Washington, D.C. 20549

(Mark One)



For the quarterly period ended May 31, 2016



For the transition period from to

Commission File Number : 000-06936

(Exact name of registrant as specified in its charter)



Registrant's telephone number, including area code: (619) 275-1400



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.



Yes   ☑     No   ☐



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ☑     No   ☐



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer   ☑         Accelerated filer   ☐   Non-accelerated filer   ☐        Smaller reporting company   ☐



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



Yes   ☐     No   ☑



The number of outstanding shares of the registrant's comm on stock, par value $0.001 per share, as of July 5 , 20 1 6 was 14, 236,540 .

WD-40 COMPANY

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended May 31, 2016



TABLE OF CONTENTS

















































































































WD-40 COMPANY



NOTES TO CONDENSED CONSOL IDATED FINANCIAL STATEMENTS (Unaudited)



Note 1.  The Company



WD-40 Company ("the Company"), based in San Diego, California, is a global marketing organization dedicated to creating positive lasting memories by developing and selling products which solve problems in workshops, factories and homes around the world. The Company markets its maintenance products and its homecare and cleaning products under the following well-known brands: WD-40®, 3-IN-ONE®, GT85®, X-14®, 2000 Flushes®, Carpet Fresh®, no vac®, Spot Shot®, 1001®, Lava® and Solvol®.  Currently included in the WD-40 brand are the WD-40 multi-use product and the WD-40 Specialist® and WD-40 BIKE® product lines. 



The Company's brands are sold in various locations around the world. Maintenance products are sold worldwide in markets throughout North, Central and South America, Asia, Australia and the Pacific Rim, Europe, the Middle East and Africa. Homecare and cleaning products are sold primarily in North America, the United Kingdom ("U.K.") and Australia. The Company's products are sold primarily through mass retail and home center stores, warehouse club stores, grocery stores, hardware stores, automotive parts outlets, sport retailers, independent bike dealers and industrial distributors and suppliers .



Note 2.  Basis of Presentation and Summary of Significant Accounting Policies



Basis of Consolidation



The condensed consolidated financial statements included herein have been prepared by the Company, without audit, according to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. The August 31, 2015 year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.



In the opinion of management, the unaudited financial information for the interim periods shown reflects all adjustments necessary for a fair statement thereof and such adjustments are of a normal recurring nature. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2015, which was filed with the SEC on October 22, 2015 .



The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.



Use of Estimates



The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year .



Foreign Currency Forward Contracts



In the normal course of business, the Company employs established policies and procedures to manage its exposure to fluctuations in foreign currency exchange rates. The Company's U.K. subsidiary, whose functional currency is Pound Sterling, utilizes foreign currency forward contracts to limit its exposure in converting accounts receivable and accounts payable balances denominated in non-functional currencies. The principal currency affected is the Euro. The Company regularly monitors its foreign currency exchange rate exposures to ensure the overall effectiveness of its foreign currency hedge positions. While the Company engages in foreign currency hedging activity to reduce its risk, for accounting purposes, none of its foreign currency forward contracts are designated as hedges .  



Foreign currency forward contracts are carried at fair value, with net realized and unrealized gains and losses recognized currently in other income (expense) in the Company's consolidated statements of operations. Cash flows from settlements of foreign currency forward contracts are included in operating activities in the consolidated statements of cash flows. Foreign currency forward contracts in an asset position at the end of the reporting period are included in other current assets, while foreign currency forward contracts in a liability position at the end of the reporting period are included in accrued liabilities in the Company's consolidated balance sheets .   At May 31, 2016 ,   the Company had a notional amount of $ 4 . 2 million outstanding in foreign currency forwar d contracts, which mature from June through Ju ly 2016. Unrealized net gains and losses related to foreign currency forward contracts were not significant at May 31, 2016 and August 31, 2015. Realized net gains and losses related to foreign currency forward contracts were not material for each of the three and nine month periods ended May 31 , 201 6 and 2015 .



Fair Value Measurements



Accounting Standards Codification ("ASC") 820, Fair Value Measurements and Disclosures , defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company categorizes its financial assets and liabilities measured at fair value into a hierarchy that categorizes fair value measurements into the following three levels based on the types of inputs used in measuring their fair value: 



Level 1:  Observable inputs such as quoted market prices in active markets for identical assets or liabilities;

Level 2:  Observable market-based inputs or observable inputs that are corroborated by market data; and

Level 3:  Unobservable inputs reflecting the Company's own assumptions.



Under fair value accounting, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. As of May 31, 2016 , the Comp any had no assets or liabilities that are measured at fair value in the financial statements on a recurring basis, with the exception of the foreign currency forward contracts, which are classified as Level 2 within the fair value hierarchy. The carrying values of cash equivalents, short-term investments and short-term borrowings are recorded at cost, which approximates their fair values primarily due to their short-term maturities and are classified as Level 2 within the fair value hierarchy. During the nine months ended May 31, 2016 , the Company did not record any significant nonrecurring fair value measurements for assets or liabilities in periods subsequent to their initial recognition .



Recently Issued Accounting Standards



In March 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-09, " Improvements to Employee Share-Based Payment Accounting". The amendments in this updated guidance include changes to simplify the Codification for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is permitted. The  Company is in the process of evaluating the potential impacts of this new guidance on its consolidated financial statements.



In February 2016, the FASB issued ASU No. 2016-02, " Leases". The new standard establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either financ e or operating, with classification affecting the pattern of expense recognition in the income statement. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted and should be applied using a modified retrospective approach. The  Company is in the process of evaluating the potential impacts of this new guidance on its consolidated financial statements and related disclosures.



In November 2015, the FASB issued ASU No. 2015-17, " Balance Sheet Classification of Deferred Taxes" , which requires that all deferred tax liabilities and assets be classified as noncurrent on the balance sheet, and eliminates the current requirement for an entity to separate these liabilities and assets into current and noncurrent amounts.  This guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted and may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods

presented. The Company plans to adopt this updated guidance as of the end of fiscal year 2016, which is expected to decrease reported total current assets. The Company does not expect the adoption of this guidance to have a significant impact on the Company's financial position, operations, or cash flows as there are currently no financial covenant calculations under the revolving credit facility that are impacted by reported amounts of current or noncurrent assets or liabilities.



In July 2015, the FASB issued ASU No. 2015-11, " Simplifying the Measurement of Inventory ", which simplifies the subsequent measurement of inventories valued under first-in, first-out ("FIFO") or the average cost method. Under this new guidance, inventory will be measured at the lower of cost and net realizable value, with net realizable value defined as the estimated selling price less reasonable costs to sell the inventory. This guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is permitted and should be applied prospectively. The Company has evaluated the potential impacts of this updated guidance, and it does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.



In May 2014, the FASB issued ASU No. 2014-09, " Revenue from Contracts with Customers ", which supersedes the revenue recognition requirements in ASC 605, " Revenue Recognition ".  The core principle of this updated guidance  and related amendments is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new rule also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.  This guidance was originally to be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. In July 2015, the FASB approved a one year deferral for the effective date of this guidance. Early adoption is permitted but only to the original effective date. The Company does not intend to adopt this guidance early and it will become effective for the Company on September 1, 2018. Companies are permitted to adopt this new rule following either a full or modified retrospective approach.  The Company has not yet decided which implementation method it will adopt. The Company is also in the process of evaluating the potential impacts of this updated authoritative guidance on its consolidated financial statements.



Note 3 .  Inventories



Inventories consist primarily of raw materials and components, finished goods, and product held at third-party contract manufacturers. Inventories are stated at the lower of cost or market and cost is determined based on a first-in, first-out method or, for a portion of raw materials inventory, the average cost method. Inventories consisted of the following (in thousands):





Note 4 .  Property and Equipment



Property and equipment, net, consisted of the following (in thousands):















Note 5 .  Goodwill and Other Intangible Assets



Goodwill



The following table summarizes the changes in the carrying amounts of goodwill by segment (in thousands):



During the second quarter of fiscal year 2016, the Company performed its annual goodwill impairment test. The annual goodwill impairment test was performed at the reporting unit level as required by the authoritative guidance. In accordance with ASU No. 2011-08, " Testing Goodwill for Impairment ", companies are permitted to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. The Company performed a qualitative assessment of each reporting unit to determine whether it was more likely than not that the fair value of a reporting unit was less than its carrying amount. In performing this qualitative assessment, the Company assessed relevant events and circumstances that may impact the fair value and the carrying amount of each of its reporting units. Factors that were considered included, but were not limited to, the following: (1) macroeconomic conditions; (2) industry and market conditions; (3) historical financial performance and expected financial performance; (4) other entity specific events, such as changes in management or key personnel; and (5) events affecting the Company's reporting units, such as a change in the composition of net assets or any expected dispositions. Based on the results of this qualitative assessment, the Company determined that it is more likely than not that the carrying value of each of its reporting units is less than its fair value and, thus, the two-step quantitative analysis was not required.  As a result, step two of the quantitative analysis was not required and the Company concluded that no impairment of its goodwill existed as of February 29, 2016 .



In addition, t here were no indicators of impairment identified as a result of the Company's review of events and circumstances related to its goodwill subsequent to February 29, 2016 , the date of its most recent annual goodwill impairment test . To date, there have been no impairment losses identified and recorded related to the Company's goodwill .

D efinite-lived Intangible Assets





T here were no indicators of potential impairment identified as a result of the Company's review of events and circumstances related to its existing definite-lived intangible assets for the quarter ended May 31 , 2016 .



Changes in the carrying amounts of definite-lived intangible assets by segment for the nine months ended May 31, 2016 are summarized below (in thousands):





The estimated amortization expense for the Company's definite-lived intangible assets in future fiscal years is as follows (in thousands):



Included in the total estimated future amortization expense is the amortization expense for the 1001 trade name and the GT85 intangible assets, which are based on current foreign currency exchange rates, and as a result amounts in future periods may differ from those presented due to fluctuations in those rates.





Note 6 . Accrued and Other Liabilities



Accrued liabilities consisted of the following (in thousands):

Accrued payroll and related expenses consisted of the following (in thousands):





Note 7. Debt



Revolving Credit Facility



On June 17, 2011, the Company entered into an unsecured credit agreement with Bank of America, N.A. ("Bank of America"). Since June 17, 2011, this unsecured credit agreement has been amended three times, most recently on November 16, 2015, (the "Third Amendment"). This Third Amendment increased the revolving commitment from an amount not to exceed $150.0 million to an amount not to exceed $175.0 million . The Third Amendment also increased the aggregate amount of the Company's capital stock that it may repurchase from $125.0 million to $150.0 million during the period from and including the Third Amendment effective date to the maturity date of the agreement so long as no default exists immediately prior and after giving effect thereto. This revolving credit facility matures on May 13, 2020 , and includes representations, warranties and covenants customary for credit facilities of this type, as well as customary events of default and remedies .  



Per the terms of the amended agreement, the Company and Bank of America may enter into an autoborrow agreement in form and substance satisfactory to Bank of America, providing for the automatic advance of revolving loans in U.S. Dollars to the Company's designated account at Bank of America. On February 10, 2016, the Company entered into an autoborrow agreement with Bank of America and this agreement has been in effect since that date. For the financial covenants , the definition of consolidated EBITDA includes the add back of non-cash stock-based compensation to consolidated net income when arriving at consolidated EBITDA. The terms of the financial covenants are as follows:



The amended agreement no longer contains the material adverse effect clause as an event of default. P rior to the removal of the material adverse effect clause as an event of default in the second amendment to the agreement, which was entered into by the Company in May 2015, all amounts outstanding under the revolving credit facility were classified as short-term on the Company's consolidated balance sheets as Bank of America could require the Company to immediately repay all amounts outstanding on the credit facility based on subjective factors. With the removal of the material adverse effect clause as an event of default, Bank of America can no longer require this immediate repayment of amounts outs tanding on the line of credit. As a result, the Company is permitted to classify draws on the line of credit as long-term provided that management has determined it has the ability and intent to refinance such draws on the line of credit for a peri od in excess of twelve months. The Company assesses its ability and intent associated with draws on the line of credit at the end of each reporting period in order to determine the proper balance sheet classification for amounts outstanding on the line of credit. Since the autoborrow feature provides for borrowings to be made and repaid by the Company on a daily basis, any such borrowings made under an active autoborrow agreement are classified as short-term on the Company's consolidated balance sheets.



During the nine months ended May 31, 2016 ,   the Company had net borrowings of $10 . 0 million U.S. dollars under the revolving credit facility. As of May 31, 2016, the Company had no balance under the autoborrow agreement. The Company regularly converts existing draws on its line of credit to new draws with new maturity dates and interest rates. As of May 31, 2016 , the Company had a $ 1 18.0 million outstanding balance on the revolving credit facility and was in compliance with all debt covenants under this credit facility. Based on management's ability and intent to refinance the short-term borrowings under the facility with successive short-term borrowings for a period of at least twelve months, the Company has classified the entire amount outstanding under the revolving credit facility as a long-term liability at May 31 , 2016 .



Note 8. Share Repurchase Plans 



On October 14, 2014, the Company's Board of Directors approved a share buy-back plan. Under the plan, which became effective at the beginning of the third quarter of fiscal year 2015, once the Company's previous $60.0 million plan was exhausted, the Company is authorized to acquire up to $75.0 million of its outstanding shares through August 31, 2016. The timing and amount of repurchases will be based on terms and conditions as may be acceptable to the Company's Chief Executive Officer and Chief Financial Officer and in compliance with all laws and regulations applicable thereto . During the period f rom March 1, 2015 through May 31 , 201 6 , the Company repurchased 438 , 487 shares at a total cost of $ 4 0 .4 million under this $75.0 million plan.



Note 9 .  Earnings per Common Share



The table below reconciles net income to net income available to common shareholders (in thousands):













The table below summarizes the weighted-average number of common shares outstanding included in the calculation of basic and diluted EPS (in thousands):













For the three months ended May 31 ,   201 6 ,   weighted-average stock-based equity awards outstanding that are non-participating securities in the amount of 1 , 090 were excluded from the calculation of diluted EPS under the treasury stock method as they were anti-dilutive. For the three months ended May 31 , 2015, there were no anti -dilutive stock-based equity awards outstanding.



For the nine months ended May 31, 2016 and 2015 ,   weighted-average stock-based equity awards outstanding that are non-participating securities in the amounts of 6 , 001 and 1 , 782 , respectively, were excluded from the calculation of diluted EPS under the treasury stock method as they were anti-dilutive.



Note 10 .  Related Parties



On October 11, 2011, the Company's Board of Directors elected Mr. Gregory A. Sandfort as a director of WD-40 Company. Mr. Sandfort is President and Chief Executive Officer of Tractor Supply Company ("Tractor Supply"), which is a WD-40 Company customer that acquires products from the Company in the ordinary course of business.



The condensed consolidated financial statements include sales to Tractor Supply of $0. 4 million and $0. 3 million for the three months ended May 31, 2016 and 201 5 , respectively, and $0.8 million and $0. 7 million for the nine months ended May 31, 2016 and 201 5 .   Accounts receivable from Tractor Supply were $0.3 million as of May 31, 2016 .



Note 11.  Commitments and Contingencies



Purchase Commitments



The Company has ongoing relationships with various suppliers (contract manufacturers) who manufacture the Company's products.  The contract manufacturers maintain title to and control of certain raw materials and components, materials utilized in finished products, and of the finished products themselves until shipment to the Company's customers or third-party distribution centers in accordance with agreed upon shipment terms.  Although the Company typically does not have definitive minimum purchase obligations included in the contract terms with its contract manufacturers, when such obligations have been included, they have been immaterial. In the ordinary course of business, supply needs are communicated by the Company to its contract manufacturers based on orders and short-term projections, ranging from two to five months. The Company is committed to purchase the products produced by the contract manufacturers based on the projections provided .  



Upon the termination of contracts with contract manufacturers, the Company obtains certain inventory control rights and is obligated to work with the contract manufacturer to sell through all product held by or manufactured by the contract manufacturer on behalf of the Company during the termination notification period. If any inventory remains at the contract manufacturer at the termination date, the Company is obligated to purchase such inventory which may include raw materials, components and finished goods. The amounts for inventory purchased under termination commitments have been immaterial .



In addition to the commitments to purchase products from contract manufacturers described above, the Company may also enter into commitments with other manufacturers to purchase finished goods and components to support innovation and renovation initiatives and/or supply chain initiatives . As of May 31, 2016 ,   no such commitments were outstanding.



Litigation



The Company is party to various claims, legal actions and complaints, including product liability litigation, arising in the ordinary course of business.

On May 31, 2012, a legal action was filed against the Company in a United States District Court, in Texas (IQ Products Company v. WD-40 Company). The complaint alleged that the Company wrongfully terminated a contract manufacturing relationship. IQ Products Company ("IQPC") also raised alleged safety concerns regarding a long-standing manufacturing specification related to the Company's products. On November 13, 2014, the Pipeline and Hazardous Materials Safety Administration ("PHMSA") of the Department of Transportation ("DOT") addressed a letter to IQPC to inform IQPC that it concluded an investigation and found no evidence of non-compliance with existing PHMSA regulations or an imminent public safety hazard posed by WD-40 Company products.

Pursuant to a court order, the dispute was submitted to arbitration. Following nine days of testimony and full briefing, a panel of three arbitrators issued their Interim Award and decision on the merits of the dispute on May 15, 2015. The arbitrators rejected all of IQPC's claims.  On August 14, 2015, the arbitrators issued a further Interim Award to declare that the Company is the prevailing party in the proceeding for purposes of awarding attorney's fees and costs. On November 19, 2015, the arbitrators issued a Final Award, incorporating each of the two Interim Awards and ordering IQPC to pay to the Company the sum of $1.5 million for attorney's fees and costs. On December 4, 2015, the Company filed a motion in the United States District Court in Texas to confirm the Final Award and for the entry of judgment for the award of fees and costs.

On September 24, 2015, IQPC filed an action in the United States District Court in New Jersey against the DOT and PHMSA alleging that the PHMSA failed to properly follow the applicable regulations when it previously investigated the manufacturing and required regulatory testing of the Company's products. The Company is not named as a party to this action, but IQPC continues to allege that the Company's products do not comply with the applicable regulation and that such alleged failure is evidence of a dangerous condition. The Company's position, supported by the PHMSA's prior investigation and conclusions noted above, is that all of the Company's aerosol products are properly manufactured and tested in accordance with the applicable regulation. The Company will monitor this pending litigation and the Company will take such action as may be necessary or appropriate to protect the Company's interests.

The Company does not believe that there is any reasonable possibility that these matters related to IQPC will have a materially negative impact on the Company's financial condition or results of operations.



Indemnifications



As permitted under Delaware law, the Company has agreements whereby it indemnifies senior officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company's request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company maintains Director and Officer insurance coverage that mitigates the Company's exposure with respect to such obligations. As a result of the Company's insurance coverage, management believes that the estimated fair value of these indemnification agreements is minimal . Thus, no liabilities have been recorded for these agreements as of May 31, 2016 .



From time to time, the Company enters into indemnification agreements with certain contractual parties in the ordinary course of business, including agreements with lenders, lessors, contract manufacturers, marketing distributors, customers and certain vendors. All such indemnification agreements are entered into in the context of the particular agreements and are provided in an attempt to properly allocate risk of loss in connection with the consummation of the underlying contractual arrangements. Although the maximum amount of future payments that the Company could be required to make under these indemnification agreements is unlimited, management believes that the Company maintains adequate levels of insurance coverage to protect the Company with respect to most potential claims arising from such agreements and that such agreements do not otherwise have value separate and apart from the liabilities incurred in the ordinary course of the Company's business. Thus, no liabilities have been recorded with respect to such indemnification agreements as of May 31, 2016 .

Note 12 .  Income Taxes



The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter.



The provision for income taxes was 28. 1 % and 30.2 % of income before income taxes for the three months ended May 31 , 201 6 and 201 5 , respectively, and 28 . 2 % and 30. 1 % of income before income taxes for the nine months ended May 31 ,   201 6 and 201 5 , respectively. The decrease in the effective income tax rate for both the three and nine months ended May 31, 2016, as compared to the same periods ended May 31, 2015 was driven by an increase in taxable earnings from foreign operations, particularly those in the U.K., which are taxed at lower tax rates.



The Company is subject to taxation in the U.S. and in various state and foreign jurisdictions. Due to expired statutes, the Company's federal income tax returns for years prior to fiscal year 201 3 are not subject to examination by the U.S. Internal Revenue Service. Generally, for the majority of state and foreign jurisdictions where the Company does business, periods prior to fiscal year 201 2 are no longer subject to examination. The Company has estimated that up to $ 0. 4 million of unrecognized tax benefits related to income tax positions may be affected by the resolution of tax examinations or expiring statutes of limitation within the next twelve months. Audit outcomes and the timing of settlements are subject to significant uncertainty.

Note 1 3 .  Business Segments and Foreign Operations



The Company evaluates the performance of its segments and allocates resources to them based on sales and operating income. The Company is organized on the basis of geographical area into the following three segments: the Americas; EMEA; and Asia-Pacific. Segment data does not include inter-segment revenues. Unallocated corporate expenses are general corporate overhead expenses not directly attributable to the operating segments and are reported separate from the Company's identified segments. The corporate overhead costs include expenses for the Company's accounting and finance, information technology, human resources, research and development, quality control and executive management functions, as well as all direct costs associated with public company compliance matters including legal, audit and other professional services costs.



Summary information about reportable segments is as follows (in thousands):









The Company's Chief Operating Decision Maker does not review assets by segment as part of the financial information provided and therefore, no asset information is provided in the above table.

Net sales by product group are as follows (in thousands):









Note 1 4 . Subsequent Event s



On J une 21 , 201 6 , the Company's Board of Directors declared a cash dividend of $0. 4 2 per share payable on July 29 , 201 6 to sh areholders of record on July 15 , 201 6 .



On June 21, 201 6 ,   the Company's Board of Directors also approved a new share buy-back plan. Under the plan, which will be effective from September 1, 2016 through August 31, 2018, the Company is authorized to acquire up to $75.0 million of its outstanding shares on terms and conditions as may be acceptable to the Company's Chief Executive Officer and Chief Financial Officer and in compliance with all laws and regulations applicable thereto .



Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations



As used in this report, the terms "we," "our," "us" and "the Company" refer to WD-40 Company and its wholly-owned subsidiaries, unless the context suggests otherwise. Amounts and percents in tables and discussions may not total due to rounding.



The following information is provided as a supplement to, and should be read in conjunction with, the unaudited condensed consolidated financial statements and notes thereto included in Part I ― Item 1 of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended August 31, 201 5 , which was filed with the Securities and Exchange Commission ("SEC") on October 2 2 , 201 5 .



In order to show the impact of changes in foreign currency exchange rates on our results of operations, we have included constant currency disclosures, where appropriate , in the Overview and Results of Operations sections which follow. Constant currency disclosures represent the translation of our current fiscal year revenues and expenses from the functional currencies of our subsidiaries to U.S. dollars using the exchange rates in effect for the corresponding period of the prior fiscal year. We use results on a constant currency basis as one of the measures to understand our operating results and evaluate our performance in comparison to prior periods. Results on a constant currency basis are not in accordance with accounting principles generally accepted in the United States of America ("non-GAAP") and should be considered in addition to, not as a substitute for, results prepared in accordance with GAAP.



Forward-Looking Statements



The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. This report contains forward-looking statements, which reflect the Company's current views with respect to future events and financial performance.



These forward-looking statements include, but are not limited to, discussions about future financial and operating results, including:  growth expectations for maintenance products; expected levels of promotional and advertising spending; plans for and success of product innovation, the impact of new product introductions on the growth of sales; anticipated results from product line extension sales; and forecasted foreign currency exchange rates and commodity prices.  These forward-looking statements are generally identified with words such as "believe," "expect," "intend," "plan," "could," "may," "aim," "anticipate," "estimate" and similar expressions. The Company undertakes no obligation to revise or update any forward looking statements .



Actual events or results may differ materially from those projected in forward-looking statements due to various factors, including, but not limited to, those identified in Part I ― Item 1A, "Risk Factors," in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 201 5 , and in the Company's Quarterly Reports on Form 10-Q, which may be updated from time to time.



Overview



The Company



WD-40 Company ("the Company"), based in San Diego, California, is a global marketing organization dedicated to creating positive lasting memories by developing and selling products which solve problems in workshops, factories and homes around the world. We market our maintenance products and our homecare and cleaning products under the following well-known brands: WD-40®, 3-IN-ONE®, GT85®, X-14®, 2000 Flushes®, Carpet Fresh®, no vac®, Spot Shot®, 1001®, Lava® and Solvol®.  Currently included in the WD-40 brand are the WD-40 multi-use product and the WD-40 Specialist® and WD-40 BIKE® product lines .



Our brands are sold in various locations around the world. Maintenance products are sold worldwide in markets throughout North, Central and South America, Asia, Australia and the Pacific Rim, Europe, the Middle East and Africa. Homecare and cleaning products are sold primarily in North America, the United Kingdom ("U.K.") and Australia. We sell our products primarily through mass retail and home center stores, warehouse club stores, grocery stores, hardware stores, automotive parts outlets, sport retailers, independent bike dealers and industrial distributors and suppliers .

Highlights



The following summarizes the financial and operational highlights for our business during the nine months ended May 31, 2016 :  















Our strategic initiatives and the areas where we will continue to focus our time, talent and resources in future periods include: (i) maximizing WD-40 multi-use product sales through geographic expansion and increased market penetration; (ii) leveraging the WD-40 brand by growing the WD-40 Specialist product line; (iii) leveraging the strengths of the Company through broadened product and revenue base; (iv) attracting, developing and retaining talented people; and (v) operating with excellence .

Results of Operations



Three Months Ended May 31, 2016 Compared to Three Months Ended May 31 , 2015



Operating Items



The following table summarizes operating data for our consolidated operations ( in thousands, except percentages and per share amounts):

Net Sales by Segment



The following table summarizes net sales by segment (in thousands, except percentages):











Americas



The following table summarizes net sales by product line for the Americas segment (in thousands, except percentages):



Sales in the Americas segment, which includes the U.S., Canada and Latin America, remain ed relatively constant at  $ 49.9 million and $49. 7 million for the three months ended May 31, 2016 and 2015, respectively . Changes in foreign currency exchange rates did not have a material impact on sales for the three months ended May 31, 2016 compared to the corresponding period of the prior fiscal year.



Sales of maintenance products in the Americas segment increased $ 1 .1 million, or 3 %, for the three months ended May 31, 2016 compared to the corresponding period of the prior fiscal year. This sales increase was mainly driven by higher sales of maintenance products in the U.S. of 5% from period to period, primarily due to the expanded distribution of our new WD-40 EZ Reach TM product, which was launched in the final quarter of fiscal year 2015. The sales increase in the U.S. was partially offset by a sales decrease in Canada of 16% from period to period . This decrease was due to lower sales associated with promotional programs, most of which was driven by unstable market and economic conditions, particularly in the industrial channel in Western Canada as a result of suppressed activity in the oil industry. Sales in Latin America were relatively constant from period to period .



Sales of homecare and cleaning products in the Americas segment decreased $1.0 million, or 13%, for the three months ended May 31, 2016 compared to the corresponding period of the prior fiscal year . This sale decrease was driven primarily by  a decrease in sales of Spot Shot carpet stain remover and 2000 Flushes automatic toilet bowl cleaners in the U.S., which were down 21% and 15%, respectively, from period to period. While each of our homecare and cleaning products continue to generate positive cash flows, we have continued to experience decreased or flat sales for many of these products primarily due to lost distribution, reduced product offerings, competition, category declines and the volatility of orders from and promotional programs with certain of our customers, particularly those in the warehouse club and mass retail channels. At May 31, 2016, the carrying value of definite-lived intangible assets associated with the Company's trade names for the homecare and cleaning products was $17.7 million, of which $9.5 million and $4.6 million were associated with the Spot Shot and 2000 Flushes trade names, respectively .



For the Americas segment, 84% of sales came from the U.S., and 16% of sales came from Canada and Latin America combined for the three months ended May 31, 2016 compared to the distribution for the three months ended May 31, 2015 when 82% of sales came from the U.S., and 18% of sales came from Canada and Latin America combined .

EMEA



The following table summarizes net sales by product line for the EMEA segment (in thousands, except percentages):