# DEAR SHAREHOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/NASDAQ_WDFC_2019/NASDAQ_WDFC_2019.mmd` · pages 11-17_

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DEAR SHAREHOLDERS,

We generated net sales of \(423.4 million for the fiscal year, an increase of 4 percent over the previous fiscal year. Changes in foreign currency exchange rates had an unfavorable impact of \)10.5 million on our consolidated net sales for fiscal year 2019; therefore, on a constant currency basis, net sales would have been up 6 percent over the previous fiscal year.

Our net income and diluted earnings per share were both down significantly in fiscal year 2019 due to a \(8.7 million reserve for an uncertain tax position that we recorded during the fourth quarter. Net income was \)55.9 million for the full fiscal year, reflecting a decrease of 14 percent over the previous fiscal year. Diluted earnings per share were \(4.02 compared to \)4.64 in the prior fiscal year. The good news is that this one-time charge and the high tax rate we experienced this fiscal year is not expected to carry into the future.

Because the effective tax rate for fiscal year 2019 was unusually high, it had a significant negative impact to our net income and diluted earnings per share. Therefore, we believe the Company's operating income is a better measure of our financial performance in fiscal year 2019. Our operating income was \(82.4 million for the full fiscal year, up from \)78.6 million or 5 percent, compared to last fiscal year.

## OUR 55/30/25 BUSINESS MODEL

Our discipline and diligence around our 55/30/25 business model remains a focus to help maintain control over our cost structure and ensure the Company's long-term financial health and stability. The model targets a gross margin of 55 percent of net sales, a cost of doing business of 30 percent of net sales, and an EBITDA of 25 percent of net sales. Our goal is to drive toward these long-term targets over time.

In fiscal year 2019, our gross margin remained relatively stable, though it did fall slightly to 54.9 percent from 55.1 percent last year. The price increases we have implemented over the last year or so across all three of our trade blocs helped stabilize gross margin and offset rising input costs. We will continue to be deliberate in how we manage our business for margin expansion over time, by leveraging opportunities around premiumization and new product introductions.

Although our cost of doing business percentage remained constant at 34 percent of net sales compared to last year, we do expect to see improvements to this measure over time as our revenues grow. Finally, our last measure, EBITDA, was also constant at 21 percent of net sales compared to last year.

## CREATING LONG-TERM VALUE

We continue to maintain a strong balance sheet while generating significant cash and solid stockholder returns. At the end of fiscal year 2019, our balance sheet remained solid. It's worth noting that we continued to repatriate amounts from our foreign offices throughout fiscal year 2019, and we used those funds for various activities in the United States, including share repurchases, dividend payments, and general operations.

Our capital allocation strategy remains firm and includes a comprehensive approach to balance investing in long-term growth while providing strong returns. During the fiscal year, we repurchased approximately 176,000 shares of our stock at a total cost of approximately \(29.6 million. In the second quarter of fiscal year 2019, our Board of Directors declared a 13 percent increase in our regular quarterly dividend, which marked the ninth consecutive year that we have increased our dividend. In total, we delivered a return on invested capital to stockholders of 27 percent in fiscal year 2019.

Our path remains clear and unwavering. WD-40 Company continues to pride itself on a strong financial foundation and prudent use of capital. As we move forward toward the future, our focus continues to be on returning capital to our shareholders and on further increasing the value of the Company for all our stakeholders.

![](images/11_1.jpg)

Jay W. Rembolt

Vice President, Finance, Treasurer and Chief Financial Officer