WD-40 Company Reports Increase in Third Quarter Sales and Net Income

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Jul 07, 2010, 04:00 ET

SAN DIEGO, July 7 /PRNewswire-FirstCall/ -- WD-40 Company (Nasdaq: WDFC) today reported net sales for the third quarter ended May 31, 2010 of $82.6 million, an increase of 20.0% from the third quarter last year. Year-to-date net sales were $240.8 million, up 12.4% from the same period last year.

Net income for the third quarter was $9.1 million, an increase of 32.2% compared to the prior year's third quarter. Year-to-date net income was $29.2 million, an increase of 56.5% compared to the same period last year.

Summary

Third quarter multi-purpose maintenance products sales, which include the WD-40(R), 3-IN-ONE(R) and BLUE WORKS (TM) brands, were $67.9 million, up 29.2% versus the same quarter last year, and $194.2 million year-to-date, up 17.4% from the prior year. Homecare and cleaning products sales, which include all of our other brands, were $14.6 million for the third quarter, down 10.0%, and were $46.6 million year-to-date, down 4.4%.
Americas third quarter sales were $46.5 million, up 13.1% compared to the third quarter last year and were $134.4 million year-to-date, up 8.5%. Europe sales in the third quarter were $27.0 million, up 24.6% and were $82.9 million year-to-date, up 16.2%. Asia-Pacific sales were $9.1 million in the third quarter, up 50.2% and were $23.6 million year-to-date, up 23.9%.
Earnings per share (diluted) were $0.54 in the third quarter, compared to $0.41 per share for the same quarter last year. Through nine months, earnings per share (diluted) were $1.74 compared to $1.12 in the same period last year.

"Although we continue to experience uncertainty in the global economy, our tribe has the ability to come together to address challenges and to be patient and flexible with the things that are out of our control. That has helped us continue to focus on the mid- to long-term strategies that are key to our success," said Garry Ridge, WD-40 Company president and chief executive officer. "We remain cautiously optimistic that our continued, steady focus on our four strategic initiatives will continue to drive our business forward as we navigate these turbulent waters."

In the third quarter, foreign currency exchange rates positively affected net sales by $2.9 million and net income by $0.4 million. Through the nine months, foreign currency exchange rates positively impacted net sales and net income by $4.9 million and $ 0.7 million, respectively.

Net sales by segment as a percent of total net sales were as follows: for the Americas, 56.3% for the quarter and 55.8% year-to-date; for Europe, 32.7% for the quarter and 34.4% year-to-date; and, for Asia-Pacific, 11.0% for the quarter and 9.8% year-to-date.

"We have seen solid, steady growth in almost all of our geographic markets throughout the year," Ridge said. "Our focus on expanding into growth markets has also led to an increase in the percentage of sales outside the U.S., which is now at 53% of total sales."

Gross margin was 51.2% in the third quarter compared to 50.9% in the same quarter last year. Year-to-date, gross margin was 51.7% of sales, compared to 48.7% in the same period last year.

Advertising and sales promotion expenses were up 6.8% for the third quarter compared to the same period last year and were up 5.9% for the year-to-date compared to last year.

"We continue our focus on innovation in the multi-purpose maintenance product line, and we are pleased with our progress on the BLUE WORKS brand in the U.S. market and the expansion of the 3-IN-ONE brand in the Europe and Asia markets," Ridge added. "BLUE WORKS is the first brand to carry the WD-40 Company Signature of Endorsement, and end-user feedback has shown it to be critical in the trial and use of the new product."

Selling, general and administrative expenses were $23.3 million in the third quarter, up 26.8% compared to the same period last year and were $63.2 million year-to-date, up 10.2% compared to last year.

"We continue to evaluate potential acquisitions and strategic partnerships and have seen more options that fit our strategic roadmap becoming available," Ridge said. "As we have stated, product, price, timing, strategic fit and return on investment are key drivers for us in this area."

As previously announced, the board of directors of WD-40 Company declared on Tuesday, June 22, 2010 the regular quarterly dividend of $.25 per share, payable July 30, 2010 to stockholders of record on July 16, 2010.

Updated Fiscal Year 2010 Guidance

WD-40 Company expects fiscal year 2010 net sales of $313.0 million to $319.0 million or growth between 7.2% and 9.2% versus fiscal year 2009. The company expects net income of $34.4 million to $36.0 million and diluted earnings per share of $2.05 to $2.14 for fiscal year 2010 based on an estimated 16.8 million weighted average shares outstanding. The company expects advertising and sales promotion expenses to be within the range of 6.5% to 7.5% of net sales.

WD-40 Company's Form 10-Q will be filed on July 8, 2010.

WD-40 Company, with headquarters in San Diego, is a global consumer products company dedicated to delivering unique, high-value and easy-to-use solutions for a wide variety of maintenance needs of "doer" and "on-the-job" users by leveraging and building the brand fortress of the company. The company markets three multi-purpose maintenance product brands - WD-40(R), 3-IN-ONE(R) and BLUE WORKS (TM) - and eight homecare and cleaning product brands: X-14(R) mildew stain remover and automatic toilet bowl cleaners, 2000 Flushes(R) automatic toilet bowl cleaners, Carpet Fresh(R) and No Vac(R) rug and room deodorizers, Spot Shot(R) aerosol and liquid carpet stain removers, 1001(R) carpet and household cleaners and rug and room deodorizers, and Lava(R) and Solvol(R) heavy-duty hand cleaners.

WD-40 Company markets its products in more than 160 countries worldwide and recorded sales of $292 million in fiscal year 2009. 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 the impact of the introduction of new products, changes in foreign currency exchange rates, and fluctuating 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
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except per share amounts)


			Three Months Ended May 31,				Nine Months Ended May 31,
				2010	2009			2010	2009

Net sales			$	82,561	$	68,816	$	240,835	$	214,250
Cost of products sold(1)				40,306		33,821		116,434		109,873

		Gross profit		42,255		34,995		124,401		104,377

Operating expenses:
	Selling, general and administrative			23,348		18,412		63,231		57,365
	Advertising and sales promotion			5,685		5,321		16,237		15,338
	Amortization of definite-lived intangible assets			178		107		548		346
	Impairment of indefinite-lived intangible assets			-		-		-		2,760

		Total operating expenses		29,211		23,840		80,016		75,809

Income from operations				13,044		11,155		44,385		28,568


Other income (expense):

	Interest income			49		29		124		377
	Interest expense			(402)		(597)		(1,327)		(1,895)
	Other income (expense), net			42		(157)		120		544

Income before income taxes				12,733		10,430		43,302		27,594
Provision for income taxes				3,616		3,533		14,095		8,929

		Net income	$	9,117	$	6,897	$	29,207	$	18,665

Earnings per common share:
	Basic		$	0.55	$	0.42	$	1.76	$	1.13


	Diluted		$	0.54	$	0.41	$	1.74	$	1.12

Shares used in per share calculations:
	Basic			16,613		16,501		16,585		16,499

	Diluted			16,752		16,646		16,697		16,657

Dividends declared per common share			$	0.25	$	0.25	$	0.75	$	0.75


(1) Includes cost of products acquired from related party of $3,830 and $11,550 for the three and nine months ended May 31, 2009, respectively.


WD-40 COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share and per share amounts)


			May 31, 2010		August 31, 2009

Assets
Current assets:
	Cash and cash equivalents		$	59,141		$	45,956
	Trade accounts receivable, less allowance for doubtful
	accounts of $481 and $694 at May 31, 2010
	and August 31, 2009, respectively			49,450			48,061
	Product held at contract packagers			2,314			1,797
	Inventories			14,705			15,858
	Current deferred tax assets, net			4,361			4,369
	Other current assets			4,064			4,736

		Total current assets		134,035			120,777

Property, plant and equipment, net				9,420			10,930
Goodwill				94,983			95,424
Other intangible assets, net				31,195			32,205
Other assets				2,964			3,281

	Total assets		$	272,597		$	262,617


Liabilities and Shareholders' Equity
Current liabilities:
	Accounts payable		$	16,095		$	12,529
	Accrued liabilities			16,128			15,233
	Current portion of long-term debt			10,714			10,714
	Accrued payroll and related expenses			8,814			7,168
	Income taxes payable			420			2,570

		Total current liabilities		52,171			48,214

Long-term debt				10,714			21,429
Long-term deferred tax liabilities, net				18,187			16,868
Deferred employee benefits and other long-term liabilities				3,108			3,159

		Total liabilities		84,180			89,670

Shareholders' equity:
	Common stock -- authorized 36,000,000 shares, $0.001 par value;
		18,213,363 and 18,093,879 shares issued at May 31, 2010
		and August 31, 2009, respectively; and 16,649,865 and
		16,530,381 shares outstanding at May 31, 2010 and
		August 31, 2009, respectively		18			18
	Additional paid-in capital			91,437			86,729
	Retained earnings			155,098			138,367
	Accumulated other comprehensive loss			(8,070)			(2,101)
	Common stock held in treasury, at cost -- 1,563,498 shares
		at May 31, 2010 and August 31, 2009		(50,066)			(50,066)

		Total shareholders' equity		188,417			172,947

		Total liabilities and shareholders' equity	$	272,597		$	262,617


WD-40 COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)


				Nine Months Ended May 31,
					2010		2009
Operating activities:
	Net income			$	29,207	$	18,665
	Adjustments to reconcile net income to net cash provided by
	operating activities:
		Depreciation and amortization			3,279		2,733
		Impairment of indefinite-lived intangible assets			-		2,760
		Net gains on sales and disposals of property and equipment			(57)		(48)
		Deferred income taxes			1,087		1,616
		Excess tax benefits from exercises of stock options and
			conversions of restricted stock units to common shares		(165)		(14)
		Stock-based compensation			2,275		2,174
		Unrealized foreign currency exchange losses (gains), net			1,037		(74)
		Provision for bad debts			59		625
		Equity losses from related party			-		435
		Changes in assets and liabilities:
			Trade accounts receivable		(4,115)		1,647
			Product held at contract packagers		(517)		332
			Inventories		788		548
			Other assets		459		(1,028)
			Accounts payable and accrued expenses and liabilities		6,963		(9,838)
			Accounts payable to related party		-		(320)
			Income taxes payable		(1,505)		1,678
			Deferred employee benefits and other long-term liabilities		(45)		(10)

			Net cash provided by operating activities		38,750		21,881

Investing activities:
	Capital expenditures				(1,326)		(2,666)
	Proceeds from sales of property and equipment				192		208

			Net cash used in investing activities		(1,134)		(2,458)

Financing activities:
	Repayments of long-term debt				(10,714)		(10,714)
	Dividends paid				(12,476)		(12,409)
	Proceeds from issuance of common stock				2,561		640
	Excess tax benefits from exercises of stock options and
		conversions of restricted stock units to common shares			165		14

			Net cash used in financing activities		(20,464)		(22,469)

Effect of exchange rate changes on cash and cash equivalents					(3,967)		(2,712)

Net increase (decrease) in cash and cash equivalents					13,185		(5,758)

Cash and cash equivalents at beginning of period					45,956		41,983

Cash and cash equivalents at end of period				$	59,141	$	36,225


WD-40 COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited and in thousands)



		Three Months Ended May 31,				Nine Months Ended May 31,
			2010		2009		2010		2009


Net income		$	9,117	$	6,897	$	29,207	$	18,665

Other comprehensive (loss) income:
	Equity adjustment from foreign currency
	translation, net of income taxes		(2,817)		5,247		(5,969)		(5,994)

Total comprehensive income		$	6,300	$	12,144	$	23,238	$	12,671