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WD-40 Company Reports Decline in Fourth Quarter Sales, Income

10/15/08

SAN DIEGO, Oct. 15 /PRNewswire-FirstCall/ -- WD-40 Company (Nasdaq: WDFC) today reported net sales for the fourth quarter ended August 31, 2008 of $76.9 million, a decrease of 2.6% from the fourth quarter last year. Year-to-date net sales were $317.1 million, up 3.0% over the same period last year.

Net income for the fourth quarter was $4.7 million, down 49.7% compared to the prior year's quarter. Earnings per share in the fourth quarter were $0.28 compared to $0.54 during the same period last year. Year-to-date net income was $27.6 million, a decrease of 12.4% from last year. For the year, earnings per share were $1.64, compared to $1.83 for the same period last year. More detailed information will be available on WD-40 Company's 10-K that will be filed the week of October 20, 2008.

Summary

-- Net sales decreased 2.6% to $76.9 million for the fourth quarter. Year-to-date net sales grew 3.0% to $317.1 million.

-- Fourth quarter multi-purpose maintenance products sales, which include the WD-40 and 3-IN-ONE brands, were $58.1 million, up 7.4%, and $235.9 million for the year, up 9.1%. Home care and cleaning products sales, which include all of our other brands, were $18.8 million for the quarter, down 24.2%, and were $81.2 million year-to-date, down 11.3%.

-- Americas region fourth quarter sales were down 9.1% from a year ago and are down 5.5% year-to-date. Europe region sales for the fourth quarter were up 4.9% and are up 14.5% year-to-date. Asia/Pacific region sales for the fourth quarter were up 14.4% from last year and are up 22.9% year-to-date.

"Fiscal 2008 can be characterized as the best of times and the worst of times," said Garry Ridge, WD-40 Company President and CEO. "While we saw the best of times with the international growth of the WD-40 and 3-IN-ONE brands, we also saw rising costs of components and raw materials, sales challenges with our homecare and cleaning brands, and deteriorating economic conditions in the U.S."

Total sales for the fiscal year were 56% from the Americas, 35% from Europe and 9% from Asia/Pacific.

"During the year, our international markets experienced growth and helped offset weaknesses in the United States, including a 15% growth in Europe and a 66% increase in China during the year," Ridge said. "For the first time in our history, more than half of our total revenues were generated outside of the United States."

WD-40 sales in the U.S. declined during the year as customers reduced inventory levels and in-store promotional activities in response to the slowing economy. In addition, due to supply constraints related to the distribution of WD-40 Smart Straw(R), some promotional activities were shifted to fiscal 2009.

Fourth quarter gross margin was 44.8% of sales compared to 48.7% in the same period last year. For the year, gross margin was 46.8% of sales, compared to 48.4% in the same period last year.

"Our margins have been impacted by higher raw material and component costs, costs associated with product conversions and sourcing changes, losses sustained through our investment in VML Company, and increased advertising and promotional discounts that are recorded as a reduction in net sales," Ridge said. "We are working to minimize the impact of these increases on our gross margin through a combination of price increases, innovation and cost reduction strategies around the globe."

During the fourth quarter the company recorded an impairment cost of $1.3 million related to the X-14 brand. The impairment was due to the decline in future forecasted sales levels resulting from the company's decision to withdraw a number of products from the grocery trade channel.

Advertising and sales promotion expenses were down 5.2% for the fourth quarter compared to the same period last year and were down 4.4% for the year.

Selling, general and administrative expenses were up 6.5% in the fourth quarter to $20.8 million and were up 6.7% for the year to $83.8 million.

The board of directors of WD-40 Company declared on Monday, October 6, 2008 the regular quarterly dividend of $.25 per share, payable October 31, 2008 to stockholders of record on October 17, 2008.

"Our objective for the coming year is to deliver value to our shareholders despite the adverse economic conditions," Ridge said. "We have invested time and resources over the past year reviewing our strategy and will increase our focus on adjacent business opportunities by globally leveraging the WD-40 and 3-IN-ONE brands."

Fiscal Year 2009 Guidance

WD-40 Company expects fiscal year 2009 net sales to grow 2%-8% to $323-$343 million. The company expects earnings per share of $1.65 to $1.85 based on an estimated 16.6 million shares outstanding. "These are very unusual times and we are aware that we may need to do things differently," Ridge said. "Therefore, we have decided to give guidance for the first quarter to help investors get as clear a picture of the business during this period of volatility."

"The fourth quarter of fiscal 2008 was a tough period, negatively impacted by short-term events and transitions. Our results in Q4 were lower than expected, however, we are seeing a recovery in our sales and bottom line in the first quarter of fiscal 2009," Ridge said.

WD-40 Company expects first quarter fiscal 2009 net sales to grow 3%-7% to $81.5-$84.7 million. The company expects net income of $6.6-$7.5 million for first quarter fiscal 2009, achieving earnings per share of $0.40 to $0.45 based on an estimated 16.6 million shares outstanding.

WD-40 Company's first quarter fiscal 2009 earnings call is scheduled for Wednesday, January 7, 2009.

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 maintenance products WD-40(R) and 3-IN-ONE(R), and home care and cleaning products 2000 Flushes(R), X-14(R), Carpet Fresh(R), No Vac(R), Spot Shot(R), 1001(R), Lava(R) and Solvol(R). WD-40 Company markets its products in more than 160 countries worldwide and recorded sales of $317.1 million in fiscal 2008. Additional information about WD-40 Company can be obtained online at http://www.wd40company.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 may cause actual results to differ materially from the forward-looking statements, including impact of cost of goods, the impact of new product innovations and renovations, and the timing of advertising and sales promotion activities. 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 Statements of Operations
                   (In thousands, except per share amounts)

                                  Three Months Ended       Fiscal Year Ended
                                      August 31,               August 31,
                                   2008        2007         2008       2007

    Net sales                     $76,916     $78,948     $317,118   $307,816
    Cost of products sold(1)       42,439      40,464      168,848    158,954

        Gross profit               34,477      38,484      148,270    148,862

    Operating expenses:
      Selling, general and
       administrative              20,786      19,514       83,800     78,520
      Advertising and sales
       promotion                    4,615       4,867       19,837     20,743
      Amortization of intangible
       asset                          148         149          597        583
      Impairment of
       indefinite-lived
       intangible assets            1,340         -          1,340        -


    Income from operations          7,588      13,954       42,696     49,016


    Other (expense) income:
      Interest expense, net          (450)       (323)      (1,679)    (2,018)
      Other income, net               229          29          982        177


    Income before income taxes      7,367      13,660       41,999     47,175

    Provision for income taxes      2,714       4,403       14,377     15,641


        Net income                 $4,653      $9,257      $27,622    $31,534

    Earnings per common share:
      Basic                         $0.28       $0.54        $1.66      $1.85

      Diluted                       $0.28       $0.54        $1.64      $1.83

    Shares used in per share
     calculations:
      Basic                        16,451      17,101       16,638     17,078

      Diluted                      16,621      17,281       16,815     17,271

    Dividends declared per share    $0.25       $0.25        $1.00      $0.97

    (1) Includes cost of products acquired from related party of $4,653 and
        $4,791 for the three months ended August 31, 2008 and 2007,
        respectively; and $21,757 and $19,067 for the fiscal years ended
        August 31, 2008 and 2007, respectively.



                                WD-40 Company
                         Consolidated Balance Sheets
                     (In thousands, except share amounts)

                                                        August 31,  August 31,
                                                          2008        2007
                                      Assets

    Cash and cash equivalents                           $41,983      $61,078
    Trade accounts receivable, less allowance for
     doubtful accounts of $486 and $369 at
     August 31, 2008 and 2007, respectively              49,271       47,204
    Product held at contract packagers                    2,453        1,447
    Inventories                                          18,280       13,208
    Current deferred tax assets, net                      4,045        4,145
    Other current assets                                  3,453        3,489

      Total current assets                              119,485      130,571

    Property, plant and equipment, net                   11,309        8,811
    Goodwill                                             95,909       96,409
    Other intangible assets, net                         39,992       42,543
    Investment in related party                             435        1,015
    Other assets                                          3,543        3,837

      Total Assets                                     $270,673     $283,186


                       Liabilities and Shareholders' Equity

    Accounts payable                                    $22,985      $21,854
    Accounts payable to related party                       547        1,506
    Accrued liabilities                                  13,143       12,780
    Current portion of long-term debt                    10,714       10,714
    Accrued payroll and related expenses                  6,084        6,906
    Income taxes payable                                  1,090           97

      Total current liabilities                          54,563       53,857

    Long-term debt                                       32,143       42,857
    Long-term deferred tax liabilities, net              16,876       16,005
    Deferred employee benefits and other
     long-term liabilities                                3,099        2,195

      Total liabilities                                 106,681      114,914

    Shareholders' equity:
    Common stock -- authorized 36,000,000 shares,
     $.001 par value; 18,041,715 and 17,883,299
     shares issued at August 31, 2008 and 2007,
     respectively; and 16,478,217 and 16,848,601 shares
     outstanding at August 31, 2008 and 2007,
     respectively                                            18           18
    Additional paid-in capital                           82,647       74,836
    Retained earnings                                   128,627      118,260
    Accumulated other comprehensive income                2,766        7,504
    Common stock held in treasury, at cost
     -- 1,563,498 and 1,034,698 shares at
     August 31, 2008 and 2007, respectively             (50,066)     (32,346)

      Total shareholders' equity                        163,992      168,272

      Total liabilities and shareholders' equity       $270,673     $283,186



                                WD-40 Company
                    Consolidated Statements of Cash Flows
                                (In thousands)

                                                  Fiscal Year Ended August 31,
                                                        2008           2007
    Operating activities:
      Net income                                      $27,622         $31,534
      Adjustments to reconcile net income to net
       cash provided by operating activities:
        Depreciation and amortization                   3,827           3,649
        Net gains on sales and disposals of property
         and equipment                                    (41)            (23)
        Impairment of indefinite-lived intangible
         assets                                         1,340             -
        Deferred income tax expense                       911           2,336
        Excess tax benefits from exercises of stock
         options                                         (294)           (741)
        Distributions received and equity losses
         (earnings) from related party, net               580             (43)
        Stock-based compensation                        2,398           1,919
        Changes in assets and liabilities:
          Trade accounts receivable                    (4,342)         (1,365)
          Product held at contract packagers           (1,006)            (62)
          Inventories                                  (5,375)          2,392
          Other assets                                   (281)          1,362
          Accounts payable and accrued expenses and
           liabilities                                    147          10,388
          Accounts payable to related party               959           1,043
          Income taxes payable                          1,571            (984)
          Deferred employee benefits and other long
           term liabilities                             1,346             246

              Net cash provided by operating
               activities                              29,362          51,651

    Investing activities:
      Purchases of marketable securities              (76,175)       (224,675)
      Proceeds from sales of marketable securities     76,175         224,675
      Capital expenditures                             (5,752)         (2,561)
      Proceeds from sales of property and equipment       215             319
      Proceeds from collections on note receivable        -                25

              Net cash used in investing activities    (5,537)         (2,217)

    Financing activities:
      Repayments of long-term debt                    (10,714)        (10,714)
      Proceeds from issuance of common stock            4,208           9,754
      Excess tax benefits from exercise of stock
       options                                            294             741
      Treasury stock purchases                        (17,720)        (17,320)
      Dividends paid                                  (16,691)        (16,609)

              Net cash used in financing activities   (40,623)        (34,148)

    Effect of exchange rate changes on cash and cash
     equivalents                                       (2,297)            586

    Net (decrease) increase in cash and cash
     equivalents                                      (19,095)         15,872

    Cash and cash equivalents at beginning of period   61,078          45,206

    Cash and cash equivalents at end of period        $41,983         $61,078



                                WD-40 Company
               Consolidated Statements of Comprehensive Income
                                (In thousands)

                                    Three Months Ended      Fiscal Year Ended
                                        August 31,             August 31,
                                    2008          2007       2008       2007

    Net income                     $4,653       $9,257     $27,622    $31,534

    Other comprehensive income:
      Foreign currency translation
       adjustment, net of tax      (4,345)         776      (4,827)     2,510

      Other                           -            -            89        -

    Total comprehensive income       $308      $10,033     $22,884    $34,044



                                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 (dollar amounts in thousands)      FY08       FY07       FY06

    Net Sales                                  $317,118   $307,816   $286,916
    Operating Profit                            $42,696    $49,016    $46,022
    Net Income                                  $27,622    $31,534    $28,112
    Amortization                                   $597       $583       $532
    Tax Rate                                      34.2%      33.2%      34.4%
    NOPAT = Op Inc + Amort after Tax            $28,473    $33,154    $30,536
    Total Assets (beginning)                   $283,186   $268,475   $254,253
    Total Assets (ending)                      $270,673   $283,186   $268,475
    Total Assets (average)                     $275,830   $275,831   $261,364
    Cash                                        $41,983    $61,078    $45,206
    Transactional cash 3% of net sales           $9,514     $9,234     $8,607
    Other Cash                                  $32,469    $51,844    $36,599
    Non-interest bearing liabilities:
                              Accounts Payable  $23,532    $23,360    $11,750
                           Accrued Liabilities  $13,143    $12,780    $11,678
                     Accrued Payroll & Related   $6,084     $6,906     $7,485
                            Income Tax Payable   $1,090        $97     $2,040
                        Long-term Deferred Tax  $16,876    $16,005    $13,611
    Total Non-interest Bearing Liabilities:     $60,725    $59,148    $46,564
    Return on Invested Capital (ROIC)             15.5%      20.1%      17.1%
SOURCE WD-40 Company

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