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WD 40 CO - 10-Q - 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, 2015, which was
filed with the Securities and Exchange Commission ("SEC") on October 22, 2015.



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, 2015, 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.

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Highlights



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

· Consolidated net sales decreased $2.7 million for the nine months ended May

31, 2016 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates had an unfavorable impact of $9.5

million on consolidated net sales for the nine months ended May 31, 2016

compared to the corresponding period of the prior fiscal year. Thus, on a

constant currency basis, net sales would have increased by $6.8 million from

period to period. Of the $9.5 million unfavorable impact from changes in

foreign currency exchange rates, $6.2 million came from our EMEA segment, which

accounted for 36% of our consolidated sales for the nine months ended May 31,

    2016.




· Consolidated net sales for the WD-40 Specialist product line were $15.3 million

which is a 10% increase for the nine months ended May 31, 2016 compared to the

corresponding period of the prior fiscal year. Although the WD-40 Specialist

product line is expected to provide the Company with long-term growth

opportunities, we will see some volatility in sales levels from period to

period due to the timing of promotional programs, the building of distribution,

    and various other factors that come with building a new product line.




· Gross profit as a percentage of net sales increased to 55.9% for the nine

months ended May 31, 2016 compared to 52.5% for the corresponding period of the

    prior fiscal year.




· Consolidated net income increased $5.3 million, or 16%, for the nine months

ended May 31, 2016 compared to the corresponding period of the prior fiscal

year. Changes in foreign currency exchange rates had an unfavorable impact of

$1.5 million on consolidated net income for the nine months ended May 31, 2016

    compared to the corresponding period of the prior fiscal year. Thus, on a
    constant currency basis, net income would have increased $6.8 million.




· Diluted earnings per common share for the nine months ended May 31, 2016 were

    $2.65 versus  $2.24 in the prior fiscal year period.




· Share repurchases continue to be executed under our current $75.0 million share

buy-back plan, which was approved by the Company's Board of Directors in

October 2014. During the period from September 1, 2015 through May 31, 2016,

     the Company repurchased 252,444 shares at an average price of $97.79
    per share, for a total cost of $24.7 million.




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.

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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):



                                               Three Months Ended May 31,
                                                                     Change from
                                                                     Prior Year
                                     2016          2015        Dollars        Percent
Net sales:
Maintenance products              $  86,560     $  81,512     $   5,048             6%

Homecare and cleaning products 9,886 10,973 (1,087)

      (10)%
Total net sales                      96,446        92,485         3,961             4%
Cost of products sold                41,635        43,213        (1,578)           (4)%
Gross profit                         54,811        49,272         5,539            11%
Operating expenses                   36,143        32,900         3,243            10%
Income from operations            $  18,668     $  16,372     $   2,296            14%
Net income                        $  12,665     $  10,965     $   1,700            16%
Earnings per common share -
diluted                           $    0.88     $    0.75     $    0.13            17%
Shares used in per share
calculations - diluted               14,349        14,615          (266)           (2)%



Net Sales by Segment



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





                      Three Months Ended May 31,
                                         Change from
                                          Prior Year
               2016        2015      Dollars     Percent
Americas     $ 49,878    $ 49,744    $   134            -
EMEA           32,922      30,335      2,587          9%
Asia-Pacific   13,646      12,406      1,240         10%
Total        $ 96,446    $ 92,485    $ 3,961          4%





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Americas



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





                                        Three Months Ended May 31,
                                                           Change from
                                                            Prior Year
                                 2016        2015       Dollars    Percent
Maintenance products           $ 43,306    $ 42,160    $  1,146         3%
Homecare and cleaning products    6,572       7,584      (1,012)      (13)%
Total                          $ 49,878    $ 49,744    $    134           -
% of consolidated net sales         52%         54%



Sales in the Americas segment, which includes the U.S., Canada and Latin
America, remained 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.

                                       23



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EMEA


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




                                       Three Months Ended May 31,
                                                           Change from
                                                           Prior Year
                                 2016        2015      Dollars    Percent
Maintenance products           $ 31,532    $ 28,758    $ 2,774        10%
Homecare and cleaning products    1,390       1,577       (187)      (12)%
Total (1)                      $ 32,922    $ 30,335    $ 2,587         9%
% of consolidated net sales         34%         33%






(1) While the Company's reporting currency is U.S. Dollar, the functional

currency of our U.K. subsidiary, the entity in which the EMEA results are

generated, is Pound Sterling. Although the functional currency of this

subsidiary is Pound Sterling, approximately 45% of its sales are generated in

Euro and 25% are generated in U.S. Dollar. As a result, the Pound Sterling

sales and earnings for the EMEA segment can be negatively or positively

impacted from period to period upon translation from these

currencies depending on whether the Euro and U.S. Dollar are weakening or

      strengthening against the Pound Sterling.




Sales in the EMEA segment, which includes Europe, the Middle East, Africa and
India, increased to $32.9 million, up  $2.6 million, or 9%, for the three months
ended May 31, 2016 compared to the corresponding period of the prior fiscal
year. Changes in foreign currency exchange rates had an unfavorable impact on
sales for the EMEA segment from period to period. Sales for the three months
ended May 31, 2016 translated at the exchange rates in effect for the
corresponding period of the prior fiscal year would have been $35.1 million in
the EMEA segment. Thus, on a constant currency basis, sales would have increased
by $4.8 million, or 16%, from period to period.



The countries in Europe where we sell through a direct sales force include the
U.K., Italy, France, Iberia (which includes Spain and Portugal) and the
Germanics sales region (which includes Germany, Austria, Denmark, Switzerland,
Belgium and the Netherlands). Overall, sales from direct markets increased $1.9
million, or 9%, for the three months ended May 31, 2016 compared to the
corresponding period of the prior fiscal year. We experienced sales increases
throughout most of the Europe direct markets for the three months ended May 31,
2016 compared to the corresponding period of the prior fiscal year, with
percentage increases in sales as follows: Iberia, 28%; Italy, 26%; the Germanics
region, 17%; and France, 10%. This overall sales increase in these direct
markets was primarily due to increased sales of the WD-40 multi-use product,
particularly in the Germanics region. Sales in the Germanics increased from
period to period due to a change in the distribution model for the
do-it-yourself (DIY) channel that we made for this region in fiscal year 2015.
 In the third quarter of fiscal year 2015, we shifted away from a
distribution model for this channel where we sold product through a large
wholesale customer who then supplied various retail customers to one where we
sell direct to these retail customers. Due to the successful build of our direct
customer base in this new model over the last twelve months, sales in this
region were positively impacted from period to period. The increased sales in
these regions were partially offset by a sales decrease of 6% in the U.K.
primarily due to decreased distribution of our 1001 brand in the retail channel
from period to period. Sales in the direct markets were positively impacted by
the strengthening of both the Euro and the U.S. Dollar relative to the Pound
Sterling from period to period. The average exchange rate for the Euro against
the Pound Sterling increased from 0.7266 to 0.7834, or 8%, and the average
exchange rate for the U.S. Dollar against the Pound Sterling increased from
0.6574 to 0.7026, or 7%, during the third quarter of fiscal year 2016 compared
to the same period in the prior fiscal year, which resulted in increased sales
in Pound Sterling from period to period. Also contributing to the overall sales
increase in the direct markets was increased sales of the WD-40 Specialist
product line of $0.6 million, or 49%, from period to period due to expanded
distribution. Sales from direct markets accounted for 68% of the EMEA segment's
sales for the three months ended May 31, 2016 compared to 67% of the EMEA
segment's sales for the corresponding period of the prior fiscal year.



The regions in the EMEA segment where we sell through local distributors include
the Middle East, Africa, India, Eastern and Northern Europe. Sales in the
distributor markets increased $0.7 million, or 7%, for the three months ended
May 31, 2016 compared to the corresponding period of the prior fiscal year
primarily due to an increase in sales in Russia and Ukraine. In the third
quarter of fiscal year 2015, we recorded no sales in Ukraine and only recorded
sales for Russia in the last month of the quarter due to unstable market
conditions. While the market conditions in Russia remain challenging, they have
begun

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to stabilize and sales to Russia increased by approximately 31% from period to
period. The distributor markets accounted for 32% of the EMEA segment's total
sales for the three months ended May 31, 2016, compared to 33% for the
corresponding period of the prior fiscal year.



Asia-Pacific



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



                                        Three Months Ended May 31,
                                                           Change from
                                                            Prior Year
                                 2016        2015      Dollars     Percent
Maintenance products           $ 11,722    $ 10,594    $ 1,128         11%
Homecare and cleaning products    1,924       1,812        112          6%
Total                          $ 13,646    $ 12,406    $ 1,240         10%
% of consolidated net sales         14%         13%



Sales in the Asia-Pacific segment, which includes Australia, China and other
countries in the Asia region, increased to $13.6 million, up  $1.2 million, or
10%, for the three months ended May 31, 2016  compared to the corresponding
period of the prior fiscal year. Changes in foreign currency exchange rates had
an unfavorable impact on sales for the Asia-Pacific segment from period to
period. Sales for the three months ended May 31, 2016 translated at the exchange
rates in effect for the corresponding period of the prior fiscal year would have
been $14.1 million in the Asia-Pacific segment. Thus, on a constant currency
basis, sales would have increased by $1.7 million, or 14%, from period to
period.



Sales in Asia, which represented 68% of the total sales in the Asia-Pacific
segment,  increased $1.2 million, or 16%, for the three months ended May 31,
2016 compared to the corresponding period of the prior fiscal year. Sales in the
Asia distributor markets increased $1.4 million, or 32%, from period to period
primarily attributable to the success of significant promotional programs for
the WD-40 multi-use product which were conducted during the third quarter of
fiscal year 2016 in the Asian distributor markets, particularly those in
Thailand, Malaysia, and Singapore. Also contributing to the overall change in
sales in the Asia distributor markets period over period was a quality issue
that occurred in the third quarter of fiscal year 2015 which required us to
record allowances to reverse $0.9 million in sales during that period. This
quality issue related to a defective aerosol can component that was contained in
one size of our WD-40 multi-use product which resulted in an inability to fully
evacuate the contents from the aerosol can. Sales in China decreased $0.2
million, or 5%, from period to period, primarily due to unfavorable impacts of
changes in foreign currency exchange rates. On a constant currency basis, sales
would have increased by 1% from period to period primarily due to increased
distribution and slightly higher sales levels resulting from promotional
activities.



Sales in Australia remained relatively constant at $4.3 million for both the
three months ended May 31, 2016 and 2015.  Changes in foreign currency exchange
rates had an unfavorable impact on Australia sales. On a constant currency
basis, sales would have increased by 5% for the three months ended May 31, 2016
compared to the corresponding period of the prior fiscal year primarily due to a
higher level of promotional activities and the continued growth of our base
business.



Gross Profit



Gross profit increased to $54.8 million for the three months ended May 31, 2016
compared to $49.3 million for the corresponding period of the prior fiscal year.
As a percentage of net sales, gross profit increased to 56.8% for the three
months ended May 31, 2016 compared to 53.3% for the corresponding period of the
prior fiscal year.



Gross margin was positively impacted by 2.0 percentage points for the three
months ended May 31, 2016 compared to the corresponding period of the prior
fiscal year due to favorable net changes in the costs of petroleum-based
specialty chemicals and aerosol cans in all three segments. There is often a
delay of one quarter or more before changes in raw material costs impact cost of
products sold due to production and inventory life cycles. The cost of crude oil
declined sharply in the second quarter of this fiscal year and this
significantly benefited our gross margin in the current quarter. Since the
beginning of the third quarter, the price of oil has steadily risen and has
increased by more than 60%. As a result of this recent trend, we do

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not expect to realize the same level of benefit in the fourth quarter.
Advertising, promotional and other discounts that we give to our customers
decreased from period to period positively impacting gross margin by 1.0
percentage point. In general, the timing of advertising, promotional and other
discounts may cause fluctuations in gross margin from period to period,
primarily in the Americas and Asia-Pacific segments. The costs associated with
certain promotional activities are recorded as a reduction to sales while others
are recorded as advertising and sales promotion expenses. Advertising,
promotional and other discounts that are given to our customers are recorded as
a reduction to sales, whereas advertising and sales promotional costs associated
with promotional activities that we pay to third parties are recorded as
advertising and sales promotion expenses.



Gross margin was also positively impacted by 0.1 percentage points for the three
months ended May 31, 2016 compared to the corresponding period of the prior
fiscal year due primarily to sales price increases implemented in the EMEA
segment over the last twelve months. In addition, gross margin was positively
impacted by 0.1 percentage points from period to period due to lower warehousing
and in-bound freight costs. Changes in foreign currency exchange
rates positively impacted gross margin by 0.6 percentage points primarily due to
the fluctuations in the exchange rates for the Euro and U.S. Dollar against the
Pound Sterling in our EMEA segment from period to period. In the EMEA segment,
the majority of our cost of goods sold is denominated in Pound Sterling whereas
sales are generated in Pound Sterling, Euro and the U.S. Dollar. The combined
effect of the strengthening of both the Euro and U.S. Dollar against the Pound
Sterling from period to period caused an increase in our sales, resulting in
favorable impacts to the gross margin. These favorable impacts to gross margin
were slightly offset by the combined effects of unfavorable sales mix changes
and other miscellaneous costs, which negatively impacted gross margin by 0.3
percentage points from period to period.



Note that our gross profit and gross margin may not be comparable to those of
other consumer product companies, since some of these companies include all
costs related to distribution of their products in cost of products sold,
whereas we exclude the portion associated with amounts paid to third parties for
shipment to our customers from our distribution centers and
contract manufacturers and include these costs in selling, general and
administrative expenses.  These costs totaled $4.2 million and $4.0 million for
the three months ended May 31, 2016 and 2015, respectively.




Selling, General and Administrative Expenses



Selling, general and administrative ("SG&A") expenses for the three months ended
May 31, 2016 increased $2.6 million, or 10%, to $29.2 million from $26.6 million
for the corresponding period of the prior fiscal year. As a percentage of net
sales, SG&A expenses increased to 30.3% for the three months ended May 31, 2016
from 28.8% for the corresponding period of the prior fiscal year. The increase
in SG&A expenses was primarily attributable to higher employee-related costs,
increased freight costs, and a higher level of expenses associated with travel
and meetings. Employee-related costs, which include salaries, incentive
compensation, profit sharing, stock-based compensation and other fringe
benefits, increased by $2.8 million. This increase was primarily due to higher
accruals for earned incentive compensation from period to period as well as
annual compensation increases, which take effect in the first quarter of the
fiscal year, and increased headcount. Freight costs associated with shipping
products to our customers increased $0.3 million primarily due to higher sales
volumes in the EMEA segment as a result of expanded distribution in the direct
markets from period to period. Travel and meeting expenses increased $0.3
million due to a higher level of travel expenses associated with various sales
meetings and activities in support of our strategic initiatives. Other
miscellaneous expenses, which primarily include bad debt expenses, sales
commissions and depreciation, increased by $0.1 million period over period.
These increases were partially offset by changes in foreign currency exchange
rates, which had a favorable impact of $0.9 million on SG&A expenses for the
three months ended May 31, 2016 compared to the corresponding period of the
prior fiscal year.



We continued our research and development investment, the majority of which is
associated with our maintenance products, in support of our focus on innovation
and renovation of our products. Research and development costs were $1.7 million
and $2.2 million for the three months ended May 31, 2016 and 2015,
respectively. Our research and development team engages in consumer research,
product development, current product improvement and testing activities. This
team leverages its development capabilities by partnering with a network of
outside resources including our current and prospective outsource suppliers. The
level and types of expenses incurred within research and development can vary
from period to period depending upon the types of activities being performed.

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Advertising and Sales Promotion Expenses



Advertising and sales promotion expenses for the three months ended May 31,
2016 increased $0.7 million, or 12%, to $6.2 million from $5.5 million for the
corresponding period of the prior fiscal year. As a percentage of net sales,
these expenses increased to 6.4% for the three months ended May 31, 2016 from
6.0% for the corresponding period of the prior fiscal year. The increase in
advertising and sales promotion expenses was primarily due to a higher level of
promotional programs and marketing support in the Asia-Pacific and Americas
segments from period to period. Changes in foreign currency exchange rates did
not have a material impact on advertising and sales promotion expenses for the
three months ended May 31, 2016 compared to the corresponding period of the
prior fiscal year. Investment in global advertising and sales promotion expenses
for fiscal year 2016 is expected to be close to 6.0% of net sales.



As a percentage of net sales, advertising and sales promotion expenses may
fluctuate period to period based upon the type of marketing activities we employ
and the period in which the costs are incurred. Total promotional costs recorded
as a reduction to sales for the three months ended May 31, 2016 were $3.5
million compared to $4.2 million for the corresponding period of the prior
fiscal year. Therefore, our total investment in advertising and sales promotion
activities totaled $9.7 million for each of the three months ended May 31,
2016 and 2015, respectively.




Amortization of Definite-lived Intangible Assets Expense

Amortization of our definite-lived intangible assets was $0.7 million and $0.8 million for the three months ended May 31, 2016 and 2015, respectively.

Income from Operations by Segment




The following table summarizes income from operations by segment (in thousands,
except percentages):



                                   Three Months Ended May 31,
                                                      Change from
                                                       Prior Year
                            2016        2015      Dollars     Percent
Americas                  $ 13,329    $ 13,542    $  (213)        (2)%
EMEA                         7,150       6,195        955         15%
Asia-Pacific                 3,875       2,372      1,503         63%

Unallocated corporate (1) (5,686) (5,737) 51 (1)%

                          $ 18,668    $ 16,372    $ 2,296         14%



(1) Unallocated corporate expenses are general corporate overhead expenses not

directly attributable to any one of the operating segments. These expenses

are reported separate from the Company's identified segments and are included

in Selling, General and Administrative expenses on the Company's condensed

      consolidated statements of operations.




Americas



Income from operations for the Americas segment decreased $0.2 million, or 2%,
for the three months ended May 31, 2016 compared to the corresponding period of
the prior fiscal year. Although sales remained relatively constant from period
to period and gross margin was higher in the third quarter of fiscal year 2016
as compared to the same quarter last year, the increase in gross margin was more
than offset by increased operating expenses from period to period. As a
percentage of net sales, gross profit for the Americas segment increased from
53.5% to 55.0% period over period. This increase in the gross margin was
primarily due to the combined positive impacts of decreased costs of
petroleum-based specialty chemicals and aerosol cans as well as lower level
of advertising, promotional and other discounts that we give to our customers,
both of which were partially offset by an increase in other miscellaneous
costs from period to period. Operating expenses increased $1.1 million mainly
related to higher employee-related expenses and research and development costs
period over period. Operating income as a percentage of net sales decreased from
27.2% to 26.7% period over period.

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EMEA



Income from operations for the EMEA segment increased $1.0 million, or 15%, for
the three months ended May 31, 2016 compared to the corresponding period of the
prior fiscal year primarily due to an increase in sales of $2.6 million and a
higher gross margin, both of which were partially offset by higher operating
expenses. As a percentage of net sales, gross profit for the EMEA segment
increased from 55.3% to 59.6% period over period primarily due to the combined
positive impacts of decreased costs of petroleum-based specialty chemicals and
aerosol cans, sales price increases and favorable impacts of fluctuations
in foreign currency exchange rates. These positive impacts were slightly offset
by an increase in other miscellaneous costs from period to period. The higher
level of sales from period to period was accompanied by a $1.9 million increase
in total operating expenses mainly related to higher accruals for earned
incentive compensation expenses period over period. Operating income as a
percentage of net sales increased from 20.4% to 21.7% period over period.



Asia-Pacific



Income from operations for the Asia-Pacific segment increased $1.5 million, or
63%, from period to period primarily due to an increase in sales of $1.2 million
and a higher gross margin. As a percentage of net sales, gross profit for the
Asia-Pacific segment increased from 47.5% to 56.7% period over period due to the
combined positive impacts of decreased costs of petroleum-based specialty
chemicals and aerosol cans and lower level of advertising, promotional and other
discounts that we give to our customers. Also contributing to the increased
gross margin from period to period was the write-off of product and other costs
related to a quality issue that occurred in the third quarter of fiscal year
2015 in the Asia distributor markets. The higher level of sales from period to
period in the Asia-Pacific segment was accompanied by a $0.3 million increase in
total operating expense. Operating income as a percentage of net sales increased
from 19.1% to 28.4% period over period.



Non-Operating Items



The following table summarizes non-operating income and expenses for our consolidated operations (in thousands):






                               Three Months Ended May 31,
                              2016          2015      Change
Interest income            $      186     $    113    $   73
Interest expense           $      433     $    343    $   90
Other expense              $      799     $    444    $  355
Provision for income taxes $    4,957     $  4,733    $  224



Interest Income


Interest income remained relatively constant for the three months ended May 31, 2016 compared to the corresponding period of the prior fiscal year.


Interest Expense



Interest expense increased $0.1 million for the three months ended May 31, 2016
compared to the corresponding period of the prior fiscal year primarily due to
higher interest rates and an increased outstanding balance on our revolving
credit facility period over period.



Other  Expense



Other expense increased by $0.4 million for three months ended May 31, 2016
compared to the corresponding period of the prior fiscal year primarily due to
higher net foreign currency exchange losses which were recorded for both the
three months ended May 31, 2016 and 2015 as a result of significant fluctuations
in the foreign currency exchange rates for both the Euro and U.S. Dollar against
the Pound Sterling.

                                       28


--------------------------------------------------------------------------------
Provision for Income Taxes



The provision for income taxes was 28.1% and 30.2% of income before income taxes
for the three months ended May 31, 2016 and 2015,  respectively. The decrease in
the effective income tax rate from period to period was driven by an increase
in taxable earnings from foreign operations, particularly those in the U.K.,
which are taxed at lower tax rates.



Net Income



Net income was $12.7 million, or $0.88 per common share on a fully diluted basis
for the three months ended May 31, 2016 compared to $11.0 million, or $0.75 per
common share on a fully diluted basis for the corresponding period of the prior
fiscal year. Changes in foreign currency exchange rates had an unfavorable
impact of $0.3 million on net income for the three months ended May 31, 2016
compared to the corresponding period of the prior fiscal year. Thus, on a
constant currency basis, net income would have increased by $2.0 million from
period to period.

                                       29



--------------------------------------------------------------------------------

Nine Months Ended May 31, 2016 Compared to Nine 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):



                                                Nine Months Ended May 31,
                                                                     Change from
                                                                     Prior Year
                                     2016          2015        Dollars        Percent
Net sales:
Maintenance products              $ 253,442     $ 253,005     $     437               -

Homecare and cleaning products 30,076 33,164 (3,088)

       (9)%
Total net sales                     283,518       286,169        (2,651)           (1)%
Cost of products sold               124,937       135,963       (11,026)           (8)%
Gross profit                        158,581       150,206         8,375             6%
Operating expenses                  104,862       100,610         4,252             4%
Income from operations            $  53,719     $  49,596     $   4,123             8%
Net income                        $  38,396     $  33,084     $   5,312            16%
Earnings per common share -
diluted                           $    2.65     $    2.24     $    0.41            18%
Shares used in per share
calculations - diluted               14,413        14,685          (272)           (2)%



Net Sales by Segment



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





                        Nine Months Ended May 31,
                                            Change from
                                            Prior Year
                2016         2015       Dollars     Percent
Americas     $ 139,832    $ 139,219    $    613            -
EMEA           100,634      103,605      (2,971)        (3)%
Asia-Pacific    43,052       43,345        (293)        (1)%
Total        $ 283,518    $ 286,169    $ (2,651)        (1)%





                                       30



--------------------------------------------------------------------------------



Americas



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





                                          Nine Months Ended May 31,
                                                              Change from
                                                              Prior Year
                                  2016         2015       Dollars     Percent
Maintenance products           $ 119,389    $ 116,887    $  2,502          2%
Homecare and cleaning products    20,443       22,332      (1,889)        (8)%
Total                          $ 139,832    $ 139,219    $    613            -
% of consolidated net sales          49%          49%



Sales in the Americas segment, which includes the U.S., Canada and Latin
America, increased to $139.8 million, up $0.6 million,  for the nine months
ended May 31, 2016 compared to the corresponding period of the prior fiscal
year. Changes in foreign currency exchange rates in Canada had an unfavorable
impact on sales for the Americas segment from period to period. Sales for the
nine months ended May 31, 2016 translated at the exchange rates in effect for
the corresponding period of the prior fiscal year would have been $140.8 million
in the Americas segment. Thus, on a constant currency basis, sales would have
increased by $1.6 million, or 1%, from period to period.



Sales of maintenance products in the Americas segment increased $2.5 million, or
2%, for the nine 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. and Latin America, which were both up 4%
from period to period. The sales increase in the U.S. was primarily due to a
higher level of promotional activities for all maintenance products and the
added distribution of our new WD-40 EZ Reach product. The sales increase in
Latin America was primarily due to the success of certain promotional programs
which were conducted in the second quarter of fiscal year 2016, primarily those
in Mexico and Chile, as well as the continued growth of the WD-40 multi-use
product throughout the Latin America region. The sales increases in the U.S. and
Latin America were partially offset by a sales decrease in Canada of 22%, 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 reduced activity in the oil industry. Sales in Canada were negatively
impacted by unfavorable changes in foreign currency. Also contributing to the
overall sales increase of maintenance products in the Americas segment was
higher sales of the WD-40 Specialist product line, which were up $0.3 million,
or 4%, from period to period due to new distribution during the nine months
ended May 31, 2016.



Sales of homecare and cleaning products in the Americas decreased $1.9 million,
or 8%, for the nine months ended May 31, 2016 compared to the corresponding
period of the prior fiscal year. This sales decrease was driven primarily by a
decrease in sales of Spot Shot carpet stain remover and 2000 Flushes automatic
toilet bowl cleaners, most of which is related to the U.S., of 17% and 4%,
respectively. 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.



For the Americas segment, 82% of sales came from the U.S., and 18% of sales came
from Canada and Latin America combined for the nine months ended May 31,
2016 compared to the distribution for the nine months ended May 31, 2015 when
81% of sales came from the U.S., and 19% of sales came from Canada and Latin
America.

                                       31



--------------------------------------------------------------------------------

EMEA



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




                                         Nine Months Ended May 31,
                                                             Change from
                                                              Prior Year
                                  2016         2015       Dollars    Percent
Maintenance products           $  96,152    $  98,354    $ (2,202)       (2)%
Homecare and cleaning products     4,482        5,251        (769)      (15)%
Total                          $ 100,634    $ 103,605    $ (2,971)       (3)%
% of consolidated net sales          36%          36%





Sales in the EMEA segment, which includes Europe, the Middle East, Africa and
India, decreased to $100.6 million, down $3.0 million, or 3%, for the nine
months ended May 31, 2016 compared to the corresponding period of the prior
fiscal year. Changes in foreign currency exchange rates had an unfavorable
impact on sales for the EMEA segment from period to period. Sales for the nine
months ended May 31, 2016 translated at the exchange rates in effect for the
corresponding period of the prior fiscal year would have been $106.8 million in
the EMEA segment. Thus, on a constant currency basis, sales would have increased
by $3.2 million, or 3%, for the nine months ended May 31, 2016 compared to the
corresponding period of the prior fiscal year.



The countries in Europe where we sell through a direct sales force include the
U.K., Italy, France, Iberia (which includes Spain and Portugal) and the
Germanics sales region (which includes Germany, Austria, Denmark, Switzerland,
Belgium and the Netherlands). Overall, sales from direct markets increased $2.2
million, or 4%, for the nine months ended May 31, 2016 compared to the
corresponding period of the prior fiscal year. We experienced sales increases
throughout most of the Europe direct markets for the nine months ended May 31,
2016 compared to the corresponding period of the prior fiscal year, with
percentage increases in sales as follows: Italy, 18%; the Germanics region, 10%;
and France and Iberia, each 2%. This overall sales increase in these direct
markets was primarily due to increased sales of the WD-40 multi-use product,
particularly in the Germanics as a result of a change in the distribution model
for that region. The increased sales in these regions were partially offset by a
sales decrease of 4% in the U.K. primarily due to decreased distribution of our
1001 brand in the retail channel from period to period.  Although the overall
sales in the Europe direct markets increased from period to period, sales in
this region were negatively impacted by the weakening of the Euro relative to
the Pound Sterling from period to period. The average exchange rate for the Euro
against the Pound Sterling decreased by 2% to 0.7487 during the first nine
months of fiscal year 2016 from 0.7632 for the same period in the prior fiscal
year, which resulted in decreased sales in Pound Sterling from period to
period. Also contributing to the overall sales increase in the direct markets
was increased sales of the WD-40 Specialist product line of $1.4 million, or
47%, from period to period due to expanded distribution.  Sales from direct
markets accounted for 65% of the EMEA segment's sales for the nine months ended
May 31, 2016 compared to 61% of the EMEA segment's sales for the corresponding
period of the prior fiscal year.



The regions in the EMEA segment where we sell through local distributors include
the Middle East, Africa, India, Eastern and Northern Europe. Sales in the
distributor markets decreased $5.2 million, or 13%, for the nine months ended
May 31, 2016 compared to the corresponding period of the prior fiscal year
primarily due to a 27% decrease in sales in Russia as a result of the unstable
market conditions in Eastern Europe which started in the third quarter of our
fiscal year 2015. Although the market conditions in Russia have begun to
stabilize, our sales have not returned to the levels that we experienced prior
to the third quarter of fiscal year 2015. The distributor markets accounted
for 35% of the EMEA segment's total sales for the nine months ended May 31,
2016, compared to 39% for the corresponding period of the prior fiscal year.

                                       32



--------------------------------------------------------------------------------
Asia-Pacific



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





                                        Nine Months Ended May 31,
                                                           Change from
                                                            Prior Year
                                 2016        2015      Dollars     Percent
Maintenance products           $ 37,901    $ 37,764    $   137            -
Homecare and cleaning products    5,151       5,581       (430)        (8)%
Total                          $ 43,052    $ 43,345    $  (293)        (1)%
% of consolidated net sales         15%         15%



Sales in the Asia-Pacific segment, which includes Australia, China and other
countries in the Asia region, decreased to $43.1 million, down  $0.3 million, or
1%, for the nine months ended May 31, 2016 compared to the corresponding period
of the prior fiscal year. Changes in foreign currency exchange rates had an
unfavorable impact on sales for the Asia-Pacific segment from period to period.
Sales for the nine months ended May 31, 2016 translated at the exchange rates in
effect for the corresponding period of the prior fiscal year would have been
$45.4 million in the Asia-Pacific segment. Thus, on a constant currency basis,
sales would have increased by $2.0 million, or 5%, from period to period.



Sales in Asia, which represented 72% of the total sales in the Asia-Pacific
segment,  increased $0.9 million, or 3%, for the nine months ended May 31, 2016
compared to the corresponding period of the prior fiscal year. Sales in the Asia
distributor markets increased $1.2 million, or 6%, from period to period,
primarily attributable to increased distribution resulting from the success of
certain significant promotional programs for the WD-40 multi-use product in the
Asian distributor markets, particularly those in Thailand and Malaysia. Sales in
China decreased $0.3 million, or 4%, from period to period, primarily due to
unfavorable impacts of changes in foreign currency exchange rates. On a constant
currency basis, sales would have increased by 1% from period to period primarily
due to increased distribution, particularly in Southern China, and slightly
higher sales levels resulting from promotional activities.



Sales in Australia decreased $1.2 million, or 9%, for the nine months ended May
31, 2016 compared to the corresponding period of the prior fiscal year.  Changes
in foreign currency exchange rates had an unfavorable impact on Australia sales.
On a constant currency basis, sales would have increased by 5% for the nine
months ended May 31, 2016 compared to the corresponding period of the prior
fiscal year primarily due to increased distribution and the continued growth of
our base business.

Gross Profit



Gross profit increased to $158.6 million for the nine months ended May 31,
2016 compared to $150.2 million for the corresponding period of the prior fiscal
year. As a percentage of net sales, gross profit increased to 55.9% for the nine
months ended May 31, 2016 compared to 52.5% for the corresponding period of the
prior fiscal year.



Gross margin was positively impacted by 2.6 percentage points for the nine
months ended May 31, 2016 compared to the corresponding period of the prior
fiscal year due to favorable net changes in the costs of petroleum-based
specialty chemicals and aerosol cans in all three segments. The combined effects
of favorable sales mix changes and other miscellaneous costs positively impacted
gross margin by 0.4 percentage points from period to period. This increase was
primarily due to a higher portion of sales in our EMEA segment being made to
higher margin direct markets during the nine months ended May 31, 2016 compared
to the corresponding period of the prior fiscal year. Sales price increases also
positively impacted gross margin by 0.3 percentage points from period to period.
These sales price increases were implemented in certain locations in the
Asia-Pacific segment in the third quarter of fiscal year 2015 and in the EMEA
segment over the last twelve months.



Advertising, promotional and other discounts that we give to our customers
decreased from period to period positively impacting gross margin by 0.2
percentage points. The decrease in such discounts was due to a lower percentage
of sales being subject to promotional allowances during the nine months ended
May 31, 2016 compared to the corresponding period in the prior fiscal year in
the Americas and Asia-Pacific segments. In addition, changes in foreign currency
exchange rates positively impacted gross margin by 0.1 percentage points
primarily due to the fluctuations in the exchange rates for the Euro and U.S.

                                       33



--------------------------------------------------------------------------------


Dollar against the Pound Sterling in our EMEA segment from period to period. In
the EMEA segment, the majority of our cost of goods sold is denominated in Pound
Sterling whereas sales are generated in Pound Sterling, Euro and the U.S.
Dollar. The net effect of the general strengthening of the U.S. Dollar against
the Pound Sterling and the weakening of the Euro against the Pound Sterling from
period to period caused a net increase in our sales in Pound Sterling, resulting
in favorable impacts to the gross margin. These favorable impacts to gross
margin were slightly offset by 0.2 percentage points due to increased
warehousing and in-bound freight costs, particularly in the Americas segment,
from period to period.



Note that our gross profit and gross margin may not be comparable to those of
other consumer product companies, since some of these companies include all
costs related to distribution of their products in cost of products sold,
whereas we exclude the portion associated with amounts paid to third parties for
shipment to our customers from our distribution centers and contract
manufacturers and include these costs in selling, general and administrative
expenses. These costs totaled $11.9 million and $11.8 million for the nine
months ended May 31, 2016 and 2015, respectively.




Selling, General and Administrative Expenses



Selling, general and administrative expenses for the nine months ended May 31,
2016 increased $4.3 million, or 5%, to $85.7 million from $81.4 million for the
corresponding period of the prior fiscal year. As a percentage of net sales,
SG&A expenses increased to 30.2% for the nine months ended May 31, 2016 from
28.5% for the corresponding period of the prior fiscal year. The increase in
SG&A expenses was primarily attributable to higher employee-related costs and
increased freight costs, both of which were partially offset by the favorable
impacts of changes in foreign currency exchange rates from period to period.
Employee-related costs, which include salaries, incentive compensation, profit
sharing, stock-based compensation and other fringe benefits, increased by $6.6
million. This increase was primarily due to higher accruals for earned incentive
compensation from period to period as well as annual compensation increases,
which take effect in the first quarter of the fiscal year, and increased
headcount. Freight costs associated with shipping products to our customers
increased $0.5 million primarily due to higher sales volumes in the EMEA segment
from period to period as well as additional costs associated with the shift in
the distribution model in the Germanics region in EMEA. These increases were
partially offset by changes in foreign currency exchange rates, which had a
favorable impact of $2.8 million on SG&A expenses for the nine months ended May
31, 2016 compared to the corresponding period of the prior fiscal year.



We continued our research and development investment, the majority of which is
associated with our maintenance products, in support of our focus on innovation
and renovation of our products. Research and development costs were $5.3 million
and $5.5 million for the nine months ended May 31, 2016 and 2015, respectively.



Advertising and Sales Promotion Expenses



Advertising and sales promotion expenses remained constant at  $16.9 million
for each of the nine months ended May 31, 2016 and 2015. As a percentage of net
sales, these expenses also remained constant at 5.9% for each of the nine months
ended May 31, 2016 and 2015. Although the overall advertising and sales
promotion expenses remained constant period over period, such expenses increased
by $0.5 million due to a higher level of promotional programs and marketing
support in the Americas and Asia-Pacific segments from period to period. These
increases were completely offset by a $0.5 million favorable impact of changes
in foreign currency exchange rates, particularly in the EMEA segment, from
period to period.



As a percentage of net sales, advertising and sales promotion expenses may
fluctuate period to period based upon the type of marketing activities we employ
and the period in which the costs are incurred. Total promotional costs recorded
as a reduction to sales for the nine months ended May 31, 2016 were  $11.6
million compared to $12.1 million for the corresponding period of the prior
fiscal year. Therefore, our total investment in advertising and sales promotion
activities totaled $28.5 million and  $29.0 million for the nine months ended
May 31, 2016 and 2015, respectively.



Amortization of Definite-lived Intangible Assets Expense

Amortization of our definite-lived intangible assets was $2.2 million and $2.3 million for the nine months ended May 31, 2016 and 2015.

                                       34



--------------------------------------------------------------------------------

Income from Operations by Segment



The following table summarizes income from operations by segment (in thousands,
except percentages):





                                    Nine Months Ended May 31,
                                                        Change from
                                                         Prior Year
                             2016         2015      Dollars     Percent
Americas                  $  35,003    $  34,367    $   636          2%
EMEA                         23,278       21,830      1,448          7%
Asia-Pacific                 12,767       10,536      2,231         21%

Unallocated corporate (1) (17,329) (17,137) (192) 1%

                          $  53,719    $  49,596    $ 4,123          8%


(1) Unallocated corporate expenses are general corporate overhead expenses not

directly attributable to any one of the operating segments. These expenses

are reported separate from the Company's identified segments and are included

in Selling, General and Administrative expenses on the Company's condensed

      consolidated statements of operations.




Americas



Income from operations for the Americas increased to $35.0 million, up $0.6
million, or 2%, for the nine months ended May 31, 2016 compared to the
corresponding period of the prior fiscal year, primarily due a higher gross
margin and an increase in sales of $0.6 million, both of which were
significantly offset by higher operating expenses. As a percentage of net sales,
gross profit for the Americas segment increased from 52.1% to 54.5% period over
period. This increase in the gross margin was primarily due to the positive
impacts of decreased costs of petroleum-based specialty chemicals and aerosol
cans, which were slightly offset by increased warehousing and in-house freight
costs from period to period. Operating expenses increased $3.0 million mainly
related to increased headcount and higher earned incentive compensation expenses
as well as research and development costs period over period. Operating income
as a percentage of net sales increased from 24.7% to 25.0% period over period.



EMEA



Income from operations for the EMEA segment increased to $23.3 million, up  $1.4
million, or 7%, for the nine months ended May 31, 2016 compared to the
corresponding period of the prior fiscal year primarily due to a higher gross
margin, which was partially offset by a $3.0 million decrease in sales and
higher operating expenses. As a percentage of net sales, gross profit for the
EMEA segment increased from 54.4% to 58.4% period over period primarily due to
the combined positive impacts of decreased costs of petroleum-based specialty
chemicals and aerosol cans, favorable sales mix changes and sales price
increases. In addition, fluctuations in foreign currency exchange rates had a
favorable impact on gross margin from period to period. Operating expenses
increased $0.9 million mainly related to higher earned incentive compensation
expenses period over period.  Operating income as a percentage of net sales
increased from 21.1% to 23.1% period over period.



Asia-Pacific



Income from operations for the Asia-Pacific segment increased to $12.8 million,
up $2.2 million, or 21%, for the nine months ended May 31, 2016 compared to
the corresponding period of the prior fiscal year, primarily due to a higher
gross margin, which was slightly offset by a $0.3 million decrease in sales. As
a percentage of net sales, gross profit for the Asia-Pacific segment increased
from 49.0% to 54.8% period over period due to the combined positive impacts of
decreased costs of petroleum-based specialty chemicals and aerosol cans, sales
price increases, and a lower level of advertising, promotional and other
discounts that we gave to our customers from period to period. Also contributing
to the increased gross margin from period to period was the write-off of product
and other costs related to a quality issue that occurred in the third quarter of
fiscal year 2015 in the Asia distributor markets. Operating income as a
percentage of net sales increased from 24.3% to 29.7% period over period.

                                       35



--------------------------------------------------------------------------------


Non-Operating Items


The following table summarizes non-operating income and expenses for our consolidated operations (in thousands):




                               Nine Months Ended May 31,
                              2016        2015       Change
Interest income             $    517    $    425    $    92
Interest expense            $  1,222    $    912    $   310

Other income (expense), net $ 470 $ (1,785) $ 2,255 Provision for income taxes $ 15,088 $ 14,240 $ 848


Interest Income


Interest income remained relatively constant for the nine months ended May 31, 2016 compared to the corresponding period of the prior fiscal year.


Interest Expense



Interest expense increased $0.3 million for the nine months ended May 31, 2016
compared to the corresponding period of the prior fiscal year primarily due to
higher interest rates and an increased outstanding balance on our revolving
credit facility period over period.



Other Income (Expense), Net



Other income (expense), net changed by $2.3 million for the nine months ended
May 31, 2016 compared to the corresponding period of the prior fiscal year
primarily due to net foreign currency exchange gains which were recorded for
the nine months ended May 31, 2016 compared to net foreign currency
exchange losses which were recorded in the same period of the prior fiscal year
as a result of significant fluctuations in the foreign currency exchange rates
for both the Euro and the U.S. Dollar against the Pound Sterling.



Provision for Income Taxes



The provision for income taxes was 28.2% and 30.1% of income before income taxes
for the nine months ended May 31, 2016 and 2015,  respectively. The decrease in
the effective income tax rate from period to period was driven by an increase
in taxable earnings from foreign operations, particularly those in the U.K.,
which are taxed at lower tax rates.



Net Income



Net income was $38.4 million, or $2.65 per common share on a fully diluted basis
for the nine months ended May 31, 2016 compared to $33.1 million, or $2.24 per
common share on a fully diluted basis for the corresponding period of the prior
fiscal year. Changes in foreign currency exchange rates had an unfavorable
impact of $1.5 million on net income for the nine months ended May 31, 2016
compared to the corresponding period of the prior fiscal year. Thus, on a
constant currency basis, net income would have increased by $6.8 million from
period to period.

                                       36



--------------------------------------------------------------------------------

Performance Measures and Non-GAAP Reconciliations




In managing our business operations and assessing our financial performance, we
supplement the information provided by our financial statements with certain
non-GAAP performance measures. These performance measures are part of
our current 55/30/25 rule, which includes gross margin, cost of doing business,
and earnings before interest, income taxes, depreciation and amortization
("EBITDA"), the latter two of which are non-GAAP performance measures. Cost of
doing business is defined as total operating expenses less amortization of
definite-lived intangible assets, impairment charges related to intangible
assets and depreciation in operating departments, and EBITDA is defined as net
income (loss) before interest, income taxes, depreciation and amortization.
Beginning in fiscal year 2016, we changed to this new 55/30/25 rule from our
previous 50/30/20 rule. This means that we now target our gross margin to be 55%
of net sales, our cost of doing business to be 30% of net sales, and our EBITDA
to be 25% of net sales. Results for these performance measures may vary from
period to period depending on various factors, including economic conditions and
our level of investment in activities for the future such as those related to
quality assurance, regulatory compliance, and intellectual property protection
in order to safeguard our WD-40 brand. The targets for these performance
measures are long-term in nature, particularly those for cost of doing business
and EBITDA, and we expect to make progress towards achieving them over time as
our revenues increase.



The following table summarizes the results of these performance measures for the
periods presented:











                                      Three Months Ended May 31,             Nine Months Ended May 31,
                                        2016               2015               2016               2015
Gross margin                                 57%                53%                56%                52%
Cost of doing business as a
percentage of net sales                      36%                34%                35%                34%
EBITDA as a percentage of net
sales (1)                                    20%                19%                21%                18%





(1) Percentages may not aggregate to EBITDA percentage due to rounding and

because amounts recorded in other income (expense), net on the Company's

      consolidated statement of operations are not included in the EBITDA
      calculation.




We use the performance measures above to establish financial goals and to gain
an understanding of the comparative performance of the Company from period to
period. We believe that these measures provide our shareholders with additional
insights into the Company's results of operations and how we run our
business. The non-GAAP financial measures are supplemental in nature and should
not be considered in isolation or as alternatives to net income, income from
operations or other financial information prepared in accordance with GAAP as
indicators of the Company's performance or operations. The use of any non-GAAP
measure may produce results that vary from the GAAP measure and may not be
comparable to a similarly defined non-GAAP measure used by other
companies. Reconciliations of these non-GAAP financial measures to our financial
statements as prepared in accordance with GAAP are as follows:




Cost of Doing Business (in thousands, except percentages)





                                      Three Months Ended May 31,           Nine Months Ended May 31,
                                        2016               2015               2016             2015

Total operating expenses - GAAP $ 36,143 $ 32,900 $

    104,862      $  100,610
Amortization of definite-lived
intangible assets                           (740)              (754)            (2,242)         (2,280)
Depreciation (in operating
departments)                                (671)              (649)            (2,048)         (1,981)
Cost of doing business             $      34,732      $      31,497      $     100,572      $   96,349
Net sales                          $      96,446      $      92,485      $     283,518      $  286,169
Cost of doing business as a
percentage of net sales                      36%                34%                35%             34%



                                       37



--------------------------------------------------------------------------------

EBITDA (in thousands, except percentages)







                                      Three Months Ended May 31,          

Nine Months Ended May 31,

                                        2016               2015               2016             2015
Net income - GAAP                  $      12,665      $      10,965      $      38,396      $   33,084
Provision for income taxes                 4,957              4,733             15,088          14,240
Interest income                             (186)              (113)              (517)           (425)
Interest expense                             433                343              1,222             912
Amortization of definite-lived
intangible assets                            740                754              2,242           2,280
Depreciation                                 842                823              2,651           2,544
EBITDA                             $      19,451      $      17,505      $      59,082      $   52,635
Net sales                          $      96,446      $      92,485      $     283,518      $  286,169
EBITDA as a percentage of net
sales                                        20%                19%                21%             18%









Liquidity and Capital Resources



Overview



The Company's financial condition and liquidity remain strong. Net cash provided
by operations was $44.2 million for the nine months ended May 31, 2016 compared
to $35.3 million for the corresponding period of the prior fiscal year. We
believe we continue to be well positioned to weather any uncertainty in the
capital markets and global economy due to our strong balance sheet and efficient
business model, along with our growing and diversified global revenues. We
continue to manage all aspects of our business including, but not limited to,
monitoring the financial health of our customers, suppliers and other
third-party relationships, implementing gross margin enhancement strategies and
developing new opportunities for growth.



Our principal sources of liquidity are our existing cash and cash equivalents,
short-term investments, cash generated from operations and cash currently
available from our existing $175.0 million revolving credit facility with Bank
of America, N.A. ("Bank of America"), which expires on May 13, 2020. To date, we
have used the proceeds of the revolving credit facility for our stock
repurchases and plan to continue using such proceeds for our general working
capital needs and stock repurchases under our board approved share buy-back
plan. During the nine months ended May 31, 2016, we had net borrowings of  $10.0
million U.S. dollars under the revolving credit facility. We regularly convert
existing draws on our line of credit to new draws with new maturity dates and
interest rates. As of May 31, 2016, we had a $118.0 million outstanding balance
on the revolving credit facility,  all of which was classified as long-term, and
there were no other letters of credit outstanding or restrictions on the amount
available on this line of credit. Per the terms of the revolving credit facility
agreement, our consolidated leverage ratio cannot be greater than three to one
and our consolidated interest coverage ratio cannot be less than three to one.
See Note 7 - Debt for additional information on these financial covenants. At
May 31, 2016, we were in compliance with all debt covenants as required by the
revolving credit facility and believe it is unlikely we will fail to meet any of
these covenants over the next twelve months. We would need to have a significant
decrease in sales and/or a significant increase in expenses in order for us to
not meet the debt covenants.



At May 31, 2016, we had a total of $110.1 million in cash and cash
equivalents and short-term investments. Of this balance, $104.4 million was held
in Europe, Australia and China in foreign currencies.  It is our intention to
indefinitely reinvest all current and future foreign earnings at these locations
in order to ensure sufficient working capital, expand operations and fund
foreign acquisitions in these locations. We believe that our future cash from
domestic operations together with our access to funds available under our
unsecured revolving credit facility will provide adequate resources to fund both
short-term and long-term operating requirements, capital expenditures, share
repurchases, dividend payments, acquisitions and new business development
activities in the United States. Although we hold a significant amount of cash
outside of the United States and the draws on the credit facility to date have
been made by our entity in the United States, we do not foresee any issues with
repaying or refinancing these loans with domestically generated funds since we
closely monitor the use of this credit facility.  In the event that management
elects for any reason in the future to repatriate some or all of the foreign
earnings that were previously deemed to be indefinitely reinvested outside of
the U.S., we would be required to record additional tax expense at the time when
we determine that such foreign earnings are no longer deemed to be indefinitely
reinvested outside of the United States.

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We believe that our existing consolidated cash and cash equivalents at May 31,
2016, the liquidity provided by our $175.0 million revolving credit facility and
our anticipated cash flows from operations will be sufficient to meet our
projected consolidated operating and capital requirements for at least the next
twelve months. We consider various factors when reviewing liquidity needs and
plans for available cash on hand including: future debt, principal and interest
payments, future capital expenditure requirements, future share repurchases,
future dividend payments (which are determined on a quarterly basis by the
Company's Board of Directors), alternative investment opportunities, debt
covenants and any other relevant considerations currently facing our business.



Cash Flows



The following table summarizes our cash flows by category for the periods
presented (in thousands):









                                                      Nine Months Ended May 31,
                                                  2016           2015         Change

Net cash provided by operating activities $ 44,159 $ 35,326

  $  8,833
Net cash used in investing activities            (19,520)       (13,884)    

(5,636)

Net cash used in financing activities            (29,899)       (29,674)    

(225)

Effect of exchange rate changes on cash and
cash equivalents                                  (1,263)        (2,654)    

1,391

Net decrease in cash and cash equivalents $ (6,523) $ (10,886)

 $  4,363



Operating Activities



Net cash provided by operating activities increased $8.9 million to $44.2
million for the nine months ended May 31, 2016 from $35.3 million for the
corresponding period of the prior fiscal year. Cash flows from operating
activities depend heavily on operating performance and changes in working
capital. Our primary source of operating cash flows for the nine months ended
May 31, 2016 was net income, which increased by $5.3 million from period to
period. The changes in our working capital from period to period were primarily
attributable to an overall increase in accounts payable and accrued liabilities
due to the timing of payments from period to period. Also contributing to the
change in working capital from period to period were lower earned incentive
payouts in the first quarter of fiscal year 2016 compared to the same period of
the prior fiscal year as well as higher accruals for earned incentive
compensation in the first nine months of fiscal year 2016 as compared to the
prior year period. In addition, the net cash provided by operating activities
was impacted by the overall increase in the trade accounts
receivable balance due to timing of payments received from our customers from
period to period.



Investing Activities



Net cash used in investing activities increased $5.6 million to $19.5 million
for the nine months ended May 31, 2016 from $13.9 million for the corresponding
period of the prior fiscal year primarily due to a net increase of 9.9 million
related to purchases of short-term investments that were made by our U.K. and
Australia subsidiaries. This increase was partially offset by a decrease of $3.7
million in cash outflow related to the GT85 Limited acquisition which was
completed by our U.K. subsidiary in the prior fiscal year and a decrease of $0.7
million in capital expenditures from period to period.



Financing Activities



Net cash used in financing activities increased $0.2 million to $29.9 million
for the nine months ended May 31, 2016 from $29.7 million for the corresponding
period of the prior fiscal year primarily due to a $1.5 million increase in
dividends paid and a $0.7 million decrease in proceeds from the issuance of
common stock upon the exercise of stock options from period to period. In
addition, there was a $1.2 million decrease in cash outflows for treasury stock
purchases from period to period.




Effect of Exchange Rate Changes



All of our foreign subsidiaries currently operate in currencies other than the
U.S. dollar and a significant portion of our consolidated cash balance is
denominated in these foreign functional currencies, particularly at our U.K.
subsidiary which operates in Pound Sterling. As a result, our cash and cash
equivalents balances are subject to the effects of the fluctuations in these
functional currencies against the U.S. dollar at the end of each reporting
period. The net effect of exchange rate changes

                                       39



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on cash and cash equivalents, when expressed in U.S. Dollar terms, was a
decrease in cash of $1.3 million and $2.7 million for the nine months ended May
31, 2016 and 2015, respectively. The change of $1.4 million was primarily due to
fluctuations in the foreign currency exchange rates for the Pound Sterling
against the U.S. Dollar and the Australian Dollar against the U.S. Dollar from
period to period.



Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements as defined by Item 303(a)(4)(ii) of Regulation S-K.



Commercial Commitments



We have ongoing relationships with various suppliers (contract
manufacturers) who manufacture our 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
our customers or third-party distribution centers in accordance with agreed upon
shipment terms. Although we typically do not have definitive minimum purchase
obligations included in the contract terms with our contract manufacturers, when
such obligations have been included, they have been immaterial. In the ordinary
course of business, we communicate supply needs to our contract manufacturers
based on orders and short-term projections, ranging from two to five months. We
are committed to purchase the products produced by the contract manufacturers
based on the projections provided.



Upon the termination of contracts with contract manufacturers, we obtain certain
inventory control rights and are 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, we are 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, we may also enter into commitments with other manufacturers
to purchase finished goods and components to support innovation initiatives
and/or supply chain initiatives. As of May 31, 2016, no such commitments were
outstanding.



Share Repurchase Plan



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 from March 1, 2015
through May 31, 2016, the Company repurchased 438,487 shares at a total cost of
$40.4 million under this $75.0 million plan.



On June 21, 2016, the Company's Board of Directors 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.



Dividends



On June 21, 2016, the Company's Board of Directors declared a cash dividend of
$0.42 per share payable on July 29, 2016 to shareholders of record on July 15,
2016. Our ability to pay dividends could be affected by future business
performance, liquidity, capital needs, alternative investment opportunities and
loan covenants.



Critical Accounting Policies



Our discussion and analysis of our operating results and financial condition is
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America.

                                       40



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Critical accounting policies are those that involve subjective or complex
judgments, often as a result of the need to make estimates. The following areas
all require the use of judgments and estimates: revenue recognition and sales
incentives, accounting for income taxes, valuation of goodwill and impairment of
definite-lived intangible assets. Estimates in each of these areas are based on
historical experience and various judgments and assumptions that we believe are
appropriate. Actual results may differ from these estimates.



Our critical accounting policies are discussed in more detail in Part II-Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and Note 2 to our consolidated financial statements contained in
our Annual Report on Form 10-K for the fiscal year ended August 31, 2015, which
was filed with the SEC on October 22, 2015.




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 finance 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

                                       41



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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.



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
2015, respectively, and $0.8 million and $0.7 million for the nine months ended
May 31, 2016 and 2015. Accounts receivable from Tractor Supply were $0.3 million
as of May 31, 2016.

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Source: Equities.com News (July 7, 2016 - 12:32 PM EDT)

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