658,000 130,912,000 130,912,000 57,925,000 40,311,000 736,000 420,000 295,000 33,412,000 12,115,000 21,297,000 0 0 0 21,297,000 2.76 2.76
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