WD-40 (WDFC) 10-Q 2016 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 29, 2016

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-06936

WD-40 COMPANY

(Exact name of registrant as specified in its charter)

Delaware	95-1797918
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1061 Cudahy Place, San Diego, California	92110
(Address of principal executive offices)	(Zip code)

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 common stock, par value $0.001 per share, as of April 4, 2016 was 14,320,566.

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WD-40 COMPANY

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended February 29, 2016

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Income	5
	Condensed Consolidated Statement of Shareholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42
PART II —  OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 6.	Exhibits	45

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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
WD-40 COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share and per share amounts)
	February 29,		August 31,
	2016		2015
Assets
Current assets:
Cash and cash equivalents	$	42,310	$	53,896
Short-term investments		51,235		48,603
Trade and other accounts receivable, less allowance for doubtful
accounts of $446 and $491 at February 29, 2016
and August 31, 2015, respectively		70,821		58,750
Inventories		36,072		32,052
Current deferred tax assets, net		6,947		5,824
Other current assets		7,012		6,127
Total current assets		214,397		205,252
Property and equipment, net		11,221		11,376
Goodwill		95,903		96,409
Other intangible assets, net		20,914		22,961
Other assets		2,812		3,259
Total assets	$	345,247	$	339,257
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	17,469	$	17,128
Accrued liabilities		17,192		15,200
Accrued payroll and related expenses		11,410		13,357
Revolving credit facility, current		4,541		-
Income taxes payable		3,213		2,287
Total current liabilities		53,825		47,972
Revolving credit facility		118,000		108,000
Long-term deferred tax liabilities, net		24,419		23,145
Other long-term liabilities		2,350		2,282
Total liabilities		198,594		181,399
Commitments and Contingencies (Note 11)
Shareholders' equity:
Common stock ― authorized 36,000,000 shares, $0.001 par value;
19,602,908 and 19,546,888 shares issued at February 29, 2016 and
August 31, 2015, respectively; and 14,344,971 and 14,450,490 shares
outstanding at February 29, 2016 and August 31, 2015, respectively		20		20
Additional paid-in capital		143,512		141,651
Retained earnings		274,823		260,683
Accumulated other comprehensive income (loss)		(20,806)		(8,722)
Common stock held in treasury, at cost ― 5,257,937 and 5,096,398
shares at February 29, 2016 and August 31, 2015, respectively		(250,896)		(235,774)
Total shareholders' equity		146,653		157,858
Total liabilities and shareholders' equity	$	345,247	$	339,257
See accompanying notes to condensed consolidated financial statements.

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WD-40 COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except per share amounts)
	Three Months Ended				Six Months Ended
		February 29,		February 28,		February 29,		February 28,
		2016		2015		2016		2015
Net sales	$	94,550	$	97,331	$	187,072	$	193,684
Cost of products sold		42,188		46,098		83,302		92,750
Gross profit		52,362		51,233		103,770		100,934
Operating expenses:
Selling, general and administrative		28,692		27,360		56,540		54,784
Advertising and sales promotion		5,017		5,485		10,677		11,400
Amortization of definite-lived intangible assets		747		757		1,502		1,526
Total operating expenses		34,456		33,602		68,719		67,710
Income from operations		17,906		17,631		35,051		33,224
Other income (expense):
Interest income		183		178		331		312
Interest expense		(417)		(275)		(789)		(569)
Other income (expense), net		1,320		(1,443)		1,269		(1,341)
Income before income taxes		18,992		16,091		35,862		31,626
Provision for income taxes		5,323		4,758		10,131		9,507
Net income	$	13,669	$	11,333	$	25,731	$	22,119
Earnings per common share:
Basic	$	0.95	$	0.77	$	1.78	$	1.50
Diluted	$	0.94	$	0.76	$	1.77	$	1.49
Shares used in per share calculations:
Basic		14,386		14,636		14,395		14,652
Diluted		14,429		14,703		14,445		14,720
Dividends declared per common share	$	0.42	$	0.38	$	0.80	$	0.72
See accompanying notes to condensed consolidated financial statements.

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WD-40 COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited and in thousands)
	Three Months Ended				Six Months Ended
		February 29,		February 28,		February 29,		February 28,
		2016		2015		2016		2015
Net income	$	13,669	$	11,333	$	25,731	$	22,119
Other comprehensive loss:
Foreign currency translation adjustment		(9,421)		(1,950)		(12,084)		(8,246)
Total comprehensive income	$	4,248	$	9,383	$	13,647	$	13,873
See accompanying notes to condensed consolidated financial statements.

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WD-40 COMPANY
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited and in thousands, except share and per share amounts)
								Accumulated
				Additional				Other					Total
	Common Stock			Paid-in		Retained		Comprehensive		Treasury Stock			Shareholders'
	Shares	Amount		Capital		Earnings		Income (Loss)		Shares	Amount		Equity
Balance at August 31, 2015	19,546,888	$	20	$	141,651	$	260,683	$	(8,722)	5,096,398	$	(235,774)	$	157,858
Issuance of common stock under share-based
compensation plan, net of shares withheld for taxes	56,020				(1,571)									(1,571)
Stock-based compensation					1,889									1,889
Tax benefits from settlements of
stock-based equity awards					1,543									1,543
Cash dividends ($0.80 per share)							(11,591)							(11,591)
Acquisition of treasury stock										161,539		(15,122)		(15,122)
Foreign currency translation adjustment									(12,084)					(12,084)
Net income							25,731							25,731
Balance at February 29, 2016	19,602,908	$	20	$	143,512	$	274,823	$	(20,806)	5,257,937	$	(250,896)	$	146,653
See accompanying notes to condensed consolidated financial statements.

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WD-40 COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
	Six Months Ended
	February 29,		February 28,
	2016		2015
Operating activities:
Net income	$	25,731	$	22,119
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		3,311		3,247
Net gains on sales and disposals of property and equipment		(15)		(31)
Deferred income taxes		(407)		(1,046)
Excess tax benefits from settlements of stock-based equity awards		(1,544)		(587)
Stock-based compensation		1,889		1,636
Unrealized foreign currency exchange (gains) losses, net		(1,116)		1,745
Provision for bad debts		97		209
Changes in assets and liabilities:
Trade and other accounts receivable		(14,828)		(12,602)
Inventories		(4,858)		(408)
Other assets		(660)		2,332
Accounts payable and accrued liabilities		3,199		4,501
Accrued payroll and related expenses		(3,948)		(8,037)
Income taxes payable		3,346		318
Other long-term liabilities		84		100
Net cash provided by operating activities		10,281		13,496
Investing activities:
Purchases of property and equipment		(2,155)		(2,833)
Proceeds from sales of property and equipment		92		250
Acquisition of business		-		(3,705)
Purchases of short-term investments		(11,829)		(1,831)
Maturities of short-term investments		4,278		1,673
Net cash used in investing activities		(9,614)		(6,446)
Financing activities:
Treasury stock purchases		(15,122)		(14,551)
Dividends paid		(11,591)		(10,606)
Proceeds from issuance of common stock		708		856
Excess tax benefits from settlements of stock-based equity awards		1,544		587
Net proceeds from revolving credit facility		14,541		5,000
Net cash used in financing activities		(9,920)		(18,714)
Effect of exchange rate changes on cash and cash equivalents		(2,333)		(2,438)
Net decrease in cash and cash equivalents		(11,586)		(14,102)
Cash and cash equivalents at beginning of period		53,896		57,803
Cash and cash equivalents at end of period	$	42,310	$	43,701
See accompanying notes to condensed consolidated financial statements.

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WD-40 COMPANY

NOTES TO CONDENSED CONSOLIDATED 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’sproducts 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 forecasted cash 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.  

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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 February 29, 2016,  the Company had a notional amount of $6.1 million outstanding in foreign currency forward contracts, which mature from March through June 2016. Unrealized net gains and losses related to foreign currency forward contracts were not significant at February 29, 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 six month periods ended February 29, 2016 and February 28, 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 February 29, 2016, the Company 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 six months ended February 29, 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. Earlyadoption 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

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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 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 with the one year deferral. 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): 

	February 29,		August 31,
	2016		2015
Product held at third-party contract manufacturers	$	3,565	$	3,224
Raw materials and components		3,539		3,597
Work-in-process		480		141
Finished goods		28,488		25,090
Total	$	36,072	$	32,052

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Note 4.  Property and Equipment

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

	February 29,		August 31,
	2016		2015
Machinery, equipment and vehicles	$	16,126	$	15,585
Buildings and improvements		4,207		4,264
Computer and office equipment		3,931		3,895
Software		7,426		7,029
Furniture and fixtures		1,402		1,414
Land		264		282
Subtotal		33,356		32,469
Less: accumulated depreciation and amortization		(22,135)		(21,093)
Total	$	11,221	$	11,376

Note 5.  Goodwill and Other Intangible Assets

Goodwill

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

	Americas		EMEA		Asia-Pacific		Total
Balance as of August 31, 2015	$	85,532	$	9,667	$	1,210	$	96,409
Translation adjustments		(54)		(452)		-		(506)
Balance as of February 29, 2016	$	85,478	$	9,215	$	1,210	$	95,903

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 withASUNo. 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 ofeach reporting unitto determinewhether itwas more likely than not that the fair value of a reporting unitwas 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 werenot 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, the Company concluded that no goodwill impairment charges were required to be recorded.

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Definite-lived Intangible Assets

The Company’s definite-lived intangible assets, which include the 2000 Flushes, Spot Shot, Carpet Fresh, 1001 and GT85 trade names, the Belgium customer list, the GT85 customer relationships and the GT85 technology are included in other intangible assets, net in the Company’s condensed consolidated balance sheets. The following table summarizes the definite-lived intangible assets and the related accumulated amortization and impairment (in thousands):

	February 29,		August 31,
	2016		2015
Gross carrying amount	$	36,565	$	37,805
Accumulated amortization		(15,651)		(14,844)
Net carrying amount	$	20,914	$	22,961

There 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 February 29, 2016.

Changes in the carrying amounts of definite-lived intangible assets by segment for the six months ended February 29, 2016 are summarized below (in thousands):

	Americas		EMEA		Asia-Pacific		Total
Balance as of August 31, 2015	$	17,121	$	5,840	$	-	$	22,961
Amortization expense		(1,104)		(398)		-		(1,502)
Translation adjustments		-		(545)		-		(545)
Balance as of February 29, 2016	$	16,017	$	4,897	$	-	$	20,914

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

	Trade Names		Customer-Based		Technology
Remainder of fiscal year 2016	$	1,220	$	239	$	18
Fiscal year 2017		2,429		478		36
Fiscal year 2018		2,429		478		36
Fiscal year 2019		2,429		277		-
Fiscal year 2020		2,034		177		-
Thereafter		8,280		354		-
Total	$	18,821	$	2,003	$	90

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.

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Note 6. Accrued and Other Liabilities

Accrued liabilities consisted of the following (in thousands): 

	February 29,		August 31,
	2016		2015
Accrued advertising and sales promotion expenses	$	10,484	$	9,259
Accrued professional services fees		1,243		1,207
Accrued sales taxes		1,350		797
Accrued other taxes		306		246
Other		3,809		3,691
Total	$	17,192	$	15,200

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

	February 29,		August 31,
	2016		2015
Accrued incentive compensation	$	5,522	$	5,530
Accrued payroll		3,625		3,644
Accrued profit sharing		764		2,508
Accrued payroll taxes		1,057		1,189
Other		442		486
Total	$	11,410	$	13,357

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. In addition, 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 consolidated leverage ratio cannot be greater than three to one.  The consolidated leverage ratio means, as of any date of determination, the ratio of (a) consolidated funded indebtedness as of such date to (b) consolidated EBITDA for the most recently completed four fiscal quarters.

· The consolidated interest coverage ratio cannot be less than three to one.  The consolidated interest coverage ratio means, as of any date of determination, the ratio of (a) consolidated EBITDA for the most recently completed four fiscal quarters to (b) consolidated interest charges for the most recently completed four fiscal quarters.

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The amended agreement no longer contains the material adverse effect clause as an event of default. Prior 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 outstanding 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 period 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 six months ended February 29, 2016,  the Company had net borrowings of $14.5 million U.S. dollars under the revolving credit facility. Of the $14.5 million in net borrowings,  $2.5 million was under the new 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 February 29, 2016, the Company had a $122.5 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 intentto 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 $4.5 million outstanding under the revolving credit facility as a short-term liability and $118.0 million as a long-term liability at February 29, 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 from March 1, 2015 through February 29, 2016, the Company repurchased 347,582 shares at a total cost of $30.8 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):

	Three Months Ended				Six Months Ended
	February 29,		February 28,		February 29,		February 28,
	2016		2015		2016		2015
Net income	$	13,669	$	11,333	$	25,731	$	22,119
Less: Net income allocated to
participating securities		(87)		(68)		(162)		(130)
Net income available to common shareholders	$	13,582	$	11,265	$	25,569	$	21,989

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

	Three Months Ended				Six Months Ended
	February 29,		February 28,		February 29,		February 28,
	2016		2015		2016		2015
Weighted-average common
shares outstanding, basic		14,386		14,636		14,395		14,652
Weighted-average dilutive securities		43		67		50		68
Weighted-average common
shares outstanding, diluted		14,429		14,703		14,445		14,720

For the three months ended February 29,  2016,  weighted-average stock-based equity awards outstanding that are non-participating securities in the amount of 8,884 were excluded from the calculation of diluted EPS under the treasury stock method as they were anti-dilutive. For the three months ended February 28, 2015, there were no anti-dilutive stock-based equity awards outstanding.

For the six months ended February 29, 2016 and February 28, 2015,  weighted-average stock-based equity awards outstanding that are non-participating securities in the amounts of 8,457 and 2,673, 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 $0.1 million and $0.2 million for the three months ended February 29, 2016 and February 28, 2015, respectively, and $0.4 million for each of the six months ended February 29, 2016 and February 28, 2015.  Accounts receivable from Tractor Supply were not material as of February 29, 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. 

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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 innovationand renovationinitiatives and/or supply chain initiatives. As of February 29, 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 February 29, 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 February 29, 2016.

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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 28.0% and 29.6% of income before income taxes for the three months ended February 29, 2016 and February 28, 2015, respectively, and 28.3% and 30.1% of income before income taxes for the six months ended February 29, 2016 and February 28, 2015, respectively. The decrease in the effective income tax rate for both the three and six months ended February 29, 2016, as compared to the same periods ended February 28, 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 and the benefit received from the permanent extension of the research and experimentation tax credit. In December 2015, legislation was enacted which retroactively extends the research and experimentation tax credit on a permanent basis. As a result of this U.S. law change, the Company recorded a one-time tax benefit of $0.1 millionin the second quarter of fiscal year 2016, related to research activities incurred during fiscal year 2015. The ongoing benefit from this credit is reflected in the Company's estimated annual effective tax rate commencing in the second quarter of fiscal year 2016. 

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 2013 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 2012 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.

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Note 13.  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):

							Unallocated
For the Three Months Ended	Americas		EMEA		Asia-Pacific		Corporate (1)		Total
February 29, 2016:
Net sales	$	45,542	$	35,626	$	13,382	$	-	$	94,550
Income from operations	$	10,814	$	9,413	$	3,769	$	(6,090)	$	17,906
Depreciation and
amortization expense	$	1,061	$	514	$	67	$	8	$	1,650
Interest income	$	1	$	145	$	37	$	-	$	183
Interest expense	$	414	$	-	$	3	$	-	$	417
February 28, 2015:
Net sales	$	44,702	$	38,679	$	13,950	$	-	$	97,331
Income from operations	$	10,859	$	9,255	$	3,718	$	(6,201)	$	17,631
Depreciation and
amortization expense	$	1,032	$	513	$	61	$	8	$	1,614
Interest income	$	2	$	117	$	59	$	-	$	178
Interest expense	$	272	$	-	$	3	$	-	$	275
For the Six Months Ended
February 29, 2016:
Net sales	$	89,954	$	67,712	$	29,406	$	-	$	187,072
Income from operations	$	21,674	$	16,128	$	8,892	$	(11,643)	$	35,051
Depreciation and
amortization expense	$	2,141	$	1,024	$	131	$	15	$	3,311
Interest income	$	3	$	248	$	80	$	-	$	331
Interest expense	$	783	$	-	$	6	$	-	$	789
February 28, 2015:
Net sales	$	89,475	$	73,270	$	30,939	$	-	$	193,684
Income from operations	$	20,825	$	15,635	$	8,164	$	(11,400)	$	33,224
Depreciation and
amortization expense	$	2,060	$	1,055	$	116	$	16	$	3,247
Interest income	$	5	$	217	$	90	$	-	$	312
Interest expense	$	565	$	-	$	4	$	-	$	569

⁽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.

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.

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

	Three Months Ended				Six Months Ended
	February 29,		February 28,		February 29,		February 28,
	2016		2015		2016		2015
Maintenance products	$	84,641	$	86,589	$	166,882	$	171,493
Homecare and cleaning products		9,909		10,742		20,190		22,191
Total	$	94,550	$	97,331	$	187,072	$	193,684

Note 14. Subsequent Events

On March 22, 2016, the Company’s Board of Directors declared a cash dividend of $0.42 per share payable on April 29, 2016 to shareholders of record on April 15, 2016. 

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Item 2.  Management’s Discussion and Analysisof 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-ownedsubsidiaries, 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 necessary, 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 six months ended February 29, 2016:  

· Consolidated net sales decreased $6.6 million for the six months ended February 29, 2016 compared to the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates had an unfavorable impact of $6.7 million on consolidated net sales for the six months ended February 29, 2016 compared to the corresponding period of the prior fiscal year. Thus, on a constant currency basis, net sales would have increased by $0.1 million from period to period. Of the $6.7 million unfavorable impact from changes in foreign currency exchange rates, $4.0 million came from our EMEA segment, which accounted for 36% of our consolidated sales for the six months ended February 29, 2016. 

· Consolidated net sales for the WD-40 Specialist product line were $9.6 million which is an 11% increase for the six months ended February 29, 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 55.5% for the six months ended February 29, 2016 compared to 52.1% for the corresponding period of the prior fiscal year.

· Consolidated net income increased $3.6 million, or 16%, for the six months ended February 29, 2016compared to the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates had an unfavorable impact of $1.2 million on consolidated net income for the six months ended February 29, 2016 compared to the corresponding period of the prior fiscal year. Thus, on a constant currency basis, net income would have increased $4.8 million.

· Diluted earnings per common share for the six months ended February 29, 2016were $1.77 versus $1.49 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 February 29, 2016, the Company repurchased 161,539sharesat an average price of $93.59 pershare, for atotal cost of $15.1 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 February 29, 2016 Compared to Three Months Ended February 28, 2015

Operating Items

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

	Three Months Ended
	February 29,		February 28,		Change from Prior Year
	2016		2015		Dollars		Percent
Net sales:
Maintenance products	$	84,641	$	86,589	$	(1,948)		(2)%
Homecare and cleaning products		9,909		10,742		(833)		(8)%
Total net sales		94,550		97,331		(2,781)		(3)%
Cost of products sold		42,188		46,098		(3,910)		(8)%
Gross profit		52,362		51,233		1,129		2%
Operating expenses		34,456		33,602		854		3%
Income from operations	$	17,906	$	17,631	$	275		2%
Net income	$	13,669	$	11,333	$	2,336		21%
Earnings per common share - diluted	$	0.94	$	0.76	$	0.18		24%
Shares used in per share calculations - diluted		14,429		14,703		(274)		(2)%
					��

Net Sales by Segment

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

	Three Months Ended
	February 29,		February 28,		Change from Prior Year
	2016		2015		Dollars		Percent
Americas	$	45,542	$	44,702	$	840		2%
EMEA		35,626		38,679		(3,053)		(8)%
Asia-Pacific		13,382		13,950		(568)		(4)%
Total	$	94,550	$	97,331	$	(2,781)		(3)%

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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
	February 29,		February 28,		Change from Prior Year
	2016		2015		Dollars		Percent
Maintenance products	$	39,020	$	37,877	$	1,143		3%
Homecare and cleaning products		6,522		6,825		(303)		(4)%
Total	$	45,542	$	44,702	$	840		2%
% of consolidated net sales		48%		46%

Sales in the Americas segment, which includes the U.S., Canada and Latin America, increased to $45.5 million, up $0.8 million, or 2%, for the three months ended February 29, 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 three months ended February 29, 2016 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $45.9 million in the Americas segment. Thus, on a constant currency basis, sales would have increased by $1.2 million, or 3%, from period to period.

Sales of maintenance products in the Americas segment increased $1.1 million, or 3%, for the three months ended February 29, 2016 compared to the corresponding period of the prior fiscal year.  This sales increase was mainly driven by higher sales of maintenance products in Latin America and the U.S., which increased 23% and 3%, respectively, from period to period. The sales increase in Latin America wasprimarily due to the timing of customer orders and the success of certain promotional programs for the WD-40 multi-use product which were conducted in the second quarter of fiscal year, particularly those in Mexico and Chile. 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 TM product, which was launched in the last quarter of fiscal year 2015. The sales increases in Latin America and the U.S. were partially offset by a sales decrease in Canada of 32% from period to period. The decrease in Canada was primarily due to an unfavorable impact of changes in foreign currency exchange rates from period to period and lower sales associated with promotional programs 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. 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 12%, from period to period due to increased promotional activities and new distribution during the three months ended February 29, 2016.

Sales of homecare and cleaning products in the Americas segment decreased $0.3 million, or 4%, for the three months ended February 29, 2016 compared to the corresponding period of the prior fiscal year. This sale decrease was driven primarily by an 18% decrease in sales of Spot Shot, primarily in the U.S., which was partially offset by a 5% increase in sales of the 2000 Flushes automatictoilet bowl cleaners. 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 February 29, 2016, the carrying value of definite-lived intangible assets associated with the Company’s trade names for the homecare and cleaning products was $18.1 million, of which $9.7 million and $4.9 million were associated with the Spot Shot and 2000 Flushes trade names, respectively.

For the Americas segment, 81% of sales came from the U.S., and 19% of sales came from Canada and Latin America combined for both the three months ended February 29, 2016 and February 28, 2015. 

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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
	February 29,		February 28,		Change from Prior Year
	2016		2015		Dollars		Percent
Maintenance products	$	33,878	$	36,644	$	(2,766)		(8)%
Homecare and cleaning products		1,748		2,035		(287)		(14)%
Total (1)	$	35,626	$	38,679	$	(3,053)		(8)%
% of consolidated net sales		38%		40%

(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% ofits sales are generated in Euroand 25% aregenerated in U.S. Dollar. As a result, the Pound Sterling sales and earningsfor the EMEA segment can be negatively or positively impacted from period to periodupontranslationfrom these currenciesdepending 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, decreased to $35.6 million, down  $3.1 million, or 8%, for the three months ended February 29, 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 February 29, 2016 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $37.5 million in the EMEA segment. Thus, on a constant currency basis, sales would have decreased by $1.2 million, or 3%, 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 $0.3 million, or 1%, for the three months ended February 29, 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 February 29, 2016 compared to the corresponding period of the prior fiscal year, with percentage increases in sales as follows: the Germanics region and Iberia, each 9%; Italy, 5%; and France, 2%. This overall sales increase in these direct markets was primarily due to increased sales of the WD-40 multi-use product and WD-40 Specialist product line from period to period due to new distribution, particularly in France and the Germanics region. The increased sales in these regions were mostly offset by the sales decrease of 10% in the U.K primarily due to decreased distribution 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 continued to be negatively impacted by the weakening of the Euro relative to the Pound Sterling. The average exchange rate for the Euro against the Pound Sterling decreased by 5% to 0.7341 during the second quarter of fiscal year 2016 from 0.7746 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 $0.4 million, or 40%, from period to period due to expanded distribution. Sales from direct markets accounted for 67% of the EMEA segment’s sales for the three months ended February 29, 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 $3.3 million, or 22%, for the three months ended February 29, 2016 compared to the corresponding period of the prior fiscal year primarily due to a decrease in sales in Russia as a result ofthe unstable market conditionsin Eastern Europe which started in the third quarter of our fiscal year 2015.Sales to Russia decreased by approximately 34% from period to period. The distributor markets accounted for 33% of the EMEA segment’s total sales for the three months ended February 29, 2016, compared to 39% for the corresponding period of the prior fiscal year.  

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Asia-Pacific

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

	Three Months Ended
	February 29,		February 28,		Change from Prior Year
	2016		2015		Dollars		Percent
Maintenance products	$	11,743	$	12,068	$	(325)		(3)%
Homecare and cleaning products		1,639		1,882		(243)		(13)%
Total	$	13,382	$	13,950	$	(568)		(4)%
% of consolidated net sales		14%		14%

Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region, decreased to $13.4 million, down  $0.5 million, or 4%, for the three months ended February 29, 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 February 29, 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 $0.2 million, or 1%, from period to period.

Sales in Asia, which represented 71% of the total sales in the Asia-Pacific segment,  decreased $0.2 million, or 3%, for the three months ended February 29, 2016 compared to the corresponding period of the prior fiscal year.  This sales decrease was primarily attributable to the timing of customer orders for the WD-40 multi-use product in the Asian distributor markets, particularly those in Hong Kong and Indonesia, from period to period. Sales were also lower in the Asian distributor markets in the second quarter of fiscal year 2016 due to certain customers buying product in advance of a price increase that took place at the end of the first quarter of fiscal year 2016.  Although sales in China remained relatively constant at $2.9 million and $3.0 million for the three months ended February 29, 2016 and February 28, 2015, respectively, changes in foreign currency exchange rates had an unfavorable impact on sales in China. In functional currency, which is the Chinese Yuan Renminbi, sales 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 $0.3 million, or 7%, for the three months ended February 29, 2016 compared to the corresponding period of the prior fiscal year.  Changes in foreign currency exchange rates had an unfavorable impact on Australia sales. In functional currency, which is the Australian Dollar, sales increased by 7% for the three months ended February 29, 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 $52.4 million for the three months ended February 29, 2016 compared to $51.2 million for the corresponding period of the prior fiscal year. As a percentage of net sales, gross profit increased to 55.4% for the three months ended February 29, 2016 compared to 52.6% for the corresponding period of the prior fiscal year.

Gross margin was positively impacted by 3.0 percentage points for the three months ended February 29, 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.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.  We expect that the cost of crude oil will continue to be volatile and that volatility will impact our cost of products sold in future periods.  Although a significant portion of the cost of most of our maintenance products comes from petroleum-based specialty chemicals, only a small amount of the total cost of such products is directly indexed to the cost of crude oil.Gross margin was also positively impacted by 0.3percentage points for thethree months endedFebruary 29, 2016compared to the corresponding period of the prior fiscal yeardue to sales price increases.  These sales price increases were implemented in certain locations in the Asia-Pacificsegment in the third quarter of fiscal year 2015andintheEMEA segment over the last twelve months.  The combined effects of favorable sales mix changes and other miscellaneous costs also positively impacted gross margin by 0.4 percentage points from period to period.

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The overall impact from sales mix changes and other miscellaneous costs mainly came from a higher portion of sales in our EMEA segment being made to higher margin direct markets in the second quarter of fiscal year 2016 compared to the corresponding period of the prior fiscal year.

Advertising, promotional and other discounts that we give to our customers increased from period to period, particularly in the Americas segment, negatively impacting gross margin by 0.7 percentage points. In general, the timing of advertising, promotional and other discounts may cause fluctuations in gross margin from period to period.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. In addition, changes in foreign currency exchange ratesnegatively impacted gross margin by 0.2 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 net effect of the general weakening of the Euro against the Pound Sterling and the strengthening of the U.S. Dollar against the Pound Sterling from period to period caused a decrease in our sales, resulting in unfavorable impacts to the gross margin.

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 contractmanufacturersand include these costs in selling, general and administrative expenses. These costs totaled $3.9 million for both the three months ended February 29, 2016 and February 28, 2015. 

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses for the three months ended February 29, 2016 increased $1.3 million, or 5%, to $28.7 million from $27.4 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 February 29, 2016 from 28.1% for the corresponding period of the prior fiscal year. The increase in SG&A expenses was primarily attributable to higher employee-related costs, which were partially offset by a decrease in other miscellaneous expenses and 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 $2.3 million. This increase was primarily due to annual compensation increases, which take effect in the first quarter of the fiscal year, and higher earned incentive compensation from period to period. This increase was slightly offset by a net decrease of $0.2 million in other miscellaneous expenses, primarily professional services costs, general office overhead and freight costs, from period to period.Changes in foreign currency exchange rates had a favorable impact of $0.8million on SG&A expenses for the three months ended February 29, 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 $1.8 million and $1.7 million for the three months ended February 29, 2016 and February 28, 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.

Advertising and Sales Promotion Expenses

Advertising and sales promotion expenses for the three months ended February 29, 2016 decreased $0.5 million, or 9%, to $5.0 million from $5.5 million for the corresponding period of the prior fiscal year. As a percentage of net sales, these expenses decreased to 5.3% for the three months ended February 29, 2016 from 5.6% for the corresponding period of the prior fiscal year. The decrease in advertising and sales promotion expenses was primarily due to a lower level of promotional programs and marketing support in the Americas and EMEA segments from period to period. Changes in foreign currency exchange ratesdid not have a material impact on advertising and sales promotion expenses for the three months ended February 29, 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 in the range of 6.0% to 6.5% ofnet sales.

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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 February 29, 2016 were $4.4 million compared to $3.7 million for the corresponding period of the prior fiscal year. Therefore, our total investment in advertising and sales promotion activities totaled $9.4 million and $9.2 million for the three months ended February 29, 2016 and February 28, 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 February 29, 2016 and February 28, 2015, respectively. 

Income from Operations by Segment

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

	Three Months Ended
	February 29,		February 28,		Change from Prior Year
	2016		2015		Dollars		Percent
Americas	$	10,814	$	10,859	$	(45)		-
EMEA		9,413		9,255		158		2%
Asia-Pacific		3,769		3,718		51		1%
Unallocated corporate (1)		(6,090)		(6,201)		111		(2)%
	$	17,906	$	17,631	$	275		2%

⁽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 remained relatively constant from period to period. Although sales increased by $0.8 million, or 2%, from period to period and gross margin was higher in the second quarter of fiscal year 2016 as compared to the same quarter last year, these increases were 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 52.1% to 53.2% 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, which were partially offset by a higher level of advertising, promotional and other discounts that we gave to our customers from period to period. Operating expenses increased $1.0 million mainly related to higher earned incentive compensation expenses period over period and operating income as a percentage of net sales decreased from 24.3% to 23.7% period over period.

EMEA

Income from operations for the EMEA segment increased  $0.2 million, or 2%, for the three months ended February 29, 2016 compared to the corresponding period of the prior fiscal year,primarily due toa higher gross margin and lower operating expenses,  which were significantly offset by a $3.1 million decrease in sales. As a percentage of net sales, gross profit for the EMEA segment increased from 53.9% 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, all of which were slightly offset by the unfavorable impacts of fluctuations inforeign currency exchange rates 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 U.S. Dollar. The net effects of the continued weakening of the Euro against the Pound Sterling and the strengthening of the U.S. Dollar against the Pound Sterling from period to period has caused our sales to decrease, resulting in unfavorable impacts to the gross margin. The lower level of sales from period to period was

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accompanied by a $0.2 million decrease in total operating expenses, some of which related to lower advertising and sales promotion expenses. Operating income as a percentage of net sales increased from 23.9% to 26.4% period over period.

Asia-Pacific

Income from operations for the Asia-Pacific segment increased by 1% from period to period primarily due toa higher gross margin, which more than offset the $0.5 million decrease in sales.  As a percentage of net sales, gross profit for the Asia-Pacific segment increased from 51.0% to 54.6% period over period due to the combined positive impacts of decreased costs of petroleum-based specialty chemicals and aerosol cans, sales price increases and decreases in other miscellaneous costs, all of which were slightly offset by ahigher level ofadvertising, promotional and other discounts that we gave to our customers from period to period.  Operating income as a percentage of net sales increased from 26.7% to 28.2%  period over period.

Non-Operating Items

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

	Three Months Ended
	February 29,		February 28,
	2016		2015		Change
Interest income	$	183	$	178	$	5
Interest expense	$	417	$	275	$	142
Other income (expense), net	$	1,320	$	(1,443)	$	2,763
Provision for income taxes	$	5,323	$	4,758	$	565

Interest Income

Interest income remained relatively constant for the three months ended February 29, 2016 compared to the corresponding period of the prior fiscal year.

Interest Expense

Interest expense increased $0.1 million for the three months ended February 29, 2016 compared to the corresponding period of the prior fiscal year primarily due to a higher outstanding balance on our revolving credit facility period over period.

Other  Income (Expense), Net

Other income (expense), net changed by $2.8 million for three months ended February 29, 2016 compared to the corresponding period of the prior fiscal year primarily due to net foreign currency exchangegains which were recorded for thethreemonths endedFebruary 29, 2016 compared to net foreign currency exchangelosseswhich 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 U.S. Dollar against the Pound Sterling.

Provision for Income Taxes

The provision for income taxes was 28.0% and 29.6% of income before income taxes for the three months ended February 29, 2016 and February 28, 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 and the benefit received from the permanent extension of the research and experimentation tax credit. 

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Net Income

Net income was $13.7 million, or $0.94 per common share on a fully diluted basis for the three months ended February 29, 2016 compared to $11.3 million, or $0.76 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 $0.6 million on net income for the three months ended February 29, 2016 compared to the corresponding period of the prior fiscal year. Thus, on a constant currency basis, net income would have increased by $3.0 million from period to period.

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Six Months Ended February 29, 2016 Compared to Six Months Ended February 28, 2015

Operating Items

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

	Six Months Ended
	February 29,		February 28,		Change from Prior Year
	2016		2015		Dollars		Percent
Net sales:
Maintenance products	$	166,882	$	171,493	$	(4,611)		(3)%
Homecare and cleaning products		20,190		22,191		(2,001)		(9)%
Total net sales		187,072		193,684		(6,612)		(3)%
Cost of products sold		83,302		92,750		(9,448)		(10)%
Gross profit		103,770		100,934		2,836		3%
Operating expenses		68,719		67,710		1,009		1%
Income from operations	$	35,051	$	33,224	$	1,827		5%
Net income	$	25,731	$	22,119	$	3,612		16%
Earnings per common share - diluted	$	1.77	$	1.49	$	0.28		19%
Shares used in per share calculations - diluted		14,445		14,720		(275)		(2)%

Net Sales by Segment

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

	Six Months Ended
	February 29,		February 28,		Change from Prior Year
	2016		2015		Dollars		Percent
Americas	$	89,954	$	89,475	$	479		1%
EMEA		67,712		73,270		(5,558)		(8)%
Asia-Pacific		29,406		30,939		(1,533)		(5)%
Total	$	187,072	$	193,684	$	(6,612)		(3)%

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Americas

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

	Six Months Ended
	February 29,		February 28,		Change from Prior Year
	2016		2015		Dollars		Percent
Maintenance products	$	76,083	$	74,727	$	1,356		2%
Homecare and cleaning products		13,871		14,748		(877)		(6)%
Total	$	89,954	$	89,475	$	479		1%
% of consolidated net sales		48%		46%

Sales in the Americas segment, which includes the U.S., Canada and Latin America, increased to $90.0 million, up $0.5 million, or 1%, for the six months ended February 29, 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 six months ended February 29, 2016 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $90.8 million in the Americas segment. Thus, on a constant currency basis, sales would have increased by $1.3 million from period to period.

Sales of maintenance products in the Americas segment increased $1.4 million, or 2%, for the six months ended February 29, 2016 compared to the corresponding period of the prior fiscal year. This sales increase was mainly driven by higher sales of maintenance products in Latin America and the U.S., which were up 7% and 3%, respectively, from period to period. The sales increase in Latin America wasprimarily due to the timing of customer orders and 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 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 TM product. The sales increases in Latin America and the U.S. were partially offset by a sales decrease in Canada of 25%, from period to period. The decrease in Canada was primarily due to an unfavorable impact of changes in foreign currency exchange rates from period to period and lower sales associated with promotional programs driven by unstable market and economic conditions  in the industrial channel in Western Canada as a result of suppressed activity in the oil industry. 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 $0.4 million, or 8%, from period to period due to increased promotional activities and new distribution during the six months ended February 29, 2016.

Sales of homecare and cleaning products in the Americas decreased $0.9 million, or 6%, for the six months ended February 29, 2016 compared to the corresponding period of the prior fiscal year.  This sale decrease was driven primarily by a 14% decrease in sales of Spot Shot, primarily in the United States. 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, 81% of sales came from the U.S., and 19% of sales came from Canada and Latin America combined for the six months ended February 29, 2016 compared tothedistribution for the six months ended February 28, 2015when 80%of sales came from the U.S., and 20% ofsales came from Canada and Latin America. 

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EMEA

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

	Six Months Ended
	February 29,		February 28,		Change from Prior Year
	2016		2015		Dollars		Percent
Maintenance products	$	64,620	$	69,596	$	(4,976)		(7)%
Homecare and cleaning products		3,092		3,674		(582)		(16)%
Total	$	67,712	$	73,270	$	(5,558)		(8)%
% of consolidated net sales		36%		38%

Sales in the EMEA segment, which includes Europe, the Middle East, Africa and India, decreased to $67.7 million, down $5.6 million, or 8%, for the six months ended February 29, 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 six months ended February 29, 2016 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $71.7 million in the EMEA segment. Thus, on a constant currency basis, sales would have decreased by $1.6 million, or 2%, for the six months ended February 29, 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 $0.3 million, or 1%, for the six months ended February 29, 2016 compared to the corresponding period of the prior fiscal year. We experienced sales increases in Italy and the Germanics region, which were up 14% and 7%, respectively, from period to period primarily due to new distribution. The increased sales in these regions were partially offset by sales decreases in certain direct markets in Europe from period to period with percentage decreases in sales as follows: Iberia, 8%; the U.K, 3%; and France, 1%.  Although the overall sales in the Europe direct markets increased from period to period, sales in this region continued to be 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 6% to 0.7313 during the first six months of fiscal year 2016 from 0.7816 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 $0.8 million, or 46%, from period to period due to expanded distribution. Sales from direct markets accounted for 64% of the EMEA segment’s sales for the six months ended February 29, 2016 compared to 58% 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 $5.9 million, or 19%, for the six months ended February 29, 2016 compared to the corresponding period of the prior fiscal year primarily due to a decrease in sales in Russia as a result ofthe unstable market conditionsin Eastern Europe which started in the third quarter of our fiscal year 2015. Sales to Russia decreased by approximately 34% from period to period. The distributor markets accounted for 36% of the EMEA segment’s total sales for the six months ended February 29, 2016, compared to 42% for the corresponding period of the prior fiscal year. 

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Asia-Pacific

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

	Six Months Ended
	February 29,		February 28,		Change from Prior Year
	2016		2015		Dollars		Percent
Maintenance products	$	26,179	$	27,170	$	(991)		(4)%
Homecare and cleaning products		3,227		3,769		(542)		(14)%
Total	$	29,406	$	30,939	$	(1,533)		(5)%
% of consolidated net sales		16%		16%

Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region, decreased to $29.4 million, down  $1.5 million, or 5%, for the six months ended February 29, 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 six months ended February 29, 2016 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $31.2 million in the Asia-Pacific segment. Thus, on a constant currency basis, sales would have increased by $0.3 million, or 1%, from period to period.

Sales in Asia, which represented 74% of the total sales in the Asia-Pacific segment,  decreased $0.4 million, or 2%, for the six months ended February 29, 2016 compared to the corresponding period of the prior fiscal year.  This sales decrease was primarily attributable to the timing of customer orders for the WD-40 multi-purpose product in the Asian distributor markets, particularly those in Hong Kong and Singapore, from period to period. Sales in China decreased $0.2 million, or 3%, from period to period, primarily due to unfavorable impacts of changes in foreign currency exchange rates. In functional currency, which is the Chinese Yuan Renminbi, sales increased by 2% 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 $1.1 million, or 13%, for the six months ended February 29, 2016 compared to the corresponding period of the prior fiscal year.  Changes in foreign currency exchange rates had an unfavorable impact on Australia sales. In functional currency, which is the Australian Dollar, sales increased by 5% for the six months ended February 29, 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 $103.8 million for the six months ended February 29, 2016 compared to $100.9 million for the corresponding period of the prior fiscal year. As a percentage of net sales, gross profit increased to 55.5% for the six months ended February 29, 2016 compared to 52.1% for the corresponding period of the prior fiscal year.

Gross margin was positively impacted by 3.0 percentage points for the six months ended February 29, 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.Gross margin was also positively impacted by 0.3percentage points for thesix months endedFebruary 29, 2016compared to the corresponding period of the prior fiscal yeardue to sales price increases.  These sales price increases were implemented in certain locations in the Asia-Pacificsegment in the third quarter of fiscal year 2015andintheEMEA segment over the last twelve months. The combined effects of favorable sales mix changes and other miscellaneous costs also positively impacted gross margin by 0.5 percentage points from period to period. The overall impact from sales mix changes and other miscellaneous costs mainly came from favorable shifts in product mix in the Asia Pacific and America segments from period to period and a higher portion of sales in our EMEA segment being made to higher margin direct markets in the first half of fiscal year 2016 compared to the corresponding period of the prior fiscal year.

These favorable impacts to gross margin were partially offset by 0.2 percentage points due to a higher level of advertising, promotional and other discounts that we give to our customers from period to period. The increase in such discounts was due to a higher percentage of sales being subject to promotional allowances during the six months ended February 29, 2016 compared to the corresponding period in the prior fiscal year in all segments. In addition, changes in foreign currency

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exchange rates negatively impacted gross margin by 0.2 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 net effect of the general weakening of the Euro against the Pound Sterling and the strengthening of the U.S. Dollar against the Pound Sterling from period to period caused a decrease in our sales, resulting in unfavorable impacts to the gross margin.

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 $7.7 million and $7.8 million for the six months ended February 29, 2016 and February 28, 2015, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the six months ended February 29, 2016 increased $1.7 million, or 3%, to $56.5 million from $54.8 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 six months ended February 29, 2016 from 28.3% for the corresponding period of the prior fiscal year. The increase in SG&A expenses was primarily attributable to higher employee-related costs, which were partially offset by decreases in other miscellaneous costs and 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 $3.7 million. This increase was primarily due to annual compensation increases, which take effect in the first quarter of the fiscal year, and increased headcount as well as higher earned incentive compensation from period to period. This increase was slightly offset by a net decrease of $0.1 million in other miscellaneous expenses, primarilyfreight costs, general office overhead, professional services costs and bad debt expense, from period to period.Changes in foreign currency exchange rates had a favorable impact of $1.9 million on SG&A expenses for the three months ended February 29, 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 $3.6 million and $3.3 million for the six months ended February 29, 2016 and February 28, 2015, respectively. 

Advertising and Sales Promotion Expenses

Advertising and sales promotion expenses for the six months ended February 29, 2016 decreased $0.7 million, or 6%, to $10.7 million from $11.4 million for the corresponding period of the prior fiscal year. As a percentage of net sales, these expenses decreased to 5.7% for the six months ended February 29, 2016 from 5.9% for the corresponding period of the prior fiscal year. The decrease in advertising and sales promotion expenses was primarily due to a lower level of promotional programs and marketing support in the EMEA and Asia-Pacific segments from period to period.Changes in foreign currency exchange rates had a favorable impact of $0.4million on advertising and sales promotion expenses for thesixmonths ended February 29, 2016 compared to the corresponding period of the prior fiscal year.

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 six months ended February 29, 2016  were  $8.1 million compared to $7.9 million for the corresponding period of the prior fiscal year. Therefore, our total investment in advertising and sales promotion activities totaled $18.8 million and  $19.3 million for the six months ended February 29, 2016 and February 28, 2015, respectively.

Amortization of Definite-lived Intangible Assets Expense

Amortization of our definite-lived intangible assets remained constant at $1.5 million for both the  six months ended February 29, 2016 and February 28, 2015, respectively.

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Income from Operations by Segment

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

	Six Months Ended
	February 29,		February 28,		Change from Prior Year
	2016		2015		Dollars		Percent
Americas	$	21,674	$	20,825	$	849		4%
EMEA		16,128		15,635		493		3%
Asia-Pacific		8,892		8,164		728		9%
Unallocated corporate (1)		(11,643)		(11,400)		(243)		2%
	$	35,051	$	33,224	$	1,827		5%

⁽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 $21.7 million, up 0.8 million, or 4%, for the six months ended February 29, 2016 compared to the corresponding period of the prior fiscal year, primarily due to higher gross margin. As a percentage of net sales, gross profit for the Americas segment increased from 51.4% to 54.2% 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 favorable sales mix changes, which were slightly offset by increased warehousing and in-house freight costs and a higher level of advertising, promotional and other discounts that we give to our customers from period to period.  Operating expenses increased $2.0 million mainly related to higher earned incentive compensation expenses and increased headcount period over period. Operating income as a percentage of net sales increased from 23.3%  to 24.1%  period over period.

EMEA

Income from operations for the EMEA segment increased to $16.1 million, up  $0.5 million, or 3%, for the six months ended February 29, 2016 compared to the corresponding period of the prior fiscal year, primarily due toa higher gross margin and decreased operating expenses, which were almost completely offset by a $5.6 million decrease in sales. As a percentage of net sales, gross profit for the EMEA segment increased from 54.1% to 57.8% 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, all of which were slightly offset by the unfavorable impacts of fluctuations inforeign currency exchange rates 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 U.S. Dollar. The net effect of the continued weakening of the Euro against the Pound Sterling and the strengthening of the U.S. Dollar against the Pound Sterling from period to period has caused our sales to decrease, resulting in unfavorable impacts to the gross margin. The lower level of sales from period to period was accompanied by a $1.0 million decrease in total operating expenses, some of which related to lower advertising and sales promotion expenses and professional services costs.  Operating income as a percentage of net sales increased from 21.3% to 23.8% period over period.

Asia-Pacific

Income from operations for the Asia-Pacific segment increased to $8.9 million, up $0.7 million, or 9%, for the six months ended February 29, 2016 compared to the corresponding period of the prior fiscal year, primarily due toa higher gross margin, which was partially offset by a $1.5 million decrease in sales.  As a percentage of net sales, gross profit for the Asia-Pacific segment increased from 49.6% to 53.9% period over period due to the combined positive impacts of decreased costs of petroleum-based specialty chemicals and aerosol cans, sales price increases, and favorable impacts of changes in sales mix, all of which were slightly offset by ahigher level ofadvertising, promotional and other discounts that we gave to our

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customers from period to period.  The lower level of sales from period to period in theAsia-Pacificsegment was accompanied by a $0.2 million decrease in total operating expenses drivenin part by loweradvertising and sales promotion expenses. Operating income as a percentage of net sales increased from 26.4% to 30.2% period over period.

Non-Operating Items

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

	Six Months Ended
	February 29,		February 28,
	2016		2015		Change
Interest income	$	331	$	312	$	19
Interest expense	$	789	$	569	$	220
Other income (expense), net	$	1,269	$	(1,341)	$	2,610
Provision for income taxes	$	10,131	$	9,507	$	624

Interest Income

Interest income remained constant for the six months ended February 29, 2016 compared to the corresponding period of the prior fiscal year.

Interest Expense

Interest expense increased $0.2 million for the six months ended February 29, 2016 compared to the corresponding period of the prior fiscal year primarily due to a higher outstanding balance on our revolving credit facility period over period.

Other Income (Expense), Net

Other income (expense), net changed by $2.6 million for the six months ended February 29, 2016 compared to the corresponding period of the prior fiscal year primarily due to net foreign currency exchangegains which were recorded for thesixmonths endedFebruary 29, 2016 compared to net foreign currency exchangelosseswhich 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 28.3% and 30.1% of income before income taxes for the six months ended February 29, 2016 and February 28, 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 and the benefit received from the permanent extension of the research and experimentation tax credit. 

Net Income

Net income was $25.7 million, or $1.77 per common share on a fully diluted basis for the six months ended February 29, 2016 compared to $22.1 million, or $1.49 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 $1.2 million on net income for the six months ended February 29, 2016 compared to the corresponding period of the prior fiscal year. Thus, on a constant currency basis, net income would have increased by $4.8 million from period to period.

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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.Theseperformance measuresarepart of ourcurrent55/30/25rule, 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 tothisnew 55/30/25 rulefrom our previous 50/30/20 rule. This means thatwenowtarget 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. Although our 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, we continue to focus on and work towards achievement of our 55/30/25 targets over the long-term.

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

	Three Months Ended				Six Months Ended
	February 29,		February 28,		February 29,		February 28,
	2016		2015		2016		2015
Gross margin		55%		53%		56%		52%
Cost of doing business as a percentage of net sales		35%		33%		35%		33%
EBITDA as a percentage of net sales (1)		22%		18%		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				Six Months Ended
	February 29,		February 28,		February 29,		February 28,
	2016		2015		2016		2015
Total operating expenses - GAAP	$	34,456	$	33,602	$	68,719	$	67,710
Amortization of definite-lived intangible assets		(747)		(757)		(1,502)		(1,526)
Depreciation (in operating departments)		(690)		(659)		(1,377)		(1,332)
Cost of doing business	$	33,019	$	32,186	$	65,840	$	64,852
Net sales	$	94,550	$	97,331	$	187,072	$	193,684
Cost of doing business as a percentage of net sales		35%		33%		35%		33%

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EBITDA (in thousands, except percentages)

	Three Months Ended				Six Months Ended
	February 29,		February 28,		February 29,		February 28,
	2016		2015		2016		2015
Net income - GAAP	$	13,669	$	11,333	$	25,731	$	22,119
Provision for income taxes		5,323		4,758		10,131		9,507
Interest income		(183)		(178)		(331)		(312)
Interest expense		417		275		789		569
Amortization of definite-lived intangible assets		747		757		1,502		1,526
Depreciation		903		857		1,809		1,721
EBITDA	$	20,876	$	17,802	$	39,631	$	35,130
Net sales	$	94,550	$	97,331	$	187,072	$	193,684
EBITDA as a percentage of net sales		22%		18%		21%		18%

Liquidity and Capital Resources 

Overview

The Company’s financial condition and liquidity remain strong. Net cash provided by operations was $10.3 million for the six months ended February 29, 2016 compared to $13.5 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 millionrevolving 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 stockrepurchases underourboard approved share buy-back plan. During the six months ended February 29, 2016, we had net borrowings of  $14.5 million U.S. dollarsunder 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 February 29, 2016, we had a $122.5 million outstanding balance on the revolving credit facility,  of which $118.0 million was classified as long-term, and $4.5 million was classified as short-term. There were no other letters of credit outstanding or restrictions on the amount available on this line of credit as of February 29, 2016. 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 February 29, 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 expensesin order for us to not meet the debt covenants. 

At February 29, 2016, we had a total of $93.5 million in cash and cash equivalents and short-term investments. Of this balance, $90.5 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

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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.

We believe that our existing consolidated cash and cash equivalents at February 29, 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):

	Six Months Ended
	February 29,		February 28,
	2016		2015		Change
Net cash provided by operating activities	$	10,281	$	13,496	$	(3,215)
Net cash used in investing activities		(9,614)		(6,446)		(3,168)
Net cash used in financing activities		(9,920)		(18,714)		8,794
Effect of exchange rate changes on cash and cash equivalents		(2,333)		(2,438)		105
Net decrease in cash and cash equivalents	$	(11,586)	$	(14,102)	$	2,516

Operating Activities

Net cash provided by operating activities decreased $3.2 million to $10.3 million for the six months ended February 29, 2016 from $13.5 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 six months ended February 29, 2016 was net income of $25.7 million.  The changes in our working capital from period to period were primarily attributable to an overall increase in inventory levels due to the timing of our inventory purchases from period to period. In addition, the net cash provided by operating activities was impacted by the overall increase inthe trade accounts receivable balancedue to timing of payments received from our customers 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 earned incentive accruals in the first half of fiscal year 2016 as compared to the prior year period.

Investing Activities

Net cash used in investing activities increased $3.2 million to $9.6 million for the six months ended February 29, 2016 from $6.4 million for the corresponding period of the prior fiscal year primarily due to  a net increase of $7.4 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 outflowrelated 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 decreased $8.8 million to $9.9 million for the six months ended February 29, 2016 from $18.7 million for the corresponding period of the prior fiscal year primarily due to a $9.5 millionincrease in netcash inflowsfrom our revolving credit facility from period to period. This increase was partially offset by an increase of $0.6 million in cash outflows for treasury stock purchases and a $1.0 million increase in dividends paid from period to period.  In addition, there was a $0.1million decrease in proceeds from the issuance of common stock upon the exercise of stock options from period to period.  

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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 on cash and cash equivalents, when expressed in U.S. Dollar terms, was a decrease in cash of $2.3 million and $2.4 million for the six months ended February 29, 2016 and February 28, 2015, respectively.  The change of $0.1 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 February 29, 2016, no such commitments were outstanding.

Share Repurchase Plan

On October 14, 2014, the Company’sBoard of Directors approved ashare buy-back plan. Under the plan, which became effectiveat 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$75.0million 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 March1, 2015 throughFebruary 29, 2016, the Company repurchased347,582shares at a total cost of $30.8million under this $75.0 million plan.

Dividends

On March22, 2016, the Company’s Board of Directors declared acash dividend of $0.42 per sharepayable on April 29, 2016to shareholders of record on April15, 2016.Our abilityto pay dividends could be affected by future business performance, liquidity, capital needs, alternative investment opportunities and loan covenants.

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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.  

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. Earlyadoption 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, theFASB 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 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

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additional disclosureabout 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 with the one year deferral. 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 $0.1 million and $0.2 million for the three months ended February 29, 2016 and February 28, 2015, respectively, and $0.4 million for each of the six months ended February 29, 2016 and February 28, 2015. Accounts receivable from Tractor Supply were not material as of February 29, 2016.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Refer to Part II―Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” 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.

Item 4.  Controls and Procedures

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (“Exchange Act”). The term disclosure controls and procedures means controls and other procedures of a Company that are designed to ensure the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures. The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures as of February 29, 2016, the end of the period covered by this report (the Evaluation Date), and they have concluded that, as of the Evaluation Date, such controls and procedures were effective at ensuring that required information will be disclosed on a timely basis in the Company’s reports filed under the Exchange Act. Although management believes the Company’s existing disclosure controls and procedures are adequate to enable the Company to comply with its disclosure obligations, management continues to review and update such controls and procedures. The Company has a disclosure committee, which consists of certain members of the Company’s senior management.

There were no changes to the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that materially affected, or would be reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1.  Legal Proceedings 

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.  

Item 1A.  Risk Factors

There have been no material changes in our risk factors from those disclosed in Part I―Item 1A, “Risk Factors,” 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.

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Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

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 February 29, 2016, the Company repurchased 347,582 shares at a total cost of $30.8 million under this $75.0 million plan.

The following table provides information with respect to all purchases made by the Company during the three months ended February 29, 2016. All purchases listed below were made in the open market at prevailing market prices. Purchase transactions between December 1, 2015 and January 12, 2016 and between February 16, 2016 and February 29, 2016 were executed pursuant to trading plans adopted by the Company pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934.

					Total Number		Maximum
					of Shares		Dollar Value of
	Total				Purchased as Part		Shares that May
	Number of		Average		of Publicly		Yet Be Purchased
	Shares		Price Paid		Announced Plans		Under the Plans
	Purchased		Per Share		or Programs		or Programs
Period
December 1 - December 31		6,692	$	99.32		6,692	$	50,552,477
January 1 - January 31		32,750	$	98.47		32,750	$	47,326,954
February 1 - February 29		29,806	$	105.91		29,806	$	44,169,472
Total		69,248	$	101.76		69,248

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Item 6.  Exhibits

Exhibit No.	Description
3(a)	Certificate of Incorporation, incorporated by reference from the Registrant’s Form 10-K filed October 22, 2012, Exhibit 3(a) thereto.
3(b)	Amended and Restated Bylaws of WD-40 Company, incorporated by reference from the Registrant’s Form 8-K filed June 25, 2012, Exhibit 3(a) thereto.
10(a)	Third Amendment to Credit Agreement dated November 16, 2015 among WD-40 Company and Bank of America, N.A., incorporated by reference from the Registrant’s Form 8-K filed November 19, 2015, Exhibit 10(a) thereto.
31(a)	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(b)	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32(a)	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32(b)	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101. INS	XBRL Instance Document
101. SCH	XBRL Taxonomy Extension Schema Document
101. CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101. DEF	XBRL Taxonomy Extension Definition Linkbase Document
101. LAB	XBRL Taxonomy Extension Labels Linkbase Document
101. PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	WD-40 COMPANY Registrant
Date: April 7, 2016	By:	/s/ GARRY O. RIDGE
		Garry O. Ridge President and Chief Executive Officer (Principal Executive Officer)
	By:	/s/ JAY W. REMBOLT
		Jay W. Rembolt Vice President, Finance Treasurer and Chief Financial Officer

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