WD-40 Co (WDFC) 2012 Q4 法說會逐字稿

Good day everyone, and welcome to the WD-40 Company Fourth Quarter 2012 Earnings Release Conference.

Today's call is being recorded.

At this time, I'd like to turn the call over to Vice President of Corporate and Investor Relations for the WD-40 Company Ms. Maria Mitchell.

Please go ahead.

Thank you.

Good afternoon and thank you for joining us for our fourth quarter and fiscal year 2012 earnings call.

Today we are pleased to have Garry Ridge, President and CEO; and Jay Rembolt, Vice President and Chief Financial Officer.

This conference call 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 forward-looking statements, including the impact of commodity prices, impact of changes in foreign currency exchange rates, the impact of introducing new products and fluctuating global 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.

Readers are urged to carefully review these and other documents and to stay up-to-date with our most recent Company developments provided in the Investor Relations section of our website at WD40Company.com.

Our first-quarter fiscal year 2013 earnings call is scheduled for Tuesday, January 8, 2013.

I'd like to also let everyone know that we issued a correction press release moments ago, and it reads like this.

WD-40 Company today reported fourth quarter fiscal year 2012 sales and earnings.

The Company has noted a typographical error in its fiscal year 2013 guidance.

In the Company's guidance, it referenced fiscal year 2012 instead of 2013.

No other changes.

Garry will talk about this a little bit later if you have questions.

I will -- now I'm pleased to pass it along to Garry Ridge.

Thank you.

Good afternoon, everyone.

Thanks for joining us.

Today we reported net sales of $84.9 million for the fourth quarter of fiscal 2012, a decrease of 6% from Q4 last fiscal year.

Year-to-date, net sales were $342.8 million, an increase of 2% versus the full same period of fiscal year last year.

Net income in the fourth quarter was $9 million compared to $10.2 million in Q4 last fiscal year, a decrease of 12%.

Diluted earnings per share for the fourth quarter were $0.56, down from $0.61 from the same period last fiscal year.

Year-to-date, net income was $35.5 million, compared to $36.4 million in the same period last fiscal year.

Year-to-date, diluted earnings per share were $2.20, up from $2.14 for the same period last year.

We are disappointed with our results.

Our sales for the fourth quarter were down 6%, and only up 2% for the fiscal year.

We did see a shift in some of the sales expected in Q4 in fiscal 2012 into Q1 of fiscal year 2013, due to promotional timing of promotions in Asia and Europe.

Our gross margin in Q4 was 49.4%, up 120 basis points from the prior period, but below our 50% target.

With lower sales in the fourth quarter, our cost of doing business increased from our target of 30% in the prior year period to 32% in the most recent quarter.

In missing our 50/30 targets, we also missed our 20% EBITDA target, coming in at 17% for the current quarter.

Initiatives to improve our results did not fully offset the volatile market conditions we faced.

Growth from innovation did not offset the uncertainty and slowdown in Europe.

Price increases and cost of goods reduction initiatives implemented later in the fiscal year did not fully offset higher raw material and import costs, and unfavorable shifts in sales mix and unfavorable impact from changes in foreign currency exchange rates.

We also incurred significant increase in the expense in the transition to our new supply chain infrastructure in the Americas, which further unfavorably impacted our results.

While we did not yield the results we hoped for, we witnessed the power of our strategic initiatives.

The actions we put in motion did help us weather unfavorable conditions.

The launch of WD-40 Specialist product line helped the US mature market transition into a growth mode.

It also cushioned the European sales from the economic uncertainties and slowdown.

We began to see manufacturing savings in the second half of the year resulting from the North American Supply Chain Architect project, which will help cushion us against rising import costs in fiscal 2013.

While growth slowed a little in China, we dramatically grew our gross margin and contribution from that region as a result of our local manufacturing initiatives in China.

Market volatility may well be the new normal, but we do not accept it or sit idle in regards to the impact of this on our Company.

Let's further discuss our progress on the strategic initiatives and how they are helping address the challenges we face.

Strategic initiative number one is the maximize the WD-40 brand.

Last year, we said that we would continue to grow our markets, our current markets, and target new markets and research opportunities to start building the WD-40 foundation in emerging markets such as sub-Sahara Africa.

As promised, we did grow sales in the distributor markets in several markets in fiscal 2012, including the US, most markets in the Asia-Pacific region, as well as a few markets in eastern Europe.

In China, we made in-roads into the automotive channel and completed market research that indicates we are the number one brand in China for multi-use products.

We also completed a lot of preparation work in sub-Sahara Africa.

We have identified a number of markets in the region that are -- and are in discussions with potential new partners, and have started to process the intellectual property protection program.

In fiscal 2013, we will continue working on this initiative across the globe.

We plan to commence business in sub-Sahara Africa in the second half of fiscal year.

In Europe, we will be focusing on Russia, Turkey, Qatar, UAE, and the WD-40 Specialist product line introductions.

In China, we will identify regional and industry priorities to optimize our growth.

Key industries being considered include the auto trade, electronics, machinery, and automotive manufacturing.

Key regions include Chenzhou, Guangdong, Shanghai and others.

Strategic initiative number two -- be the global leader in the Company's product categories when they are prioritized platforms.

In fiscal year 2012, we launched additional products under the WD-40 Specialist product line in the United Kingdom, France, Germany, Italy, Canada, and the US, as well as into Asia and Latin America.

In fiscal year 2013, we'll be adding new products to the Specialist product line, with identified categories such as lubrication and rust.

Further research is under way for additional platforms and opportunities for the Specialist -- WD-40 Specialist product line.

As for Blue Works, we have realized that it carved the path for the launch of WD-40 Specialist product line.

Given potential end-user overlap, the two product lines will continue to be evaluated, and the ultimate future of the Blue Works brand will be determined in fiscal year 2013.

We have learned that the WD-40 brand and the power of its yellow shield has the greatest strength, and the WD-40 Specialist product line may be more appealing than Blue Works to the end-users in the future.

Strategic initiative number three, which is our strategic business relationships -- we did not find an acquisition opportunity that met our criteria in fiscal 2012, but we will continue to explore licensing and partnership arrangements to build product offerings for our next generation of WD-40 and 3-IN-ONE products.

Some products within the WD-40 Specialist line, WD-40 Bike and WD-40 Specialist Motorbike stem from alliances with key partners.

We are finding that strategic business relationships enable us to go to market faster with more expertise and less risk.

Strategic initiative number four, which is our global innovation efforts.

We created a new business unit called WD-40 Bike Company, LLC.

WD-40 Bike will be dedicated to solving cycling maintenance problems of riders, delivering WD-40-branded solutions that are easy to use, easy to find, provide good value, and will get the job done right.

The go-to-market strategy for WD-40 Bike is different from our traditional model and retail channels.

WD-40 Bike products are expected to start shipping in this November, and will include products that are specialized in cleaning, protecting, and lubricating bikes.

We will be actively engaging in the cyclist market, with event sponsorship, a dedicated WD-40 Bike tech support team, a WD-40 Bike tech van, and on-site bike wash and lube stations.

We will concentrate our efforts in covering trade channels where cyclists buy these products, such as independent bike dealers in the USA.

We have a similar project under way in the UK to develop a line of motorbike specialty products under the WD-40 Specialist line.

These products will meet maintenance and repair needs among motorcycle enthusiasts and mechanics for use in garage workshops and motorcycle race events.

We have high WD-40 brand awareness and reputation in those markets, and close relationships with key distributors.

We look forward to learning more from our market trials in early 2013 to evaluate the total potential of these new products and markets.

Strategic initiative number five, which is development of our people.

The past year has been one of consistent change and flux for our tribe members.

With the pipeline of products under WD-40 Specialist line, WD-40 Bike, and WD-40 Specialist Motorbike, we are creating new opportunities for our tribe members to develop and grow meaningfully.

We have also welcomed new tribe members in support of these initiatives.

We thank our tribe members for embracing change and working together as a team to help us reach our goals.

In fiscal 2012 we launched a project called Leadership Lab in the US and in other offices around the world.

Leadership Lab focuses -- is to focus to create an environment of learning where tribe members can develop talents and skills which will help them professionally and personally grow.

In fiscal 2013, we'll expand the program to more tribe members in more places and develop more advanced topics for the graduates of the program.

That completes an update on our strategic initiatives, so let's move on to the details of the fourth quarter results, starting with sales.

Multi-purpose maintenance products made up 83% of global sales in the fourth quarter, with the category down 5% in Q4 and up 3% year-to-date compared to the prior fiscal year periods.

By trading block, the Americas were up 7%, Europe was down 17%, and Asia-Pacific down 6% in Q4, compared to the prior-year quarter.

Globally, WD-40 brand sales were down 4% in Q4 and up 3% year to date.

Sales of the 3-IN-ONE brand were down 4% in Q4 and were flat year over year.

Higher sales of multi-purpose maintenance products in the Americas were driven by higher promotional activities in the US period-versus-period, as well as the distribution of the WD-40 Specialist product line and re-gained distribution of WD-40 multi-use product.

The growth in the US was partially offset by lower sales in Canada and Latin America.

Sales of the multi-purpose maintenance products decreased across Europe, with the exception of our distributor markets in eastern Europe.

The sales decline was primarily due to the adverse market and economic conditions which have existed throughout Europe since the beginning of our fiscal year 2012.

Conditions worsened in the second half of the fiscal year.

The Asia-Pacific region experienced the sales decline in the fourth quarter due to the lower sales in China, as the prior-year period included a large promotion that was not repeated in the current fourth quarter.

China sales were also negatively impacted by the slowdown in the economy and industrial activities in the second quarter of our half of fiscal year 2012.

Sales of multi-purpose maintenance products did grow in Australia and our Asia distributor markets in the fourth quarter.

Home care and cleaning products, including Spot Shot, 2000 Flushes, and Carpet Fresh No Vac, 1001, X-14, Lava and Solvol brands.

The portfolio made up 17% of global sales in the fourth quarter, with category sales down 14% in Q4 and down 2% year to date.

By trading block, sales of home care and cleaning products in the fourth quarter were down 15% in the Americas, 25% in Europe, and up 12% in Asia-Pacific.

Sales decline of home care and cleaning products in the Americas was driven by 2000 Flushes and Carpet Fresh products in the US and Canada.

Prior-year period sales of 2000 Flushes included a large promotion that was not repeated in the current fourth quarter, and sales of Carpet Fresh declined due to some lost distribution.

In Europe, sales of the 1001 brand declined following the reduced inventory levels at key accounts.

The decline period-versus-period also attributed to the partially strong period of the fourth quarter and heavy promotional activity last year.

Sales growth of home care and cleaning products in Asia-Pacific was driven by Carpet Fresh and Solvol sales in Australia.

Sales benefited from organic growth, the launch of new products, and increased distribution to key accounts.

Now let's look at our results by segment.

Our global sales benefited somewhat from price increases that were implemented to offset rising import costs.

The benefit was partially offset by unfavorable impact in foreign currency exchange rates, which reduced our sales by $1.7 million in the fourth quarter and $1 million year-to-date.

Our fiscal 2012 year-to-date results translated at last year's exchange rates, or what we term as constant currency basis, would have produced net sales of $86.6 million for the fourth quarter versus the $84.9 million.

Year-to-date sales in a constant currency would have been $343.8 million versus the actual of $342.8 million.

Now let's look a little more on the details in the Americas.

Sales in the Americas segment increased 1% in the fourth quarter and up 4% year-to-date versus the prior-year period.

The segment accounted for 55% of global sales in the fourth quarter, versus 51% in the prior-year period.

In the US, sales were up 5% in the fourth quarter, due to higher sales of WD-40 and Spot Shot brands.

WD-40 sales benefited from major promotional activities of our multi-use product, as well as new distribution from our new WD-40 Specialist product line.

Sales of Spot Shot benefited from a large promotion with a customer in the warehouse club channel, as well as higher sales within the grocery channel.

Increased sales of WD-40 and Spot Shot were partially offset by declines in other brands, particularly those mentioned before for lower sales, which were 2000 Flushes and Carpet Fresh.

Sales in Latin America decreased by 19% in the fourth quarter and 6% year-to-date, driven by declines in our multi-purpose products.

Sales in Latin America have been impacted by severe economic slowdown and other forces.

Mexico, one of our largest markets, has been impacted by the ongoing drug war and violence.

This turmoil created less demand for our products as we experienced less promotional activity.

In Argentina we experienced new import regulations, which created a temporary bottleneck in our ability to ship our concentrate into the region.

In Chile, transitional changes with our marketing distributor caused temporary disruption in the market volume.

Sales in Canada decreased 13% in the fourth quarter and 3% year-to-date.

They are partially attributed to the lower inventory and the replenishment orders of key accounts.

Now, on to our European segment.

Sales in Europe continued to be negatively impacted by the region's ongoing financial instability and uncertainty, lower value of the euro, and lower value of the euro currency.

Conditions worsened in the latter part of the second half of fiscal year, particularly in latter part of Q4.

European sales declined 17% in the fourth quarter, and declined 7% year-to-date as compared to the prior-year fiscal periods.

We sell into Europe through a combination of direct markets in certain countries, as well as through exclusive marketing distributors in other countries.

We have a direct sales force in the UK, Italy, France, Iberia -- which includes Spain and Portugal -- and in the markets we term as the Germanics, which include Germany, Austria, Denmark, Holland, Switzerland, Sweden, and the Netherlands.

Overall sales from the direct markets decreased 29% in the fourth quarter, and decreased 13% year-to-date compared to the prior-year periods.

All direct markets experienced decline, and accounted for 61% of the European sales in the fourth quarter, compared to 71% of the European segment sales in the prior fiscal year period.

Sales in our European distributor markets were impacted by similar conditions as our direct markets, but managed to grow in total due to strong sales in eastern Europe.

Sales in our European distributor markets increased 10% in the fourth quarter and 5% year-to-date.

Now we'll take a look at Asia-Pacific.

Sales in the Asia-Pacific segment were down 3% in the fourth quarter, but were up 18% year-to-date.

The segment accounted for 11% of global sales in Q4, the same as the prior-year fiscal period.

Asia-Pacific sales in the fourth quarter were negatively impacted by changes in foreign currency exchange rates, but overall benefited from that in the fiscal year.

Sales on a constant-currency basis would have produced net sales for the quarter of $9.6 million, which is flat to net sales in the prior-year quarter.

Year-to-date sales on a constant-currency basis would have been $47.9 million, versus the actual of $48.5 million.

Sales in Australia increased 7% in Q4 and 13% year-to-date compared to the prior fiscal year periods.

The sales growth was attributed to ongoing growth of our base business, as well as the launch of new products within the Solvol brand.

Although retail spending slowed in Australia in the second half of fiscal 2012, demand for our products continued at a steady pace.

There was also a favorable impact year-to-date from changes in foreign currency exchange rates.

On a constant currency basis, year-to-date sales in Australia would have increased $1.8 million, or 11% in fiscal year 2012 compared to the prior fiscal year.

Sales in China decreased 29% in the fourth quarter, but they grew 15% for the year.

The decrease in the fourth quarter was primarily due to the timing of promotional activities in China.

China promoted heavily in Q4 of fiscal 2011, and there were no comparable promotions in the current year's fourth quarter.

Our growth year-to-date is due to the ongoing growth of our base business and the higher level of orders during promotional programs that were conducted in the first and third quarters of the current fiscal year.

Sales through the rest of Asia increased by 10% in the fourth quarter and 24% year-to-date.

The increase was due to stable economic conditions and continued growth of the WD-40 multi-use product throughout the distributor markets, including those in Thailand, South Korea, and the Philippines.

That's it for the sales update.

Now over to Jay Rembolt, who will review the financials and details of our 50/30/20 measures.

Garry, thank you.

Just a reminder -- in addition to the information we'll present on this call, we suggest that you review our Form 10-Q -- or 10-K, excuse me, which will be filed on Monday, October 22.

Now let's look at the rest of the financials, but first we'll look at our 50/30/20 rule.

That's the measures that we use to guide our business.

As you may recall, the 50 represents gross margin, which we target to be at or above 50% of net sales.

The 30 represents the cost of doing business, which is our total operating expenses excluding depreciation and amortization.

Our target for that is 30% or less.

Finally, the 20 represents EBITDA.

If our gross margin is at or above 50% and our cost of business is 30% or less, our EBITDA will be at or above the 20% target.

EBITDA is earnings before interest, taxes, depreciation and amortization, and the descriptions and reconciliations of these non-GAAP measures are available in our 10-K and our investor presentations.

First, looking at our gross margin or the 50 in our 50/30/20 rule, our gross margin in the fourth quarter was 49.4%, compared to 48.2% in the prior fiscal year period.

The increase of 120 basis points in gross margin was primarily driven by price increases, some lower promotional discounts, and lower cost of goods in China.

The favorable impacts from these were partially offset by higher expenses related to our North American Supply Chain architecture project, as well as unfavorable impact from changes in foreign currency exchange rates, along with shifts in sales mix.

Looking at the higher input costs, overall we experienced a net unfavorable impact of 20 basis points in the quarter from our major input costs.

We had a favorable impact from lower cost of petroleum-based materials, but that was directly offset by a higher cost for aerosol cans period-versus-period.

The net 20 basis points of unfavorable impact was primarily due to the input costs, which include some raw materials relating to our home care and cleaning products, as well as some valves and other components.

Sales price increases are considered and implemented on a country-by-country basis to help offset the impact from increased input costs.

Period versus period, our gross margin improved by 170 basis points as a result of price increases implemented within the last 12 months.

Lower advertising and promotional discounts positively impacted our gross margin by 90 basis points.

A lower percentage of sales during the quarter was subject to promotional allowances compared to the prior-year quarter.

The cost of promotional activities such as sales incentives, trade promotions, cash discounts that we give to our customers are recorded as a reduction to sales.

The timing and magnitude of these may cause fluctuations in gross margin period to period.

Looking at our two major initiatives around cost savings, China and our North American supply chain, we experienced lower manufacturing costs from our local sourcing project in China, and this positively impacted our margin by 50 basis points in the fourth quarter.

While some of China's product continues to be produced and shipped from the US, a large portion of China's cost of goods sold in the fourth quarter was from the local China packager.

Our North American supply chain architecture project was commenced in the first quarter of fiscal 2012, with the goal to improve service delivery to our customers while reducing overall costs associated with our supply chain network.

During this transition we've incurred additional expenses to restructure our distribution center network and consolidate our third-party packaging facilities.

Since the third quarter, we've started realizing lower manufacturing costs from some of these packagers, which has positively impacted our gross margin by 30 basis points in the fourth quarter; however, this savings was more than offset by the additional transition costs, which had an impact of 110 basis points in the fourth quarter.

We anticipate having positive -- net positive impact from the project by the end of fiscal year 2013.

All other impacts combined negatively impacted our gross margin by 90 basis points in the fourth quarter.

We experienced unfavorable impact from changes in foreign currency exchange rates within our Europe segment, which had a negative impact on gross margin of 50 basis points.

Cost of goods are sourced in pounds sterling, while revenues are generated in euros, pounds sterling and the dollar.

Period versus period, the value of the euro deteriorated, causing revenues from euro-based countries to be worth less in sterling, thus eroding the gross margin in parts of our Europe segment.

All other miscellaneous impacts combined negatively impacted our gross margin by 40 basis points, and these stem primarily as a result of a higher mix of sales from our lower-margin distributor markets.

The gross margin year to date was 49.2%, compared to the 50% in the prior fiscal year.

The decrease of 80 basis points in gross margin was attributable to higher raw material and input costs, expenses related to the North American supply chain architecture project, unfavorable shifts in sales mix, as well as the unfavorable impact of foreign currency rates within the European segment.

Year-to-date, these impacts were only partially offset by the positive impact from selling-price increases and lower cost of goods from China.

Well, that completes the gross margin discussion.

Now we'll take a look at the 30, or our cost of doing business.

In the fourth quarter, the cost of doing business was 32% of net sales, compared to 30% in Q4 of the prior year.

Our goal is to have the cost of doing business to be at or below 30%.

Period versus period, our sales decreased by 6% in Q4, while our operating expenses declined by 1%, causing an increase to our cost of doing business percentage.

Year to date, the cost of doing business was 33% of net sales in both fiscal years 2012 and 2011.

Just to add some context to the makeup of our cost of doing business, approximately 75% comes from three areas -- first, our people -- the investments we make in our tribe; second, our investment in marketing and advertising and promotion activities, investments to make consumers aware of our products and make our products available and easy to buy; and third, freight, the cost of getting our products to our customers.

Year-to-date, people costs made up 39% of our cost of doing business; followed by investment in advertising and promotions, which made up 23%; and finally, freight costs made up 14%.

Now, a little bit more details on our SG&A.

In the quarter, it was $21.6 million versus $21.4 million in the prior fiscal year period.

As a percentage of net sales, it was 25.5% in Q4 versus 23.6% in the prior quarter.

We had higher employee costs of $0.3 million, due to higher compensation costs associated with annual merit increases, higher staffing levels, which were partially offset by lower stock-based compensation expense.

Other changes of note were freight expense, which was down $0.2 million versus the prior year, primarily due to the lower sales volume, and some professional service costs, which were up $0.2 million, due to increased legal expenses.

SG&A expense year-to-date was $88.9 million, compared to $87.3 million in the prior fiscal year.

As a percent of net sales, SG&A expense remained relatively constant, at 26% in both years.

Employee-related costs increased by $8 million due to annual compensation increases and higher staffing levels, and it was partially offset by lower bonus and stock-based compensation expense.

Professional service costs increased $0.6 million, primarily due to higher legal fees.

While we began experiencing improved freight optimization and savings resulting from the supply chain architecture project, our overall freight costs were up $0.5 million, due to higher diesel costs, as well as smaller order sizes.

Other miscellaneous expenses, which include broker sales commissions, meeting expenses, office overhead, and software support expenses and fees increased by $0.2 million period over period.

These increases were partially offset by lower research and development, new product development expenses, which decreased $0.3 million.

The change year over year is attributed to higher level of investment in fiscal 2011 related to the WD-40 Specialist development.

Changes in foreign currency exchange rates further decreased SG&A expenses by $0.2 million.

Advertising and sales promotion expense in Q4 was $6.2 million, compared to $6.6 in the prior-year period.

As a percentage of sales, A&P investment was 7.4%, compared to 7.2% in the prior-year period.

The decrease in advertising and sales promotion expenses was primarily due to the timing of promotional activities quarter versus quarter.

Year to date, advertising and sales promotion expense was $25.7 million, and it was $6 million higher than the prior year.

Advertising and sales promotion expense as a percent of sales was 7.5% in both 2012 and 2011.

The increase in advertising and sales promotional expense was primarily due to a higher level of advertising and promotional activities within our Asia-Pacific segment.

Our amortization of intangible assets remained relatively constant at $0.5 million in Q4, compared to $0.6 million in the prior-year quarter.

Year-to-date amortization was $2.1 million, compared to the $1.5 million in the prior fiscal year period.

The increase in amortization is related to our decision to reclassify our 2000 Flushes, our Spot Shot, and 1001 trade names from indefinite lived intangible assets to definite lived intangible assets.

That change was effective February 28, 2011, and amortization of these three trade names began on March 1, 2011.

The prior year-to-date period only included amortization of the Carpet Fresh export team names and the customer list acquired in the 1001 acquisition.

Total operating expenses in the current quarter were $28.3 million, versus $28.6 million in Q4 of last year.

Operating income in Q4 was $13.6 million, compared to $15.1 million in the prior-year quarter.

Year to date, total operating expenses were $116.8 million, versus $114 million in the prior-year period.

Operating income year to date was $51.7 million, compared to $54.1 million in the prior year.

EBITDA, the last of our 50/30/20 measures, was 17% of net sales in Q4, compared to 18% in the prior-year quarter.

Year-to-date EBITDA was 16% of net sales, compared to the 17% in the prior year.

We target EBITDA of 20% of net sales, but expect variations from time to time as sales, A&P investment, and other expenses fluctuate with the timing of our activities.

Our EBITDA percentage is also affected by investments we make for future growth.

The provision for income tax in Q4 was 33.1%, versus 31.9% in the prior fiscal year quarter.

The higher tax rate in the current quarter is mostly due to a change in liability for uncertain tax positions that are related to our international jurisdictions.

Year to date, the provision for income taxes was 30.3%, versus the 31.9% in the prior fiscal year.

Year to date, the provision for income tax -- the decrease in the provision of income tax -- was primarily due to a reduction in the state effective tax rate, as a result of a recent California tax law change.

The decrease was also attributable to the benefit of foreign earnings generated in low-tax-rate jurisdictions, a favorable change in liability for uncertain tax positions, and the increased benefit from the deduction for qualified domestic production activities.

Net income in Q4 was $9 million, versus $10.2 million in the prior-year quarter.

Changes in foreign currency exchange rates had an unfavorable impact on net income of $0.2 million.

Our current fiscal year fourth quarter results on a constant-currency basis would have produced net income of $9.2 million.

Diluted earnings per common share were $0.56 in Q4, compared to $0.61 in the prior fiscal year quarter.

Diluted shares outstanding decreased from 16.7 million shares to 15.9 million shares.

Year-to-date net income was $35.5 million, versus $36.4 million in the prior-year period.

Changes in foreign currency exchange rates had an unfavorable impact on net income of $0.2 million.

Our current year fiscal results on a constant-currency basis would have produced net income of $35.7 million.

Diluted earnings per common share were $2.20 year to date, compared to the $2.14 in the prior-year period, and our diluted shares outstanding decreased from 17 million to 16 million shares for the year.

Regarding the dividend, on October 5 the Board of Directors declared a quarterly cash dividend of $0.29 per share, payable on October 31, 2012, to shareholders of record on October 18, 2012.

Based on today's closing price of $51.34, the annualized dividend yield would be about 2.25%.

A look at our financial position at August 31, we have a solid foundation that we expect to be able to support our strategic initiatives and meet our working capital needs, as well as to help us weather any uncertainty in the capital markets and global economy.

Our strong balance sheet is supported by a large cash balance and low debt, and our growing and diversified revenues enable us to support cost savings initiatives, market expansion, and new product introductions.

Net cash provided by operations was $34.2 million for the fiscal year, compared to $30 million in fiscal 2011.

Our net cash position decreased from the end of the prior year, primarily due to our share repurchase activity.

Our net cash position at the end of fiscal 2012 was $24.7 million, compared to the $45.7 million at August 31, 2011.

Another item to note regarding our balance sheet is inventory.

Our transition to the new supply chain structure in North America has resulted in and will continue to result in higher levels of inventory than we've held in the past.

Our inventory increased by $12.2 million year to date, from $17.6 million at the end of fiscal year 2011 to $29.8 million at the end of Q4.

The increase in inventory is primarily attributed to purchases of product that we chose to make to support the North American supply chain architecture project.

Inventory at the end of 2012 also includes $3.6 million of product that we are obligated to purchase from one of our third-party contract manufacturers in relation -- in conjunction with their unanticipated termination of our business relationship with them.

Also contributing to the increase was inventory purchases to support the launch of the WD-40 Specialist product line in both the Americas and in Europe.

At the WD-40 Company, we focus on the balance between investing for the future growth and returning capital to our shareholders.

First, we provide cash to our shareholders through regular dividend payments.

We target our dividend payout ratio at 50% of net income, and recently increased our dividend by 7% in December of 2011.

In fiscal year 2012, our dividend payments totaled $18.2 million.

Another way we return capital to our shareholders is through share repurchase activity.

During fiscal year 2012, we acquired a little over 930,000 shares of our stock at a total cost of $39.8 million.

These shares were acquired under the two share repurchase plans effective during the fiscal year.

We completed purchases under the Company's prior $60 million share buyback plan in the first quarter, and our latest plan was approved by the Board of Directors on December 13 of 2011, and provides authorization to acquire up to $50 million of the Company's outstanding shares.

We expect to continue executing on this latest share repurchase program throughout the remainder of the year.

Finally, return on invested capital is another measure we track for shareholder value.

We are quite proud that our return on invested capital has been above our target of 20% in each of the last three years, particularly given the investments we've made in new products and markets to support our long-term growth.

In fact, the current year our ROIC was 23%.

Well, that completes the financial overview.

More information will be available in the 10-K, which will be filed again on Monday, October 22.

Now, back to Garry.

Thank you, Jay.

While we are disappointed with the results that concluded fiscal year 2012, we are very excited about the initiatives we have in place to improve our results in fiscal year 2013 and beyond.

We have never been better prepared to tackle new opportunities, grow our leadership position in our categories, and defend our business in the new normal of market volatility.

Our fiscal year 2013 guidance assumes sales and gross margin will benefit from our strategic initiatives, that we will experience some recovery and improvement in business conditions in Europe, and that foreign currency exchange rates will remain close to recent levels.

Our guidance does not assume material sales from our new WD-40 Bike Company or from WD-40 Specialist Motorbike initiative in Europe.

These specialty channels have a different sales model and customer base, and we recognize that the sales will build up maybe slower compared to our traditional multi-use product.

In fiscal year 2013, we expect our fiscal year net sales results to be in the range of $356 million to $370 million, or growth between 4% and 8% versus fiscal year 2012.

We project gross margin to be close to 50%.

We expect our global advertising and promotion investment to be in the change of 7% to 8% of net sales.

We expect net income to be between $36.5 and $38 million, which will achieve diluted EPS of between $2.31 and $2.40, assuming 15.8 million weighted average shares outstanding.

In summary, what did you hear from us on this call today?

You heard we were disappointed with our fiscal year 2012 results.

We grew sales globally by 2%, and fell below our gross margin cost of business targets.

Despite these sub-par results, we managed to grow our earnings per share from $2.14 in fiscal 2011 to $2.20 in fiscal 2012.

You heard that our strategic initiatives cushioned us against the unfavorable market conditions that we were poised against -- or put against in fiscal year 2013.

In fact, 2012 reflected the global economy.

You heard that we are actively developing new platforms and categories.

We have new products for WD-40's Specialist product line in fiscal 2013.

We are also just launching the WD-40 Bike Company in the US, and we're also launching a new section with WD-40 Specialist Motorbike in the UK.

You heard that WD-40 has been a good investment, yielding a return on invested capital of over 20% for the last three years, and in fact 23% in the last year.

You heard that we experienced sales growth -- we expect sales growth of between 4% and 8% for the upcoming fiscal year, and we are very excited about our future.

I reflected that today -- that business today is like sailing the best fleet of battleships I've ever had in the roughest seas with no predictable view of upcoming weather.

In closing, I'd like to share a simple truth with you and the tribe here at WD-40 Company.

It's from the great Mahatma Gandhi, who said the future depends on what you do today.

Thank you, WD-40 tribe, for your actions and commitment to make our fortress stronger and better, and thanks to our shareholders who have been on this journey.

That wraps up our end of the presentation.

We'd be pleased now to open the conference call to the questions.

(Operator Instructions)

Liam Burke, Janney Capital Markets.

Garry, could we talk a little bit more about Specialist?

You talked about gaining some traction.

Is it because you're in more countries, or is it because your earlier markets like the North America are beginning to show some measurable results?

Thanks, Liam.

Stage one of Specialist was specifically aimed at launching into the United States, and the majority of the growth that we got from Specialist in the first year came from our business in the US.

We see fiscal year 2013 adding to that as we (inaudible) gain momentum in the US.

And then we launched into Europe in -- we didn't start shipping there until Q2, but we got some good traction there.

So we are very pleased with the progress with Specialist.

The power of the shield has proven what we thought it might provide us with.

It's exciting, because we believe that with Specialist, we can move what were once -- what we used to call mature markets, and they are markets like the US and to a lesser extent Canada and Australia and the UK, into now developing markets again with growth, so it's a combination of both.

Okay, and just sort of staying on that line, you talked about your bike segment and your plans for that.

Do you see any other significant or do you see additional segments that you can penetrate like bike with a WD-40 specialized brand?

Well, yes.

That's really the whole basis, Liam, of our Specialist strategy.

One of the things we were concerned about a long time, and I think you and others who follow us would know, is, as we went out and, if you will, line-extended the WD-40 brand, we had a big ripe concern about how would it affect what we now call our multi-use product, the blue and yellow can.

So we kind of tippy-toed into this a little bit.

We went on a pilot, and the great thing we found in the first year is that it had very little or no impact on reduction of volume of the WD-40 MUP product, which gave us a renewed confidence of where we can take it.

Part of our plan going forward is developing in platforms or categories.

Our first category was rust and corrosion, which -- and lubrication -- which were the five or six products that we launched.

We'll be adding two or three SKUs to that in January.

Bike is another one.

The motor bike program that we're running in the UK is another one.

Then we've got a number of categories lined up behind that that we're going to dig into a little deeper.

But we would think that as time goes on, there would be a number of meaningful categories or platforms that can proudly wear the power of the yellow shield.

Okay, great.

Thanks, Garry.

Jay, real quick, did you give any sense as to what the tax rate will be in 2013?

I didn't share on the call, but we're targeting around 31.5%.

Great, thank you very much.

Thanks, Liam.

Joe Altobello, Oppenheimer.

Hi.

This is Christina in for Joe tonight.

Hi.

Hi.

I was just wondering if you could provide a little bit more color on the sales shift due to the promotion of timing promotions.

As we were coming into the fourth quarter, particularly in Europe, we felt that there would be a stronger end to the year than we had, and we didn't see the year end as we felt.

We did see some movement of some of our business out of Q4 into Q1 in two areas -- in Europe and in our distributor markets in Asia.

That is something that we weren't totally able to anticipate.

We can't -- we're not going to quantify it, but certainly we had -- when we were talking to you 90 days ago -- expected that we would have finished a little stronger in Europe, although we were saying all along that the year's going to depend on how Europe finishes, and it finished it a little softer than we would have liked it.

Jay?

Yes.

No, I think that's exactly right, Garry.

We had seen Europe being a little soft in that fourth quarter but not to the degree that we achieved.

Okay.

I was also wondering if you could talk a little about your guidance for gross margin next year, and what you think the North American supply chain initiative will -- how that will impact it.

We were targeting the 50%, at least that's -- in our guidance, that's what we've identified as kind of the area of margin.

Now internally, we've got a little bit higher target, and we'll see some savings begin in -- throughout the year in FY 2013 from that.

We haven't quantified the impact of the North American supply chain -- our expectations around that yet, or at least we haven't shared that.

Okay, great.

Thank you so much.

Thank you.

(Operator Instructions)

Eric Hollowaty, Stephens Inc.

Yes, thanks for taking my questions.

Jay, on the gross margin guidance for a moment, what can you tell us about your assumptions regarding tin plate and petroleum-based chemicals that are embedded in your guidance?

Yes, they're -- we're expecting them to be in ranges that aren't too different than where we see them today.

Okay.

All right.

Garry, wanted to go back to your--

I'm sorry, Eric, I've got a little bit of -- kind of an upside cushion if we see a little bit of lift in the prices, but it's really kind of current ranges and a little higher.

Okay, great.

Thanks, Jay.

Garry, I wanted to go back to your discussion about Specialist and a reference I believe you made during your prepared comments regarding Blue Works, and the -- I'm not sure if you were getting at the potential or the actual observance of cannibalization there.

But at any rate, my take-away from your comments was that you're re-evaluating the place of Blue Works within your portfolio, and I'm wondering if that's fair, and if you could expand a little bit more on that.

Sure, thanks.

Be happy to, Eric.

When we were initially looking at extending the WD-40 brand, we took the Blue Works brand and we branded it with the corporate logo of WD-40.

It was one of the ways that we could test to see whether the power of the corporate branding would -- what sort of power that would have.

What we've learned then as we've brought Specialist into line is the power of the shield is much greater than the power of the corporate logo.

As many of the end users may be the same, then we believe that we may see that Specialist will be the ultimate choice of those end users.

We also limited the distribution of Blue Works primarily into the wholesale industrial channel, where Specialist is now in not only the wholesale industrial channel, but it's in big box hardware and home improvement.

About 50% of our people who do repair, maintenance and overhaul in factories buy product from that trade channel.

We never took Blue Works intently to that trade channel.

We believe that we may see the shield, the power of the yellow shield, be the winner.

If it does go -- end up cannibalizing Blue Works, so be it, because it would be much wider spread.

Understood.

Any sense you could give us about relative margins of those products?

Are they comparable, or is one better or worse than the other?

Blue Works and Specialist are a comparable margin.

In some case -- there may be some variances SKU by SKU, but basically they're high-performing products.

The other great thing about -- that we've learned, too, about Specialist is, Specialist carries Smart Straw.

One of the things we've proven through this experiment as well is that Smart Straw is very desirable, particularly for the trade end users.

Right.

Okay, great.

Thanks, Garry, that's very helpful.

I'll get back in the queue.

(Operator Instructions)

That does conclude our question-and-answer session for today.

I'll turn it back over to you, Mr. Ridge, for any final or additional remarks.

Okay, thank you very much.

Thanks for joining us this afternoon.

Appreciate your interest, and we'll talk to you again early in the New Year.

Good afternoon.

Everyone, that does conclude our conference call.

Thank you all for your participation.