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WD-40 Company Reports 8% Growth in Net Income - Fiscal 2005


SAN DIEGO, Nov. 7 /PRNewswire-FirstCall/ -- WD-40 Company (Nasdaq: WDFC) today reported its fourth-quarter earnings and announced record sales for the fiscal year ended August 31, 2005.

Net sales for the year were $263.2 million, an increase of 8.6% over $242.5 million last year, a record for the Company. Net income for the year was $27.8 million compared to $25.6 million last year, an increase of 8.4%.

Earnings per share for the year grew 10.4% to $1.65 compared to $1.50 per share last year.

Net sales for the fourth quarter were $76.3 million, an increase of 6.4% from sales of $71.7 million in the fourth quarter last year.

Net income for the fourth quarter was $10.5 million, an increase of 17.7% over the same period last year. Earnings per share for the quarter were $0.63 compared to $0.53 for the prior year's quarter.

"Our focus on innovation and the introduction of new products allowed us to continue to perform even though we had some real challenges due to the increases in cost of goods that have plagued many manufacturers," said Garry O. Ridge, WD-40 Company president and chief executive officer. "While it is difficult to predict increases in the cost of goods and when they will occur, our plan is to continue to manage expenses while we invest in the long-term growth of our brands."

In fiscal year 2006, WD-40 Company expects net sales to grow 9%-14% to $288-$299 million.

In accordance with Statement of Financial Accounting Standards (SFAS) No. 123-R, "Share-Based Payment," the company will begin expensing stock options in the first quarter of fiscal 2006. Stock options expense after tax is expected to range between $1.0-$1.3 million for 2006 which would reduce earnings per share by $0.06 to $0.08. After-tax stock options expense in 2005 would have been $1.2 million or $0.06 per share and $1.0 million or $0.05 per share in 2004.

WD-40 Company expects net income of $24.7 - $28 million in 2006, achieving earnings per share between $1.47 to $1.64 based on an estimated 17 million shares outstanding. This includes the 6-8 cent per share incremental impact of stock options expense.

"Our plan is to continue the innovation path we started down several years ago and we have a few products in the pipeline that will be coming to market, but we do not yet know if they will be ready to launch in 2006," Ridge said. "It is also prudent to continue R&D efforts and ramp up marketing for some of the new products we launched in 2005, including the WD-40 Smart Straw, the WD-40 No-Mess Pen and Spot Shot Trigger, as we continue to gain distribution.

"We will give a more strategic overview of our plans in our earnings call and at future investor meetings and will be updating our guidance as the year develops," Ridge said.

As previously announced, the board of directors of WD-40 Company declared a regular quarterly dividend on October 6, 2005, of $0.22 per share, payable October 28, 2005 to stockholders of record on October 17, 2005.

Total sales for the quarter were 67% from the Americas, 25% from Europe and 8% from Asia/Pacific.

In the Americas, sales for the fourth quarter were up 11.1% from a year ago and up 6.0% on a year-to-date basis. In Europe, sales were up 4.6% for the fourth quarter and up 18.5% for the year.

"The 1001 brand continues to track as we intended and we had solid growth in the brand during the year, including the launch of new products under the 1001 brand name," Ridge said.

In the Asia/Pacific region, sales for the fourth quarter were down 18.5% from last year and sales for the year were up 0.8% over the comparable period last year.

Global sales of the lubricants WD-40 and 3-IN-ONE Oil(R) in the fourth quarter were $50.8 million, up 9.1%, and $174.1 million for the year, up 10.2%.

"This is the third year in a row where we have grown our lubricant business by more than 8% across the globe," Ridge said.

Sales of heavy-duty hand cleaners Lava(R) and Solvol(R) were down 3.3% to $1.9 million for the fourth quarter, and for the year were $6.9 million, up 4.0%.

Sales of household products X-14(R), Carpet Fresh(R), 2000 Flushes(R), Spot Shot(R) and 1001(R) were $23.6 million during the fourth quarter, up 1.8%, and were $82.2 million year to date, up 5.5% from last year.

WD-40 Company also reported that return on invested capital (ROIC) grew to 18.4% in 2005 compared to 17.0% last fiscal year.

WD-40 Company, with headquarters in San Diego, is a global consumer products company dedicated to building brand equities that are first or second choice in their respective categories. The company will leverage and build the brand fortress of WD-40 Company by developing and acquiring brands that deliver a unique high value to end users and that can be distributed across multiple trade channels in one or more areas of the world. WD-40 Company produces multi-purpose lubricants, WD-40(R), and 3-IN-ONE(R), the Lava(R) and Solvol(R) brands of heavy-duty hand cleaners, and household products 2000 Flushes(R), X-14(R), Carpet Fresh(R), Spot Shot(R) and 1001(R). WD-40 Company markets its products in more than 160 countries worldwide and recorded sales of $263.2 million in 2005. Additional information about WD-40 Company can be obtained online at www.wd40.com.

Except for the historical information contained herein, this news release contains forward-looking statements concerning WD-40 Company's outlook for sales, earnings, dividends and other financial results. These statements are based on an assessment of a variety of factors, contingencies and uncertainties considered relevant by WD-40 Company. Forward-looking statements involve risks and uncertainties, which cause actual results to differ materially from the forward-looking statements, including impact of cost of goods, the impact of new product introductions and the uncertainty of market conditions, both in the United States and internationally. The company's expectations, beliefs and projections are expressed in good faith and are believed by the company to have a reasonable basis, but there can be no assurance that the company's expectations, beliefs or projections will be achieved or accomplished.

The risks and uncertainties are detailed from time to time in reports filed by WD-40 Company with the SEC, including Forms 8-K, 10-Q, and 10-K, and readers are urged to carefully review these and other documents.

                                  WD-40 Company
                   Consolidated Condensed Statements of Income

                        Three Months Ended           Fiscal Year Ended
                            August 31,                   August 31,
                        2005          2004          2005           2004

    Net sales       $76,314,000   $71,704,000   $263,227,000   $242,467,000
    Cost of
      sold(1)        38,388,000    35,308,000    133,833,000    116,944,000

    Gross profit     37,926,000    36,396,000    129,394,000    125,523,000

      administrative 15,992,000    15,797,000     63,529,000     58,311,000
      and sales
      promotion       4,534,000     5,167,000     17,893,000     21,539,000
      of intangible
      assets            134,000       135,000        552,000        224,000

    Income from
     operations      17,266,000    15,297,000     47,420,000     45,449,000

    Other income
      expense, net   (1,097,000)   (1,507,000)    (5,133,000)    (6,387,000)
     Other income
      (expense), net    119,000       (58,000)       578,000       (209,000)

    Income before
     income taxes    16,288,000    13,732,000     42,865,000     38,853,000

    Provision for
     income taxes     5,765,000     4,794,000     15,067,000     13,210,000

      Net income    $10,523,000    $8,938,000    $27,798,000    $25,643,000

    Earnings per
     Basic                $0.63         $0.53          $1.67          $1.52

     Diluted              $0.63         $0.53          $1.65          $1.50

     common shares
     basic           16,679,664    16,788,269     16,629,057     16,905,587

     common shares
     diluted         16,810,508    16,935,419     16,807,399     17,118,829

     declared per
     share                $0.22         $0.20          $0.84          $0.80

    (1)  Includes cost of products acquired from related party of $10,702,000
         and $10,120,000 for the three months ended August 31, 2005 and 2004,
         respectively; and $38,384,000 and $36,615,000 for the years ended
         August 31, 2005 and 2004, respectively.

                                WD-40 Company
                    Consolidated Condensed Balance Sheets

                                                  August 31,     August 31,
                                                     2005           2004
    Current assets:
     Cash and cash equivalents                   $37,120,000    $29,433,000
     Trade accounts receivable, less allowance
      for cash discounts, returns and doubtful
      accounts of $1,506,000 and $1,440,000       44,487,000     40,643,000
      Product held at contract packagers           1,814,000      1,975,000
     Inventories                                   8,041,000      6,322,000
     Current deferred tax assets, net              2,946,000      2,830,000
     Other current assets                          6,784,000      3,026,000

       Total current assets                      101,192,000     84,229,000

    Property, plant and equipment, net             8,355,000      7,081,000
    Goodwill                                      95,858,000     95,832,000
    Other intangibles, net                        42,884,000     43,428,000
    Investment in related party                    1,112,000        932,000
    Other assets                                   4,852,000      5,273,000

                                                $254,253,000   $236,775,000

    Liabilities and Shareholders' Equity

    Current liabilities:
     Current portion of long-term debt           $10,714,000    $10,000,000
     Accounts payable                             13,671,000     11,910,000
     Accounts payable to related party             1,945,000      1,926,000
     Accrued liabilities                          14,058,000     12,151,000
     Accrued payroll and related expenses          3,828,000      3,935,000
     Income taxes payable                          2,484,000      2,613,000

       Total current liabilities                  46,700,000     42,535,000

    Long-term debt                                64,286,000     75,000,000
    Deferred employee benefits and other
     long-term liabilities                         1,838,000      1,969,000
    Long-term deferred tax liabilities, net       11,363,000      4,853,000

       Total liabilities                         124,187,000    124,357,000

    Shareholders' equity:
     Common stock, $.001 par value,
      36,000,000 shares authorized -- 17,222,410
      and 17,089,015 shares issued                    17,000         17,000
     Paid-in capital                              52,990,000     49,616,000
     Unearned stock-based compensation              (136,000)            --
     Retained earnings                            89,983,000     76,152,000
     Accumulated other comprehensive income        2,238,000      1,659,000
     Common stock held in treasury, at cost
      (534,698 shares)                           (15,026,000)   (15,026,000)

       Total shareholders' equity                130,066,000    112,418,000

                                                $254,253,000   $236,775,000

                                   WD-40 Company
                  Consolidated Condensed Statements of Cash Flows

                                                    Year Ended August 31,
                                                   2005              2004
    Cash flows from operating activities:
      Net income                               $27,798,000       $25,643,000
      Adjustments to reconcile net income to
       net cash provided by operating
         Depreciation and amortization           3,007,000         2,369,000
         Gains on sales and disposals of
          property and equipment                   (24,000)          (49,000)
         Deferred income tax expense             3,474,000         4,504,000
         Tax benefit from exercise of stock
          options                                  377,000           965,000
         Equity earnings from related party
          in excess of distributions received     (180,000)         (281,000)
         Stock-based compensation                   22,000           130,000
         Changes in assets and liabilities,
          net of assets and liabilities
           Trade accounts receivable            (3,635,000)        3,153,000
           Product held at contract packagers      161,000          (271,000)
           Inventories                          (1,655,000)       (1,306,000)
           Other assets                           (970,000)         (479,000)
           Accounts payable and accrued
            expenses                             3,262,000            74,000
           Accounts payable to related party        14,000        (2,758,000)
           Income taxes payable                   (125,000)         (321,000)
           Deferred employee benefits and
            other long-term liabilities             38,000           118,000

             Net cash provided by operating
              activities                        31,564,000        31,491,000

    Cash flows from investing activities:
      Acquisition of a business                         --       (11,555,000)
      Capital expenditures                      (3,101,000)       (2,358,000)
      Proceeds from sales of property and
       equipment                                   162,000           169,000
      Proceeds from collections on notes
       receivable                                   50,000           100,000

             Net cash used in investing
              activities                        (2,889,000)      (13,644,000)

    Cash flows from financing activities:
      Repayments of long-term debt             (10,000,000)      (10,000,000)
      Proceeds from issuance of common stock     2,839,000         7,914,000
      Treasury stock purchases                          --       (15,026,000)
      Dividends paid                           (13,967,000)      (13,559,000)

             Net cash used in financing
              activities                       (21,128,000)      (30,671,000)

    Effect of exchange rate changes on cash
     and cash equivalents                          140,000           286,000

    Increase (decrease) in cash and cash
     equivalents                                 7,687,000       (12,538,000)

    Cash and cash equivalents at beginning
     of period                                  29,433,000        41,971,000

    Cash and cash equivalents at end of
     period                                    $37,120,000       $29,433,000

                                WD-40 Company
          Consolidated Condensed Statements of Comprehensive Income

                               Three Months Ended           Year Ended
                                   August 31,                August 31,
                                2005        2004         2005         2004

    Net income              $10,523,000  $8,938,000  $27,798,000  $25,643,000

    Other comprehensive
      Equity adjustment
       from foreign
       net of tax               (87,000)   (192,000)     579,000    1,147,000

    Total comprehensive
     income                 $10,436,000  $8,746,000  $28,377,000  $26,790,000

                                WD-40 Company
                          Return on Invested Capital

In addition to GAAP measures, WD-40 Company management believes that the quality of business performance can also be illustrated by its Return on Invested Capital (ROIC).

Return on Invested Capital is important to investors because it provides an indication as to how well a company is utilizing the resources invested in a business. Long-term economic value is created by companies with Returns on Invested Capital that exceed the company's weighted average cost of capital

Return on Invested Capital is calculated as follows:

ROIC = Net Operating Profit After Tax divided by Average Total Assets less other cash minus non-interest bearing liabilities

    *  Net Operating Profit After Tax = Operating Income + Amortization - Tax

    *  Average Total Assets = (Beginning Total Assets + Ending Total Assets)
       divided by 2

    *  Other Cash = Total Cash - Transactional Cash representing 3% of Annual
       Net Sales

    *  Non-interest bearing Liabilities = Accounts Payable + Accrued
       Liabilities + Accrued Payroll & Related + Income Tax Payable

    The calculation is illustrated below.

    Worldwide                                 FY03        FY04        FY05
    Net Sales                                238,140     242,467     263,227
    Operating Profit                          49,752      45,449      47,420
    Net Income                                28,641      25,643      27,798
    Amortization                                 950         224         552
    Tax Rate                                    34.0%       34.0%       35.2%
    NOPAT = Op Inc + Amort after Tax          33,463      30,144      31,110
    Total Assets (beginning)                 215,045     236,658     236,775
    Total Assets (ending)                    236,658     236,775     254,253
    Total Assets (average)                   225,852     236,717     245,514
    Cash                                      41,971      29,433      37,120
    Transactional cash 3% of net sales         7,144       7,274       7,897
    Other Cash                                34,827      22,159      29,223
    Non-interest bearing liabilities:
                         Accounts Payable     14,772      13,836      15,616
                      Accrued Liabilities     11,999      12,151      14,058
                Accrued Payroll & Related      5,122       3,935       3,828
                       Income Tax Payable      2,780       2,613       2,484
                   Long-term Deferred Tax         --       4,853      11,363
    Total Non-interest Bearing Liabilities:   34,673      37,388      47,349
    Return on Invested Capital (ROIC)           21.4%       17.0%       18.4%
SOURCE WD-40 Company
Garry O. Ridge of WD-40 Company,
Web site: http://www.wd40.com

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