What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-07-09 compared with 2020-04-09 · 303 added, 239 removed, 256 unchanged (68% of the section changed)

18 unchanged sentences

expected tax rates and the impact of tax legislation and regulatory action;

the length and severity of the recent COVID-19 outbreak and its impact on the global economy and the Company’s financial results;

the length and severity of the current COVID-19 pandemic and its impact on the global economy and the Company’s financial results;

and forecasted foreign currency exchange rates and commodity prices.

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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, online retailers and industrial distributors and suppliers.

The following summarizes the financial and operational highlights for our business during the six months ended February 29, 2020:

 Consolidated net sales decreased $4.0 million for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates had an unfavorable impact of $1.9 million on consolidated net sales for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

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, online retailers and industrial distributors and suppliers.

The following summarizes the financial and operational highlights for our business during the nine months ended May 31, 2020:

 Consolidated net sales decreased $19.7 million for the nine months ended May 31, 2020 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates had an unfavorable impact of $4.2 million on consolidated net sales for the nine months ended May 31, 2020 compared to the corresponding period of the prior fiscal year.

Thus, on a constant currency basis, net sales would have decreased by $15.5 million from period to period.

This unfavorable impact from changes in foreign currency exchange rates mainly came from our EMEA segment, which accounted for 41% of our consolidated sales for the six months ended February 29, 2020.

 Consolidated net sales for the WD-40 Specialist product line were $17.3 million for the six months ended February 29, 2020 which is an increase of $0.8 million 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 decreased to 53.9% for the six months ended February 29, 2020 compared to 55.3% for the corresponding period of the prior fiscal year.

 Consolidated net income decreased $2.7 million, or 9%, for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates had an unfavorable impact of $0.4 million on consolidated net income for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

This unfavorable impact from changes in foreign currency exchange rates mainly came from our EMEA segment, which accounted for 38% of our consolidated sales for the nine months ended May 31, 2020.

 Gross profit as a percentage of net sales decreased to 54.0% for the nine months ended May 31, 2020 compared to 55.0% for the corresponding period of the prior fiscal year.

 Consolidated net income decreased $6.3 million, or 13%, for the nine months ended May 31, 2020 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates had an unfavorable impact of $0.8 million on consolidated net income for the nine months ended May 31, 2020 compared to the corresponding period of the prior fiscal year.

Thus, on a constant currency basis, net income would have decreased $5.5 million.

 Diluted earnings per common share for the six months ended February 29, 2020 were $1.92 versus $2.09 in the prior fiscal year period.

 Consolidated results for the nine months ended May 31, 2020 were negatively impacted by the COVID-19 pandemic.

See Significant Developments section which follows for details.

 Diluted earnings per common share for the nine months ended May 31, 2020 were $2.98 versus $3.39 in the prior fiscal year period.

 Share repurchases were executed under our current $75.0 million share buy-back plan, which was approved by the Company’s Board of Directors in June 2018 and became effective on September 1, 2018.

During the period from September 1, 2019 through February 29, 2020, the Company repurchased 51,574 shares at an average price of $187.24 per share, for a total cost of $9.7 million.

During the period from September 1, 2019 through May 31, 2020, the Company repurchased 92,583 shares at an average price of $181.71 per share, for a total cost of $16.8 million.

On April 8, 2020, the Company elected to temporarily suspend repurchases under its current share buy-back plan.

The Company has elected this suspension in order to preserve cash while it monitors the impact of the COVID-19 pandemic as it continues to unfold.

Our strategic initiatives and the areas where we will continue to focus our time, talent and resources in future periods include:

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Significant Developments

During the first half of fiscal year 2020, financial results and operations for our Americas and EMEA segments were not significantly impacted by the COVID-19 outbreak that occurred in many countries beginning in early calendar year 2020.

The significance of the impacts to our Asia-Pacific segment during the first half of fiscal year 2020 were material and are discussed herein.

In addition, see Part II—Item 1A, “Risk Factors,” included herein for an update that we made to our existing

risk factors to include information on risks associated with pandemics in general and COVID-19 specifically.

The extent to which the COVID-19 outbreak impacts our financial results and operations for fiscal year 2020 and going forward, for all three of our business segments, will depend on future developments which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the outbreak and the international actions being taken to contain and treat it.

We are taking a variety of measures to ensure the availability and functioning of our critical infrastructure, to promote the safety and security of our employees and to support the communities in which we operate.

During the nine months ended May 31, 2020, our financial results and operations were significantly impacted by the COVID-19 pandemic that began in early calendar year 2020.

The significance of the impacts to our financial results and operations were material and are discussed herein at the business segment level.

See Part II—Item 1A, “Risk Factors,” included herein for an update that we made to our existing risk factors to include information on risks associated with pandemics in general and COVID-19 specifically.

The extent to which the COVID-19 pandemic impacts our financial results and operations for the remainder of fiscal year 2020 and going forward, for all three of our business segments, will depend on future developments which remain highly uncertain and cannot be predicted, including new information which may emerge concerning the ongoing severity of the COVID-19 pandemic and the international actions being taken to contain and treat it.

We have taken a variety of measures to ensure the availability and functioning of our critical infrastructure, to promote the safety and security of our employees and to support the communities in which we operate.

These measures include requiring remote working arrangements for employees where practicable.

We are following public and private sector policies and initiatives to reduce the transmission of COVID-19, such as the imposition of travel restrictions, the promotion of social distancing and the adoption of work-from-home arrangements, and all of these policies and initiatives could impact our operations.

Due to the speed with which the situation is developing, we are not able at this time to estimate the impact of COVID-19 on our financial results and operations, but the impact could be material for the remainder of fiscal year 2020 in all business segments and could be material during any future period affected either directly or indirectly by this pandemic.

These policies and initiatives will continue to impact how we operate for as long as they are in effect.

We are in the process of determining and implementing safe and effective phased office reentry plans for employees at all of our office locations globally.

However, the timing and nature of these reentry plans, some of which have already been launched, will vary by location and some of the specifics related to many of these plans are still uncertain at this time.

The safety of our employees and adherence to public and private sector policies related to COVID-19 will remain our top priorities as we have our employees return to working at our global office locations.

During our fiscal year 2020, temporary closures, lockdowns and restrictions mandated by various governmental authorities intended to combat the COVID-19 pandemic at physical store retailers have negatively impacted sales at varying levels and at different times within each of the countries in which we conduct business.

The related impacts on our financial results and operations through May 31, 2020 are discussed within Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Due to the speed and fluidity with which the situation continues to develop and the uncertainty on whether a second wave of the COVID-19 pandemic will occur later in calendar year 2020, we are not able at this time to estimate the extent of the impact of the COVID-19 pandemic on our financial results and operations in future periods.

We also cannot predict when certain restrictions that are in place to protect our customers, retailers and our employees will be safely reduced or will no longer be needed.

These impacts could be material for the remainder of our fiscal year 2020 in all business segments and could be material during any future period affected either directly or indirectly by this pandemic.

We are actively managing and monitoring supply chain and transportation disruptions that have arisen at our suppliers and other third-party distribution centers and manufacturers as a result of the COVID-19 pandemic.

While we have been successful to date in managing such disruptions in our supply chain and we believe that we are well-positioned to continue managing any disruptions that may occur in future periods in order to meet customer and end-user demand, we are not able at this time to estimate the impact of future disruptions within our supply chain and are continually monitoring this situation.

On March 27, 2020, the U.S.

Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic and the negative impacts that it is having on the global economy and U.S.

The CARES Act includes various financial measures to assist companies, including temporary changes to income and non-income-based tax laws.

Although we are currently evaluating the impact of the CARES Act, such as the ability to defer the payment for the employer portion of social security taxes, we do not believe assistance provided under the CARES Act will have a material impact on our consolidated financial statements and related disclosures.

Results of Operations

Three Months Ended February 29, 2020 Compared to Three Months Ended February 28, 2019

Three Months Ended May 31, 2020 Compared to Three Months Ended May 31, 2019

Operating Items

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

Three Months Ended February 29/28,

Three Months Ended May 31,

Maintenance products

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

Three Months Ended February 29/28,

Three Months Ended May 31,

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

Three Months Ended February 29/28,

Three Months Ended May 31,

Maintenance products

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% of consolidated net sales

Sales in the Americas segment, which includes the U.S., Canada and Latin America, increased to $46.8, up $2.9 million, or 7%, for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates did not have a significant impact on sales for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

Sales of maintenance products in the Americas segment increased $3.2 million, or 8%, for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

This sales increase was mainly driven by higher sales of WD-40 Multi Use Product in the U.S.

, which were up $1.8 million, or 7% from period to period primarily due to the success of certain promotional activities in the second quarter of fiscal year 2020 .

Sales of maintenance products in Canada also increased $0.6 million, or 25%, from period to period primarily due to successful promotional programs during the three months ended February 29, 2020 and the timing of customer orders from period to period.

Also contributing to the overall sales increase of the maintenance products in the Americas segment from period to period were higher sales of the WD-40 Specialist product line, which were up $0.6 million, or 15%, from period to period due to successful promotional programs and expanded distribution in the online channel from period to period.

Sales of homecare and cleaning products in the Americas decreased $0.3 million, or 6%, for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

This sales decrease was driven primarily by a decrease in sales of the Spot Shot and Lava brand products in the U.S., which were down 15% and 20%, respectively, from period to period.

While each of our homecare and cleaning products continue to generate positive cash flows, we have continued to experience decreased or flat sales for many of these products primarily due to lost distribution, reduced product offerings, competition, category declines and the volatility of orders from promotional programs with certain of our customers, particularly those in the warehouse club and mass retail channels.

For the Americas segment, 78% of sales came from the U.S., and 22% of sales came from Canada and Latin America combined for both the three months ended February 29, 2020 and February 28, 2019.

Sales in the Americas segment, which includes the U.S., Canada and Latin America, decreased to $50.1 million, down $2.9 million, or 5%, for the three months ended May 31, 2020 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates did not have a significant impact on sales for the three months ended May 31, 2020 compared to the corresponding period of the prior fiscal year.

Sales of maintenance products in the Americas segment decreased $4.7 million, or 10%, for the three months ended May 31, 2020 compared to the corresponding period of the prior fiscal year.

This sales decrease was mainly driven by lower sales of WD-40 Multi Use Product in Latin America, which were down $2.8 million, or 46% from period to period primarily due to various disruptions in the market related to the COVID-19 pandemic.

These disruptions primarily included decreased availability of our product due to constraints on the distribution and sale of our products as a result of the complete lockdown of many markets within the region, which started early in March 2020 and continued throughout the third quarter.

In addition, sales in Latin America were negatively impacted due to decreased sales in Mexico from period to period as a result of a change we made in the distribution model for this region.

In the third quarter of fiscal year 2020, we shifted away from a distribution model for this country where we sell product through a large wholesale customer who then supplies various retail customers, to one where we sell direct to these retail customers.

While we anticipate a successful build of our direct customer base in Mexico in future periods under this new direct model, sales in this region were unfavorably impacted from period to period as a result of us starting this transition.

Sales of maintenance products in the U.S.

and Canada also decreased by $1.2 million and $0.4 million, or 3% and 16%, respectively, from period to period, primarily due to the negative impacts of the COVID-19 pandemic during the three months ended May 31, 2020 and the timing of customer orders from period to period.

Although sales of maintenance products in the U.S.

decreased from period to period, sales in the online retail channel increased as the Company continued to focus its efforts on this channel, particularly as consumers have turned more to online purchases during the COVID-19 pandemic.

Sales of homecare and cleaning products in the Americas increased $1.9 million, or 40%, for the three months ended May 31, 2020 compared to the corresponding period of the prior fiscal year.

This sales increase was driven primarily by an increase in sales of the 2000 Flushes, Spot Shot and Lava brand products, which were up 64%, 23% and 50%, respectively, from period to period.

We experienced a significant increase in sales of most of our home care and cleaning products in the Americas in the third quarter of fiscal year 2020 due to an increased demand for such products as a result of the COVID-19 pandemic.

We are not able at this time to estimate the duration of this unexpected increase in the demand for these products and its impact on our financial results and operations in future periods.

While each of our homecare and cleaning products have continued to generate positive cash flows, we had experienced decreased or flat sales for many of these products in recent years prior to the COVID-19 pandemic.

For the Americas segment, 87% of sales came from the U.S., and 13% of sales came from Canada and Latin America combined for the three months ended May 31, 2020 compared to the distribution for the three months ended May 31, 2019 when 81% of sales came from the U.S., and 19% of sales came from Canada and Latin America.

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

Three Months Ended February 29/28,

Three Months Ended May 31,

Maintenance products

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Dollar are weakening or strengthening against the Pound Sterling .

Sales in the EMEA segment, which includes Europe, the Middle East, Africa and India, increased to $41.8 million, up $0.8 million, or 2%, for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates had a favorable impact on sales for the EMEA segment from period to period.

Sales for the three months ended February 29, 2020 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $41.3 million in the EMEA segment.

Thus, on a constant currency basis, sales would have increased by $0.3 million, or 1%, from period to period.

Sales in the EMEA segment, which includes Europe, the Middle East, Africa and India, decreased to $32.5 million, down $12.0 million, or 27%, for the three months ended May 31, 2020 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates had an unfavorable impact on sales for the EMEA segment from period to period.

Sales for the three months ended May 31, 2020 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $33.8 million in the EMEA segment.

Thus, on a constant currency basis, sales would have decreased by $10.7 million, or 24%, 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).

Sales in the direct markets increased $1.9 million, or 7% for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $1.5 million, or 8%, increase in sales of the WD-40 Multi-Use Product throughout most markets.

This increase in sales was primarily due to a higher level of promotional activities and the timing of customer orders from period to period.

Sales in the direct markets decreased $8.4 million, or 28% for the three months ended May 31, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $7.0 million, or 33%, decrease in sales of the WD-40 Multi-Use Product throughout direct markets as a result of various disruptions in the market related to the COVID-19 pandemic.

These disruptions primarily include decreased availability of our product, as well as disruptions related to supply chain and transportation as a result of the responses from third-party businesses and governmental authorities to the public health crisis caused by COVID-19 during the third quarter of fiscal year 2020.

Although higher sales in the online retail channel slightly offset these impacts, WD-40 Multi-Use Product sales decreased overall primarily due to the comprehensive lockdown measures adopted by many European countries at physical store retailers to combat the COVID-19 pandemic during the third quarter of fiscal year 2020.

These lockdowns limited many retailers’ ability to participate in promotional activities and sell high volumes of certain products, such as our WD-40 Multi-Use Product.

In addition, sales of 1001 Carpet Fresh in the U.K.

increased $0.3 million, or 10%, as a result of the favorable impacts of digital marketing associated with this brand.

Sales from direct markets accounted for 71% of the EMEA segment’s sales for the three months ended February 29, 2020 compared to 68% for the corresponding period of the prior fiscal year.

also decreased $1.4 million, or 45%, during the third quarter of fiscal year 2020 as a result of a significantly higher level of sales in the corresponding period of the prior fiscal year due to favorable impacts of digital marketing associated with this brand.

Sales from direct markets accounted for 67% of the EMEA segment’s sales for the three months ended May 31, 2020 compared to 68% 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 $1.1 million, or 8%, for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year, primarily due to lower sales of the WD-40 Multi-Use Product in Eastern Europe and India, which were down 13% and 38%, respectively.

This decrease in sales from period to period was primarily the result of shipments of product being delayed to customers in these regions due to extraordinary weather conditions near the end of the second quarter of fiscal year 2020.

The distributor markets accounted for 29% of the EMEA segment’s total sales for the three months ended February 29, 2020, compared to 32% for the corresponding period of the prior fiscal year.

Sales in the distributor markets decreased $3.6 million, or 25%, for the three months ended May 31, 2020 compared to the corresponding period of the prior fiscal year, primarily due to lower sales of the WD-40 Multi-Use Product in Eastern Europe and India, which were down 52% and 74%, respectively.

This decrease in sales from period to period was primarily due to the lockdowns that occurred in many of the distributor market countries in the third quarter of fiscal year 2020 due to the COVID-19 pandemic.

The distributor markets accounted for 33% of the EMEA segment’s total sales for the three months ended May 31, 2020, compared to 32% for the corresponding period of the prior fiscal year .

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

Three Months Ended February 29/28,

Three Months Ended May 31,

Maintenance products

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% of consolidated net sales

Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region, decreased to $11.5 million, down $5.0 million, or 30%, for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates did not have a significant impact on sales for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year .

Sales in Asia, which represented 67% of the total sales in the Asia-Pacific segment, decreased $4.7 million, or 38%, for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

Sales in the Asia distributor markets decreased $1.3 million, or 17%, primarily attributable to the timing of customer orders from period to period, particularly in Indonesia, South Korea and Thailand.

Sales in China decreased $3.4 million, or 70%, for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year due to various disruptions in the market.

These disruptions include those related to supply chain, transportation and demand for our product, as a result of the government’s response to the public health crisis caused by COVID-19 during the second quarter of fiscal year 2020.

The impact to sales due to these disruptions were material since China had a significant number of orders that were expected to be shipped to customers after the Chinese New Year’s holiday in early February 2020 and those shipments could not take place due to COVID-19.

The ongoing financial and operational impact to the Asia region from COVID-19 will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the outbreak of this virus and the actions being taken to contain it.

Sales in Australia decreased $0.3 million, or 8%, for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region, decreased to $15.6 million, down $0.8 million, or 5%, for the three months ended May 31, 2020 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates had an unfavorable impact on sales for the Asia-Pacific segment from period to period.

Sales for the three months ended May 31, 2020 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $16.4 million in the Asia-Pacific segment.

Thus, on a constant currency basis, sales would have decreased by $0.1 million, or 1%, from period to period.

Sales in Asia, which represented 69% of the total sales in the Asia-Pacific segment, decreased $1.5 million, or 12%, for the three months ended May 31, 2020 compared to the corresponding period of the prior fiscal year.

Sales in the Asia distributor markets decreased $2.5 million, or 30%.

This decrease in sales was primarily due to various disruptions in the market related to the COVID-19 pandemic.

Temporary closures, complete lockdowns and restrictions required by local governmental authorities to combat the COVID-19 pandemic in many of our Asia distributor markets during the third quarter of fiscal year 2020 limited many physical store retailers’ ability to sell our products.

Sales in China increased $1.0 million, or 26%, for the three months ended May 31, 2020 compared to the corresponding period of the prior fiscal year primarily due to the reduction of certain restrictions required by local governmental authorities during the third quarter of fiscal year 2020 in relation to the COVID-19 pandemic, as well as higher sales in the online retail channel.

Disruptions in China related to the COVID-19 pandemic were experienced more heavily in the second quarter of fiscal year 2020.

These disruptions were material since China had a significant number of orders that were expected to be shipped to customers after the Chinese New Year’s holiday in early February 2020 and those shipments could not take place due to the COVID-19 pandemic.

Many of these shipments subsequently took place in the third quarter of fiscal year 2020, resulting in increased sales period over period.

Sales in Australia increased $0.7 million, or 16%, for the three months ended May 31, 2020 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates had an unfavorable impact on Australian sales.

On a constant currency basis, sales would have decreased by $0.1 million, or 3%.

Gross profit decreased to $53.6 million for the three months ended February 29, 2020 compared to $56.2 million for the corresponding period of the prior fiscal year.

As a percentage of net sales, gross profit decreased to 53.6% for the three months ended February 29, 2020 compared to 55.4% for the corresponding period of the prior fiscal year.

Gross margin was negatively impacted by 1.2 percentage points from period to period due to the combined effects of unfavorable impacts of changes to the sales mix and increases in other miscellaneous costs from period to period in all three segments.

The unfavorable impacts in the Americas and EMEA segments were primarily due to unfavorable shifts in product and customer mix, as well as higher miscellaneous costs from period to period.

The unfavorable sales mix impact in the Asia-Pacific segment was primarily attributable to market mix changes resulting from lower sales in China from period to period due to various disruptions in the market.

Gross margin was also negatively impacted by 1.1 percentage points from period to period due to higher warehousing and in-bound freight costs, primarily in the EMEA segment.

In addition, gross margin was negatively impacted by 0.3 percentage points from period to period due to unfavorable changes in the costs of aerosol cans in the Americas and EMEA segments.

Gross margin was also negatively impacted by 0.4 percentage points due to changes in foreign currency exchange rates from period to period in the EMEA segment.

These unfavorable impacts to gross margin were partially offset by sales price increases in the EMEA segment over the last twelve months positively impacting gross margin by 0.7 percentage points from period to period.

In addition, decreases to advertising, promotional and other discounts that we give to our customers from period to period in all three segments, positively impacted gross margin by 0.3 percentage points.

On a constant currency basis, sales would have increased by $1.2 million, or 28%.

Sales in Australia increased primarily due to unprecedented demand for homecare and cleaning products as a result of the COVID-19 pandemic.

In addition, WD-40 Multi Use Product and WD-40 Specialist were up 4% and 18%, respectively, from period to period.

Negative sales impacts to Australia due to the COVID-19 pandemic were very limited in the third quarter of fiscal year 2020 as compared to many other countries since COVID-19 case numbers have remained relatively low in Australia and governmental authorities have adopted less severe lockdown requirements.

This has resulted in many of our key customers in Australia remaining open for business during the COVID-19 pandemic .

Gross profit decreased to $53.1 million for the three months ended May 31, 2020 compared to $62.1 million for the corresponding period of the prior fiscal year.

As a percentage of net sales, gross profit decreased to 54.0% for the three months ended May 31, 2020 compared to 54.5% for the corresponding period of the prior fiscal year.

Gross margin was negatively impacted by 1.2 percentage points from period to period due to higher warehousing and in-bound freight costs, primarily within the EMEA segment .

In addition, increases to advertising, promotional, and other discounts that we give to our customers from period to period in all three segments negatively impacted 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.

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Advertising, promotional and other discounts that are given to our customers are recorded as a reduction to sales, whereas advertising and sales promotional costs associated with promotional activities that we pay to third parties are recorded as advertising and sales promotion expenses.

Gross margin was also positively affected by 0.2 percentage points from period to period due to favorable changes in the costs of petroleum-based specialty chemicals, primarily in the Americas segment.

In addition, gross margin was negatively impacted by 0.2 percentage points from period to period due to unfavorable changes in the costs of aerosol cans.

These unfavorable impacts to gross margin were partially offset by 0.8 percentage points from period to period due to favorable changes in the costs of petroleum-based specialty chemicals in all three segments.

Beginning in late February 2020, the price of crude oil dropped significantly from recent levels.

However, 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.

Although we expect favorability in fiscal year 2020 as a result of this decline in oil prices, the level to which gross margin will be impacted by such costs in future periods is uncertain due to the volatility of the price of crude oil.

Although we are beginning to experience this favorability late in fiscal year 2020 as a result of this decline in oil prices, the level to which gross margin will be impacted by such costs in future periods is uncertain due to the volatility of the price of crude oil.

Gross margin was also positively affected by sales price increases primarily in the EMEA segment during the third quarter of fiscal year 2020, impacting gross margin by 0.4 percentage points from period to period.

Gross margin was also positively impacted by 0.2 percentage points due to changes in foreign currency exchange rates from period to period in the EMEA segment.

In addition, gross margin was positively impacted by 0.2 percentage points due to favorable changes to sales mix, primarily in the Americas and Asia-Pacific segments.

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 $3.1 million and $4.2 million for the three months ended February 29, 2020 and February 28, 2019, respectively.

These costs totaled $3.1 million and $4.7 million for the three months ended May 31, 2020 and 2019, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses for the three months ended February 29, 2020 decreased $0.7 million to $29.9 million from $30.6 million for the corresponding period of the prior fiscal year.

As a percentage of net sales, SG&A expenses decreased to 29.9% for the three months ended February 29, 2020 compared to 30.2% for the corresponding period of the prior fiscal year.

Selling, general and administrative (“SG&A”) expenses for the three months ended May 31, 2020 decreased $4.1 million to $27.9 million from $32.0 million for the corresponding period of the prior fiscal year.

As a percentage of net sales, SG&A expenses increased to 28.4% for the three months ended May 31, 2020 compared to 28.0% for the corresponding period of the prior fiscal year.

The decrease in SG&A expenses from period to period was due to a variety of factors, but most significantly due to lower travel and meeting expenses and decreased freight costs.

Travel and meeting expenses decreased by $2.0 million from period to period, primarily due to initiatives adopted by the Company during the third quarter of fiscal year 2020 to reduce the transmission of COVID-19, including the imposition of business travel restrictions for all employees and the cancellation of all large meetings, such as regional sales meetings and global leadership meetings, in support of social distancing requirements.

Freight costs associated with shipping products to our customers also decreased by $1.6 million, partially due to lower sales from period to period.

Employee-related costs, which include salaries, incentive compensation, profit sharing, stock-based compensation and other fringe benefits, decreased by $0.3 million.

This decrease was primarily due to lower earned incentive compensation from period to period , partially offset by increased headcount and annual compensation increases.

These decreases were slightly offset by increased other miscellaneous expenses from period to period .

Changes in foreign currency exchange rates did not have a significant impact on SG&A expenses for the three months ended February 29, 2020.

This decrease was primarily due to lower earned incentive compensation from period to period as a result of lower expected financial results for fiscal year 2020, partially offset by increased headcount and annual compensation increases.

In addition, favorable changes in foreign currency exchange rates decreased SG&A expenses by $0.4 million from period to period.

These decreases were slightly offset by increases of $0.2 million of other miscellaneous expenses from period to period .

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 $1.5 million for both the three months ended February 29, 2020 and February 28, 2019.

Our research and development team engages in consumer research, product development, current product improvement and testing activities.

Research and development costs were $1.4 million and $1.7 million for the three months ended May 31, 2020 and 2019, 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 third-party contract manufacturers.

1 unchanged sentence

Advertising and Sales Promotion Expenses

Advertising and sales promotion expenses for the three months ended February 29, 2020 decreased $0.3 million, or 6%, to $4.9 million from $5.2 million for the corresponding period of the prior fiscal year .

As a percentage of net sales, these expenses decreased to 4.9% for the three months ended February 29, 2020 from 5.1% for the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates did not have a significant impact on advertising and sales promotion expenses for the three months ended February 29, 2020.

The decrease in advertising and sales promotion expenses was primarily due to a lower level of promotional programs and marketing support in the Asia-Pacific and Americas.

At this time, the Company is not able to estimate its investment in global advertising and sales promotion expense for the remainder of fiscal year 2020 due to the uncertainty caused by COVID-19 and its impact on our financial results and operations.

Advertising and sales promotion expenses for the three months ended May 31, 2020 decreased $1.5 million, or 24%, to $4.8 million from $6.3 million for the corresponding period of the prior fiscal year .

As a percentage of net sales, these expenses decreased to 4.8% for the three months ended May 31, 2020 from 5.5% for the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates did not have a significant impact on advertising and sales promotion expenses for the three months ended May 31, 2020.

The decreased level of advertising and sales promotion expenses was primarily due to the reduction of promotional program spending in all three segments due to indirect effects of the COVID-19 pandemic during the third quarter of fiscal year 2020, such as the cancellations of trade shows and fewer opportunities for physical marketing and sampling activities.

At this time, the Company is not able to estimate its investment in global advertising and sales promotion expense for the remainder of fiscal year 2020 due to the uncertainty caused by the COVID-19 pandemic and its impact on our financial results and operations.

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, 2020 were $4.5 million compared to $4.8 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 $10.0 million for the three months ended February 29, 2020 and February 28, 2019, respectively.

Total promotional costs recorded as a reduction to sales was $5.0 million for both three months ended May 31, 2020 and 2019.

Therefore, our total investment in advertising and sales promotion activities totaled $9.8 million and $11.3 million for the three months ended May 31, 2020 and 2019, respectively.

Amortization of Definite-lived Intangible Assets Expense

Amortization of our definite-lived intangible assets remained constant at $0.7 million for both the three months ended February 29, 2020 and February 28, 2019.

Amortization of our definite-lived intangible assets decreased to $0.6 million for the three months ended May 31, 2020 compared to $0.7 million for the corresponding period in the prior year.

Income from Operations by Segment

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

Three Months Ended February 29/28,

Three Months Ended May 31,

Unallocated corporate (1)

1 unchanged sentence

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.

Income from operations for the Americas increased to $11.4 million, up $1.4 million, or 14%, for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $2.9 million increase in sales and slightly lower operating expenses, which were partially offset by a lower gross margin.

As a percentage of net sales, gross profit for the Americas segment decreased from 53.2% to 52.4% period over period primarily due to unfavorable shifts in product and customer mix, as well as higher miscellaneous costs and unfavorable changes in the costs of aerosol cans .

These unfavorable impacts were slightly offset by the decreased costs of petroleum-based specialty chemicals and a lower level of discount that we gave our customers from period to period .

Operating income as a percentage of net sales increased from 22.8% to 24.3% period over period.

Income from operations for the EMEA segment remained relatively constant at $10.6 million from period to period.

Although sales increased $0.8 million and operating expenses decreased from period to period, these favorable impacts were offset by a lower gross margin.

Operating expenses decreased $0.8 million period over period, primarily due to lower accruals for earned incentive compensation.

As a percentage of net sales, gross profit for the EMEA segment decreased from 58.2% to 55.0% period over period primarily due to increased warehousing, distribution and freight costs as well as unfavorable changes in sales mix and higher miscellaneous costs.

These unfavorable impacts were partially offset by sales price increases, favorable changes in foreign currency exchange rates and a lower level of discounts that we gave our customers from period to period.

Income from operations for the Americas decreased to $14.4 million, down $1.0 million, or 6%, for the three months ended May 31, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $2.9 million decrease in sales and a lower gross margin, offset by a $0.7 million decrease in operating expenses.

As a percentage of net sales, gross profit for the Americas segment decreased from 53.3% to 53.1% period over period primarily due to increases to advertising, promotional, and other discounts that we give to our customers from period to period , partially offset by favorable changes to the sales mix and lower miscellaneous costs from period to period .

Operating expenses decreased $0.7 million period over period, primarily due to lower travel and meeting expenses due to initiatives adopted by the Company during the third quarter of fiscal year 2020 to reduce the transmission of COVID-19, as well as a lower level of advertising and sales promotion expenses from period to period.

Operating income as a percentage of net sales decreased from 29.1% to 28.8% period over period.

Income from operations for the Asia-Pacific segment decreased to $3.1 million, down $2.0 million, or 40%, for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $5.0 million

decrease in sales and a lower gross margin, which were partially offset by lower operating expenses from period to period.

As a percentage of net sales, gross profit for the Asia-Pacific segment decreased from 54.5% to 53.1% period over period primarily due to market mix changes resulting from lower sales in China from period to period due to various disruptions in the market.

In addition, gross margin was negatively impacted by increases in warehousing, distribution and freight costs from period to period.

These unfavorable impacts were partially offset by the decreased costs of petroleum-based specialty chemicals period to period.

The lower sales were accompanied by a $0.9 million decrease in total operating expenses period over period, primarily due to a lower level of advertising and sales promotion expenses from period to period.

Income from operations for the EMEA segment decreased to $7.2 million, down $2.7 million, or 28% from period to period, primarily due to a $12.0 million decrease in sales and a lower gross margin, partially offset by a $4.3 million decrease in operating expenses.

Operating expenses decreased primarily due to lower accruals for earned incentive compensation, decreased freight expense, and lower advertising and sales promotion expenses.

As a percentage of net sales, gross profit for the EMEA segment decreased from 55.8% to 54.9% period over period primarily due to increased warehousing, distribution and freight costs as well as unfavorable changes in sales mix and higher miscellaneous costs.

These unfavorable impacts to gross margin were partially offset by the decreased costs of petroleum-based specialty chemicals, as well as sales price increases from period to period.

Operating expenses decreased $4.3 million period over period, primarily due to lower accruals for earned incentive compensation and decreased outbound freight costs.

In addition, operating expenses decreased due to lower travel and meeting expenses due to initiatives adopted by the Company during the third quarter of fiscal year 2020 to reduce the transmission of COVID-19, as well as a lower level of advertising and sales promotion expenses from period to period.

Operating income as a percentage of net sales decreased from 22.3% to 22.1% period over period .

Income from operations for the Asia-Pacific segment increased to $5.8 million, up $1.4 million, or 32%, for the three months ended May 31, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $1.7 million decrease in operating expenses and a higher gross margin, which was partially offset by reduced sales.

As a percentage of net sales, gross profit for the Asia-Pacific segment increased from 54.6% to 55.2% period over period primarily due to the decreased costs of petroleum-based specialty chemicals, as well as favorable market mix changes resulting primarily from higher sales in China from period to period.

Sales in China were higher from period to period partially due to certain shipments that were delayed from the second quarter to the third quarter of fiscal year 2020 as a result of reduced disruptions in the market related to the COVID-19 pandemic.

Disruptions in China related to the COVID-19 pandemic were experienced more heavily in the second quarter of fiscal year 2020.

These favorable impacts to gross margin were partially offset by increases in warehousing, distribution and freight costs, as well as a higher level of advertising, promotional, and other discounts that we give to our customers from period to period.

Operating expenses decreased $1.7 million period over period, primarily due to a lower level of advertising and sales promotion expenses and lower accruals for earned incentive compensation from period to period.

Operating income as a percentage of net sales increased from 26.4% to 36.7% 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 29/28,

Three Months Ended May 31,

Interest income

3 unchanged sentences

Interest Income

Interest income was insignificant for both the three months ended February 29, 2020 and February 28, 2019.

Interest income was insignificant for both the three months ended May 31, 2020 and 2019.

Interest Expense

Interest expense remained relatively constant for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year .

Other (Expense) Income, Net

Other (expense) income, net changed by $0.7 million for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year primarily due to foreign currency exchange losses of $0.2 million for the three months ended February 29, 2020 compared to foreign currency exchange gains of $0.5 million in the corresponding period of the prior fiscal year as a result of fluctuations in the foreign currency exchange rates for both the U.S.

Dollar and the Euro against the Pound Sterling .

Interest expense increased $0.2 million for the three months ended May 31, 2020 compared to the corresponding period of the prior fiscal year primarily due to an increased outstanding balance on our revolving credit facility, partially offset by lower interest rates from period over period .

Other Income (Expense), Net

Other income (expense), net was insignificant for both the three months ended May 31, 2020 and 2019 .

Provision for Income Taxes

The provision for income taxes was 17.6% and 18.7% of income before income taxes for the three months ended February 29, 2020 and February 28, 2019, respectively.

The decrease in the effective income tax rate from period to period was primarily due to an increase in excess tax benefits from settlements of stock-based equity awards during the quarter that are recognized in the provision for income tax, as well as an increase of taxable earnings from foreign operations which are taxed at lower tax rates.

Net income was $14.3 million, or $1.04 per common share on a fully diluted basis, for the three months ended February 29, 2020 compared to $15.9 million, or $1.14 per common share on a fully diluted basis, for the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates did not have a significant impact on net income for the three months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

Six Months Ended February 29, 2020 Compared to Six Months Ended February 28, 2019

The provision for income taxes was 23.9% and 19.8% of income before income taxes for the three months ended May 31, 2020 and 2019, respectively.

The increase in the effective income tax rate from period to period was primarily due to a decrease in earnings from foreign operations resulting in a decrease in the net benefit received from the application of the GILTI / FDII calculation.

Net income was $14.5 million, or $1.06 per common share on a fully diluted basis, for the three months ended May 31, 2020 compared to $18.1 million, or $1.30 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 $0.4 million on net income for the three months ended May 31, 2020 compared to the corresponding period of the prior fiscal year.

On a constant currency basis, net income would have decreased by $3.2 million from period to period .

Nine Months Ended May 31, 2020 Compared to Nine Months Ended May 31, 2019

Operating Items

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

Six Months Ended February 29/28,

Nine Months Ended May 31,

Maintenance products

8 unchanged sentences

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

Six Months Ended February 29/28,

Nine Months Ended May 31,

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

Six Months Ended February 29/28,

Nine Months Ended May 31,

Maintenance products

1 unchanged sentence

% of consolidated net sales

Sales in the Americas segment, which includes the U.S., Canada and Latin America, increased to $93.6 million, up $1.9 million, or 2%, for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates did not have a significant impact on sales for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

Sales of maintenance products in the Americas segment increased $2.5 million, or 3%, for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

This sales increase was mainly driven by higher sales of WD-40 Multi Use Product in the U.S.

, which were up $1.8 million, or 4% from period to period primarily due to the success of certain promotional activities in the second quarter of fiscal year 2020 .

Sales of maintenance products in Canada also increased $0.6 million, or 11%, from period to period primarily due to successful promotional programs during the three months ended February 29, 2020.

Sales of homecare and cleaning products in the Americas decreased $0.6 million, or 6%, for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

This sales decrease was driven primarily by a decrease in sales of the Spot Shot and Lava brand products in the U.S., which were down 16% and 14%, respectively, from period to period.

For the Americas segment, 79% of sales came from the U.S., and 21% of sales came from Canada and Latin America combined for the six months ended February 29, 2020 compared to the distribution for the six months ended February 28, 2019 when 80% of sales came from the U.S., and 20% of sales came from Canada and Latin America.

Sales in the Americas segment, which includes the U.S., Canada and Latin America, decreased to $143.7 million, down $1.0 million, or 1%, for the nine months ended May 31, 2020 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates did not have a significant impact on sales for the nine months ended May 31, 2020 compared to the corresponding period of the prior fiscal year.

Sales of maintenance products in the Americas segment decreased $2.2 million, or 2%, for the nine months ended May 31, 2020 compared to the corresponding period of the prior fiscal year.

This sales decrease was mainly driven by lower sales of WD-40 Multi Use Product in Latin America, which were down $2.9 million, or 16% from period to period primarily due to various disruptions in the market related to the COVID-19 pandemic.

In addition, sales in Latin America were negatively impacted due to decreased sales in Mexico as a result of a change we made in the distribution model for this region.

In the third quarter of fiscal year 2020, we shifted away from a distribution model for this country where we sold product through a large wholesale customer who then supplied various retail customers, to one where we sell direct to these retail customers.

The sales decreases in Latin America were partially offset by sales increases of maintenance products in the U.S.

and Canada of $0.6 million and $0.2 million, or 1% and 3%, respectively from period to period.

Although the impacts of the COVID-19 pandemic weakened sales levels in the U.S.

and Canada during the third quarter of fiscal year 2020, these sales decreases were more than offset by successful promotional programs during the first six months of fiscal year 2020.

Sales of homecare and cleaning products in the Americas increased $1.3 million, or 9%, for the nine months ended May 31, 2020 compared to the corresponding period of the prior fiscal year.

This sales increase was driven primarily by an increase in sales of the 2000 Flushes brand products in the U.S., which were up $1.1 million or 28% from period to period.

We experienced a significant increase in sales of our homecare and cleaning products beginning in the third quarter of fiscal year 2020 due to increased demand for such products as a result of the COVID-19 pandemic.

We are not able at this time to estimate the duration of this unexpected increase in the demand for these products and its impact on our financial results and operations in future periods.

For the Americas segment, 82% of sales came from the U.S., and 18% of sales came from Canada and Latin America combined for the nine months ended May 31, 2020 compared to the distribution for the nine months ended May 31, 2019 when 80% of sales came from the U.S., and 20% of sales came from Canada and Latin America.

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

Six Months Ended February 29/28,

Nine Months Ended May 31,

Maintenance products

1 unchanged sentence

% of consolidated net sales

Sales in the EMEA segment, which includes Europe, the Middle East, Africa and India, increased to $81.0 million, up $1.3 million, or 2%, for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

Sales in the EMEA segment, which includes Europe, the Middle East, Africa and India, decreased to $113.5 million, down $10.7 million, or 9%, for the nine months ended May 31, 2020 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, 2020 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $82.4 million in the EMEA segment.

Thus, on a constant currency basis, sales would have increased by $2.7 million, or 3%, from period to period.

Sales for the nine months ended May 31, 2020 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $116.3 million in the EMEA segment.

Thus, on a constant currency basis, sales would have decreased by $8.0 million, or 6%, from period to period.

Sales in the direct markets increased to $54.4 million, up $2.0 million, or 4%, for the six months ended February 29, 2020, compared to the corresponding period of the prior fiscal year primarily due to a $1.1 million, or 3%, increase in sales of the WD-40 Multi-Use Product throughout most markets.

This increase in sales was primarily due to a higher level of promotional activities and the timing of customer orders from period to period.

Sales in the direct markets decreased to $76.1 million, down $6.4 million, or 8%, for the nine months ended May 31, 2020, compared to the corresponding period of the prior fiscal year primarily due to a $5.8 million, or 10%, decrease in sales of the WD-40 Multi-Use Product throughout the direct markets.

This decrease in sales was primarily due to various disruptions in the market related to the COVID-19 pandemic.

These disruptions primarily included decreased availability of our product, as well as disruptions related to supply chain and transportation as a result of the responses from third-party businesses and governmental authorities to the public health crisis caused by COVID-19 during the third quarter of fiscal year 2020.

Although higher overall sales during the first half of fiscal year 2020 slightly offset these negative impacts, WD-40 Multi-Use Product sales decreased from period to period primarily due to the comprehensive lockdown measures adopted by many European countries at physical store retailers to combat the COVID-19 pandemic during the third quarter of fiscal year 2020.

These lockdowns limited many retailers’ ability to participate in promotional activities and sell high volumes of certain products, such as our WD-40 Multi-Use Product.

In addition, sales of 1001 Carpet Fresh in the U.K.

increased $0.8 million, or 19%, as a result of the favorable impacts of digital marketing associated with this brand.

Sales from direct markets accounted for 67% of the EMEA segment’s sales for the six months ended February 29, 2020 compared to 66% for the corresponding period of the prior fiscal year.

also decreased $0.6 million, or 8%, during the nine months ended May 31, 2020 as a result of a significantly higher level of sales in the corresponding period of the prior fiscal year, particularly in the third quarter, due to the favorable impacts of digital marketing associated with this brand.

Sales from direct markets accounted for 67% of the EMEA segment’s sales for the nine months ended May 31, 2020 compared to 66% 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 $0.7 million, or 2%, for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year, primarily due to lower sales of the WD-40 Multi-Use Product in the Eastern Europe and India, which were down 6% and 27%, respectively.

The distributor markets accounted for 33% of the EMEA segment’s total sales for the six months ended February 29, 2020, compared to 34% for the corresponding period of the prior fiscal year.

Sales in the distributor markets decreased $4.3 million, or 10%, for the nine months ended May 31, 2020 compared to the corresponding period of the prior fiscal year, primarily due to lower sales of the WD-40 Multi-Use Product in the Eastern Europe and India, which were down 20% and 42%, respectively.

The distributor markets accounted for 33% of the EMEA segment’s total sales for the nine months ended May 31, 2020, compared to 34% for the corresponding period of the prior fiscal year .

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

Six Months Ended February 29/28,

Nine Months Ended May 31,

Maintenance products

1 unchanged sentence

% of consolidated net sales

Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region, decreased to $24.0 million, down $7.2 million, or 23%, for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region, decreased to $39.7 million, down $8.0 million, or 17%, for the nine months ended May 31, 2020 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, 2020 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $24.5 million in the Asia-Pacific segment.

Sales for the nine months ended May 31, 2020 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $40.9 million in the Asia-Pacific segment.

Thus, on a constant currency basis, sales would have decreased by $6.8 million, or 14%, from period to period.

Sales in Asia, which represented 67% of the total sales in the Asia-Pacific segment, decreased $7.0 million, or 30%, for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

Sales in the Asia distributor markets decreased $3.0 million, or 19%, primarily attributable to the timing of customer orders from period to period, particularly in Indonesia, South Korea, Malaysia and Thailand.

Sales in China decreased $4.1 million, or 52%, for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year primarily due to various disruptions in the market.

Sales in Australia decreased $0.2 million, or 2%, for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

Sales in Asia, which represented 68% of the total sales in the Asia-Pacific segment, decreased $8.5 million, or 24%, for the nine months ended May 31, 2020 compared to the corresponding period of the prior fiscal year.

Sales in the Asia distributor markets decreased $5.5 million, or 23%.

Sales in China decreased $3.1 million, or 26%, for the nine months ended May 31, 2020 compared to the corresponding period of the prior fiscal year.

These decreases in sales were primarily due to various disruptions in the market related to the COVID-19 pandemic.

Temporary closures, lockdowns and restrictions required by local governmental authorities to combat the COVID-19 pandemic within the Asia market limited many physical store retailers’ ability to sell high volumes of our maintenance products.

Sales in Australia increased $0.5 million, or 4%, for the nine months ended May 31, 2020 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates had an unfavorable impact on Australian sales.

On a constant currency basis, sales would have increased by $0.3 million, or 3%, due to a higher level of promotional activities as well as continued growth of our business from period to period.

Gross profit decreased to $107.1 million for the six months ended February 29, 2020 compared to $112.0 million for the corresponding period of the prior fiscal year.

As a percentage of net sales, gross profit decreased to 53.9% for the six months ended February 29, 2020 compared to 55.3% for the corresponding period of the prior fiscal year.

On a constant currency basis, sales would have increased by $1.5 million, or 12%, due to a higher level of promotional activities as well as the continued growth of our business from period to period.

Sales in Australia increased primarily due to unprecedented demand for homecare and cleaning products as a result of the COVID-19 pandemic during the third quarter of fiscal year 2020.

In addition, WD-40 Multi Use Product and WD-40 Specialist were up 4% and 8%, respectively, from period to period.

Negative sales impacts to Australia due to the COVID-19 pandemic have been very limited in fiscal year 2020 compared to many other countries since COVID-19 case numbers have remained relatively low in Australia and governmental authorities have adopted less severe lockdown requirements.

This has resulted in many of our key customers remaining open for business during the COVID-19 pandemic.

Gross profit decreased to $160.2 million for the nine months ended May 31, 2020 compared to $174.1 million for the corresponding period of the prior fiscal year.

As a percentage of net sales, gross profit decreased to 54.0% for the nine months ended May 31, 2020 compared to 55.0% for the corresponding period of the prior fiscal year.

Gross margin was negatively impacted by 1.1 percentage points from period to period due to higher warehousing and in-bound freight costs, primarily in the EMEA segment.

Gross margin was also negatively impacted by 0.5 percentage points from period to period due to the combined effects of unfavorable impacts of changes to the sales mix and increases in other miscellaneous costs from period to period in all three segments.

The unfavorable impacts in the Americas and EMEA segments were primarily due to unfavorable shifts in product and customer mix, as well as higher miscellaneous costs from period to period.

The unfavorable sales mix impact in the Asia-Pacific segment was primarily due to market mix changes resulting from lower sales in China from period to period due to various disruptions in the market.

Gross margin was also negatively impacted by 1.0 percentage points from period to period due to higher warehousing and in-bound freight costs, primarily in the EMEA segment.

In addition, gross margin was negatively impacted

by 0.2 percentage points from period to period due to unfavorable changes in the costs of aerosol cans in all three segments.

Gross margin was also negatively impacted by 0.1 percentage points due to changes in foreign currency exchange rates from period to period in the EMEA segment.

These unfavorable impacts to gross margin were partially offset by sales price increases in the EMEA segment over the last twelve months positively impacting gross margin by 0.8 percentage points from period to period.

The unfavorable sales mix impact in the Asia-Pacific segment was primarily due to market mix changes resulting from lower sales in China as a result of the COVID-19 pandemic.

In addition, gross margin was negatively impacted by 0.2 percentage points from period to period due to unfavorable changes in the costs of aerosol cans in the Americas and

EMEA segments.

Advertising, promotional, and other discounts that we give to our customers increased from period to period in the Americas and Asia-Pacific segments, negatively impacting gross margin by 0.2 percentage points.

These unfavorable impacts to gross margin were partially offset by sales price increases in the EMEA segment during the first nine months of fiscal year 2020, positively impacting gross margin by 0.6 percentage points from period to period.

Gross margin was also positively affected by 0.4 percentage points from period to period due to favorable changes in the costs of petroleum-based specialty chemicals in all three segments .

These costs totaled $6.1 million and $8.3 million for the six months ended February 29, 2020 and February 28, 2019, respectively.

These costs totaled $9.3 million and $13.0 million for the nine months ended May 31, 2020 and 2019, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses for the six months ended February 29, 2020 decreased $0.8 million to $62.5 million from $63.3 million for the corresponding period of the prior fiscal year.

As a percentage of net sales, SG&A expenses increased to 31.5% for the six months ended February 29, 2020 compared to 31.3% for the corresponding period of the prior fiscal year.

This decrease was primarily due to lower earned incentive compensation of $1.6 million and a favorable impact of $0.4 million due to changes in foreign currency exchange rates from period to period.

This decrease was partially offset by increased headcount and annual compensation increases from period to period, as well as higher stock-based compensation expense and increases in other miscellaneous expenses from period to period .

Selling, general and administrative (“SG&A”) expenses for the nine months ended May 31, 2020 decreased $4.9 million to $90.4 million from $95.3 million for the corresponding period of the prior fiscal year.

As a percentage of net sales, SG&A expenses increased to 30.5% for the nine months ended May 31, 2020 compared to 30.1% for the corresponding period of the prior fiscal year.

The decrease in SG&A expenses from period to period was due to a variety of factors, but most significantly due to lower freight costs, decreased travel and meeting expenses and the favorable impacts of changes in foreign currency exchange rates.

Freight costs associated with shipping products to our customers decreased by $3.6 million, partially due to lower sales from period to period.

Travel and meeting expenses decreased by $1.8 million from period to period, primarily due to initiatives adopted by the Company during the third quarter of fiscal year 2020 to reduce the transmission of COVID-19, including the imposition of business travel restrictions for all employees and the cancellation of all large meetings, such as regional sales meetings and global leadership meetings, in support of social distancing requirements.

Favorable changes in foreign currency exchange rates also decreased SG&A expenses by $1.1 million from period to period.

These decreases were partially offset by increased professional services fees, including cloud-based software, which resulted in an increase of $1.1 million from period to period.

In addition, employee-related costs increased by $0.5 million due to increased headcount, annual compensation increases and higher stock-based compensation from period to period, which were all partially offset by lower earned incentive compensation .

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 $3.2 million and $3.3 million for the six months ended February 29, 2020 and February 29, 2019, respectively.

Research and development costs were $4.6 million and $5.0 million for the nine months ended May 31, 2020 and 2019, respectively.

Advertising and Sales Promotion Expenses

Advertising and sales promotion expenses for the six months ended February 29, 2020 decreased $0.7 million, or 6%, to $10.4 million from $11.1 million for the corresponding period of the prior fiscal year .

As a percentage of net sales, these expenses increased to 5.3% for the six months ended February 29, 2020 from 5.5% for the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates did not have a significant impact on advertising and sales promotion expenses for the six months ended February 29, 2020.

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 Asia-Pacific segment.

Advertising and sales promotion expenses for the nine months ended May 31, 2020 decreased $2.2 million, or 13%, to $15.2 million from $17.4 million for the corresponding period of the prior fiscal year .

As a percentage of net sales, these expenses decreased to 5.1% for the nine months ended May 31, 2020 from 5.5% for the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates did not have a significant impact on advertising and sales promotion expenses for the nine months ended May 31, 2020.

The decreased level of advertising and sales promotion expenses was primarily due to the reduction of promotional program spending in all three segments due to indirect effects of the COVID-19 pandemic primarily during the third quarter of fiscal year 2020, such as the cancellations of trade shows and fewer opportunities for physical marketing and sampling activities.

Total promotional costs recorded as a reduction to sales for the six months ended February 29, 2020 were $9.5 million compared to $9.1 million for the corresponding period of the prior fiscal year.

Therefore, our total investment in advertising and sales promotion activities totaled $19.9 million and $20.2 million for the six months ended February 29, 2020 and February 28, 2019, respectively.

Total promotional costs recorded as a reduction to sales for the nine months ended May 31, 2020 were $14.5 million compared to $14.1 million for the corresponding period of the prior fiscal year.

Therefore, our total investment in advertising and sales promotion activities totaled $29.7 million and $31.5 million for the nine months ended May 31, 2020 and 2019, respectively.

Amortization of Definite-lived Intangible Assets Expense

Amortization of our definite-lived intangible assets decreased to $1.3 million for the six months ended February 29, 2020 compared to $1.4 million for the six months ended February 28, 2019.

Amortization of our definite-lived intangible assets decreased to $1.9 million for the nine months ended May 31, 2020 compared to $2.1 million for the nine months ended May 31, 2019.

Income from Operations by Segment

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

Six Months Ended February 29/28,

Nine Months Ended May 31,

Unallocated corporate

Income from operations for the Americas increased to $22.0 million, up $0.7 million, or 3%, for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $1.9 million increase in sales and lower operating expenses, partially offset by a lower gross margin.

As a percentage of net sales, gross profit for the Americas segment decreased from 53.7% to 52.8% period over period primarily due to unfavorable shifts in product and customer mix, as well as higher miscellaneous costs and unfavorable changes in the costs of aerosol cans .

These unfavorable impacts were slightly offset by the decreased costs of petroleum-based specialty chemicals from period to period .

Operating expenses decreased $0.5 million period over period , primarily due to lower accruals for earned incentive compensation.

These decreases in operating expenses were partially offset by increased employee-related expenses .

Income from operations for the Americas decreased to $36.4 million, down $0.3 million, or 1%, for the nine months ended May 31, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $1.0 million decrease in sales and a lower gross margin, partially offset by lower operating expenses.

As a percentage of net sales, gross profit for the Americas segment decreased from 53.6% to 52.9% period over period primarily due to increases to advertising, promotional, and other discounts that we give to our customers and unfavorable shifts in product and customer mix .

These unfavorable impacts to gross margin were slightly offset by the decreased costs of petroleum-based specialty chemicals from period to period .

Operating expenses decreased $1.2 million period over period , primarily due to lower accruals for earned incentive compensation and lower travel and meeting expenses due to initiatives adopted by the Company during the third quarter of fiscal year 2020 to reduce the transmission of COVID-19.

In addition, operating expenses decreased due to a lower level of advertising and sales promotion expenses from period to period.

Operating income as a percentage of net sales increased from 25.4% to 25.3% period over period.

Income from operations for the EMEA segment increased to $19.2 million, up $0.2 million, or 1%, for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $1.3 million increase in sales and lower operating expenses, which were significantly offset by a lower gross margin.

Operating expenses decreased $1.1 million period over period, primarily due to lower accruals for earned incentive compensation.

As a percentage of net sales, gross profit for the EMEA segment decreased from 57.5% to 55.4% period over period primarily due to increased warehousing, distribution and freight costs as well as unfavorable changes in sales mix and higher miscellaneous costs.

These unfavorable impacts were partially offset by sales price increases from period to period.

Operating income as a percentage of net sales decreased from 23.8% to 23.7% period over period.

Income from operations for the Asia-Pacific segment decreased to $6.3 million, down $2.6 million, or 29%, for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $7.2 million decrease in sales and a slightly lower gross margin, which were partially offset by lower operating expenses.

As a percentage of net sales, gross profit for the Asia-Pacific segment decreased from 54.4% to 53.6% period over period primarily due to market mix changes resulting from lower sales in China from period to period due to the various disruptions in the market.

In addition, gross margin was negatively impacted by increases in warehousing, distribution and freight costs from period to period.

These unfavorable impacts were partially offset by the decreased costs of petroleum-based specialty chemicals from period to period.

The lower sales were accompanied by a $1.5 million decrease in total operating expenses period over period, primarily due to a lower level of advertising and sales promotion expense, as well as decreased outbound freight costs and miscellaneous expenses during the period.

Income from operations for the EMEA segment decreased to $26.4 million, down $2.6 million, or 9%, for the nine months ended May 31, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $10.7 million decrease in sales and a lower gross margin, partially offset by lower operating expenses.

As a percentage of net sales, gross profit for the EMEA segment decreased from 56.8% to 55.3% period over period primarily due to increases in warehousing, distribution and freight costs as well as unfavorable changes in sales mix and higher miscellaneous costs.

These unfavorable impacts to gross margin were partially offset by sales price increases, as well as the decreased costs of petroleum-based specialty chemicals from period to period.

Operating expenses decreased $5.3 million period over period, primarily due to decreased outbound freight costs and lower accruals for earned incentive compensation.

In addition , operating expenses decreased due to lower travel and meeting expenses due to initiatives adopted by the Company during the third quarter of fiscal year 2020 to reduce the transmission of COVID-19, as well as a lower level of advertising and sales promotion expenses from period to period.

Operating income as a percentage of net sales decreased from 23.3% to 23.2% period over period.

Income from operations for the Asia-Pacific segment decreased to $12.0 million, down $1.2 million, or 9%, for the nine months ended May 31, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $8.0 million decrease in sales and a slightly lower gross margin, which were partially offset by lower operating expenses.

As a percentage of net sales, gross profit for the Asia-Pacific segment decreased from 54.4% to 54.2% period over period primarily due to

increases in warehousing, distribution and freight costs from period to period, as well as increases to advertising, promotional, and other discounts that we give to our customers .

These unfavorable impacts to gross margin were partially offset by favorable changes to the cost of petroleum-based specialty chemicals from period to period.

The lower sales were accompanied by a $3.3 million decrease in total operating expenses period over period, primarily due to a lower level of advertising and sales promotion expense and lower outbound freight costs .

In addition, operating expenses decreased due to lower accruals for earned incentive compensation and lower miscellaneous expenses from period to period, as well as lower travel and meeting expenses due to initiatives adopted by the Company during the third quarter of fiscal year 2020 to reduce the transmission of COVID-19.

Operating income as a percentage of net sales increased from 27.8% to 30.4% 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 29/28,

Nine Months Ended May 31,

Interest income

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Interest Income

Interest income was insignificant for both the six months ended February 29, 2020 and February 28, 2019.

Interest income was insignificant for both the nine months ended May 31, 2020 and 2019.

Interest Expense

Interest expense decreased $0.4 million for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year primarily due to lower interest rates related to draws on our credit facilities that are denominated in Euros and Pound Sterling at our U.K.

Interest expense decreased $0.1 million for the nine months ended May 31, 2020 compared to the corresponding period of the prior fiscal year primarily due to lower interest rates related to draws on our revolving credit facility, partially offset by higher outstanding balances on this facility from period over period

Other (Expense) Income, Net

Other (expense) income, net changed by $1.1 million for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year primarily due to foreign currency exchange losses of $0.4 million in the current year compared to $0.9 million of foreign currency gains during the corresponding period of the prior fiscal year as a result of fluctuations in the foreign currency exchange rates for both the U.S.

Other (expense) income, net changed by $1.0 million for the nine months ended May 31, 2020 compared to the corresponding period of the prior fiscal year primarily due to foreign currency exchange losses of $0.4 million in the current year compared to $0.7 million of foreign currency gains during the corresponding period of the prior fiscal year as a result of fluctuations in the foreign currency exchange rates for both the U.S.

Dollar and the Euro against the Pound Sterling.

A significant portion of the foreign currency exchange gains that were recorded for the nine months ended May 31, 2019 were related to the large repatriations from our U.K.

subsidiary which were transacted during the first half of fiscal year 2019 .

Provision for Income Taxes

The provision for income taxes was 16.3% and 18.2% of income before income taxes for the six months ended February 29, 2020 and February 28, 2019, respectively.

The decrease in the effective income tax rate from period to period was primarily due to an increase in excess tax benefits from settlements of stock-based equity awards during the second quarter that are recognized in the provision for income tax, an increase of taxable earnings from foreign operations which are taxed at lower tax rates, and a benefit from the release of liabilities associated with unrecognized tax benefits that resulted from the expiration of statutes.

Net income was $26.5 million, or $1.92 per common share on a fully diluted basis, for the six months ended February 29, 2020 compared to $29.2 million, or $2.09 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 $0.4 million on net income for the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

The provision for income taxes was 19.1% and 18.8% of income before income taxes for the nine months ended May 31, 2020 and 2019, respectively.

The increase in the effective income tax rate from period to period was primarily due to a decrease in the net benefit received from the application of GILTI / FDII calculation, partially offset by an increase in excess tax benefits from settlements of stock-based equity awards during the first six months of fiscal year 2020 that are recognized in the provision for income tax.

Net income was $41.0 million, or $2.98 per common share on a fully diluted basis, for the nine months ended May 31, 2020 compared to $47.3 million, or $3.39 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 $0.8 million on net income for the nine

months ended May 31, 2020 compared to the corresponding period of the prior fiscal year.

On a constant currency basis, net income would have decreased by $5.5 million from period to period.

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

Three Months Ended February 29/28,

Six Months Ended February 29/28,

Three Months Ended May 31,

Nine Months Ended May 31,

Gross margin - GAAP

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Cost of Doing Business (in thousands, except percentages)

Three Months Ended February 29/28,

Six Months Ended February 29/28,

Three Months Ended May 31,

Nine Months Ended May 31,

Total operating expenses - GAAP

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EBITDA (in thousands, except percentages)

Three Months Ended February 29/28,

Six Months Ended February 29/28,

Three Months Ended May 31,

Nine Months Ended May 31,

Net income - GAAP

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The Company’s financial condition and liquidity remain strong.

Net cash provided by operations was $23.4 million for the six months ended February 29, 2020 compared to $17.2 million for the corresponding period of the prior fiscal year.

Although there is uncertainty related to the anticipated impact of the recent COVID-19 outbreak on the Company’s future results, we believe our efficient business model and the recent steps we have taken to strengthen our balance sheet leave us positioned to manage our business through this crisis as it continues to unfold.

Net cash provided by operations was $40.8 million for the nine months ended May 31, 2020 compared to $36.3 million for the corresponding period of the prior fiscal year.

Although there continues to be uncertainty related to the anticipated impact of the current COVID-19 pandemic on the Company’s future results, we believe our efficient business model and the steps that we took during March 2020 to strengthen our balance sheet leave us positioned to manage our business through this crisis as it continues to unfold.

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.

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The Company also holds borrowings under a Note Purchase and Private Shelf Agreement.

See Note 8 – Debt and Note 16 – Subsequent Events for additional information on these agreements.

Included in Note 16 – Subsequent Events is information on an Amended and Restated Credit Agreement that we executed with Bank of America on March 13, 2020 which includes, among other amended provisions, an increase in the revolving commitment from $100.0 million to $150.0 million.

During the week of March 23, 2020, we drew an additional $80.0 million in U.S.

Dollars under this line of credit with Bank of America, bringing the balance on the line of credit to approximately $149.0 million.

As a result of this additional borrowing, we have now drawn almost the entirety of the $150.0 million available under the Credit Agreement.

Although we do not have any presently anticipated need for this additional liquidity, we decided to draw this additional amount to ensure for future liquidity given the recent significant impact on global financial markets and the economy as a result of the COVID-19 outbreak.

See Note 8 – Debt for additional information on these agreements.

Included in Note 8 – Debt is information on the Credit Agreement that we amended and restated with Bank of America on March 16, 2020 which includes, among other amended provisions, an increase in the revolving commitment from $100.0 million to $150.0 million.

The Company maintains a balance of outstanding draws in U.S.

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Dollars from period to period due to changes in foreign currency exchange rates.

During the six months ended February 29, 2020, the Company repaid $5.0 million in short-term borrowings outstanding under the line of credit and drew an additional $10.0 million in short-term borrowings in U.S.

During the nine months ended May 31, 2020, the Company repaid $0.5 million in short-term borrowings outstanding under the line of credit and drew an additional $90.0 million in short-term borrowings in U.S.

Dollars, which included $80.0 million that we drew in U.S.

Dollars in March 2020 in response to the COVID-19 pandemic.

Although we do not have any presently anticipated need for this additional liquidity, we decided to draw this additional amount on our line of credit to ensure future liquidity given the recent significant impact on global financial markets and the economy as a result of the COVID-19 pandemic.

We regularly convert many of our draws on our line of credit to new draws with new maturity dates and interest rates.

As of February 29, 2020, we had a $68.5 million balance of outstanding draws on the revolving credit facility, of which $43.5 was classified as long-term and the remaining $25.0 was classified as short-term.

In addition, net borrowings under the auto-borrow agreement in the United States were $15.5 million and we paid $0.4 million in principal payments on our Series A Notes during the first six months of fiscal year 2020.

We have the ability to refinance any draw under the line of credit with successive short-term borrowings through the March 16, 2025 maturity date.

Outstanding draws for which we have both the ability and intent to refinance with successive short-term borrowings for a period of at least twelve months are classified as long-term.

As of May 31, 2020, we had a $147.4 million balance of outstanding draws on the revolving credit facility, of which $77.4 was classified as long-term and the remaining $70.0 was classified as short-term.

In addition, net repayments under the auto-borrow agreement in the United States were $0.4 million and we paid $0.8 million in principal payments on our Series A Notes during the first nine months of fiscal year 2020.

There were no other letters of credit outstanding or restrictions on the amount available on this line of credit or the Series A Notes.

Per the terms of both the Note Agreement and the Credit 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.

Per the terms of both the Note Agreement and the Credit 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 8 – Debt for additional information on these financial covenants.

At February 29, 2020, we were in compliance with all debt covenants.

At May 31, 2020, we were in compliance with all debt covenants.

We continue to monitor our compliance with all debt covenants.

Our consolidated leverage ratio and consolidated interest coverage ratio covenants, as

well as the restricted payment covenant pertaining to the payment of dividends, are dependent upon our ability to maintain certain levels of EBITDA and net income, respectively, for our most recently completed four fiscal quarters.

At the present time, we have no reason to believe that we will be unable to satisfy these covenants, but the COVID-19 outbreak has limited our ability to forecast EBITDA and net income for the remainder of the year.

We believe that our future cash from domestic and international 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.

At February 29, 2020, we had a total of $30.5 million in cash and cash equivalents.

Our consolidated leverage ratio and consolidated interest coverage ratio covenants, as well as the restricted payment covenant pertaining to the payment of dividends, are dependent upon our ability to maintain certain levels of EBITDA and net income, respectively, for our most recently completed four fiscal quarters.

At the present time, we believe that the likelihood of being unable to satisfy these covenants is remote.

We believe that our future cash from domestic and international 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, dividend payments, acquisitions, new business development activities and share repurchases.

Currently, we have temporarily suspended repurchases under our current share buy-back plan in order to preserve cash while we monitor the impacts of the COVID-19 pandemic.

At May 31, 2020, we had a total of $88.6 million in cash and cash equivalents.

We do not foresee any ongoing issues with repaying our borrowings and we closely monitor the use of this credit facility.

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

Six Months Ended February 29/28,

Nine Months Ended May 31,

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash and cash equivalents

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Operating Activities

Net cash provided by operating activities increased $6.2 million to $23.4 million for the six months ended February 29, 2020 from $17.2 million for the corresponding period of the prior fiscal year.

Net cash provided by operating activities increased $4.5 million to $40.8 million for the nine months ended May 31, 2020 from $36.3 million for the corresponding period of the prior fiscal year.

Cash flows from operating activities depend heavily on operating performance and changes in working capital.

Our primary source of operating cash flows for the six months ended February 29, 2020 was net income of $26.5 million, which decreased $2.7 million from period to period.

The changes in our working capital from period to period were primarily attributable to a lower level of increases in trade accounts receivable and inventory balances during the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

Our primary source of operating cash flows for the nine months ended May 31, 2020 was net income of $41.0 million, which decreased $6.3 million from period to period.

The changes in our working capital from period to period, which increased net cash provided by operating activities, were primarily attributable to a lower level of increases in trade accounts receivable balances during the nine months ended May 31, 2020 compared to the corresponding period of the prior fiscal year as a result of decreased sales from period to period.

In addition, planned increases in inventory levels in the first three quarters of fiscal year 2019, primarily in the Americas and EMEA segments, were higher than such increases in inventory during the first three quarters of fiscal year 2020.

Both of these working capital changes were partially offset by a larger decrease in accrued payroll and related expenses from period to period.

Accrued payroll and related expenses decreased primarily due to the payment of fiscal year 2019 incentive compensation in the first quarter of 2020 and the much lower earned incentive compensation accruals through the nine months ended May 31, 2020 compared to the corresponding period of the prior fiscal year as a result of lower expected financial results for fiscal year 2020 due to the impacts of the COVID-19 pandemic .

Investing Activities

Net cash used in investing activities increased $5.6 million to $10.5 million for the six months ended February 29, 2020 from $4.9 million for the corresponding period of the prior fiscal year, primarily due to increased capital expenditures.

Capital expenditures increased by $5.7 million primarily due to the renovations and equipping of the Company’s new office building in Milton Keynes, England, as well as increased manufacturing-related capital expenditures within the U.K.

Net cash used in investing activities increased $8.9 million to $17.1 million for the nine months ended May 31, 2020 from $8.2 million for the corresponding period of the prior fiscal year, primarily due to increased capital expenditures.

Capital expenditures increased by $8.7 million primarily due to increased manufacturing-related capital expenditures within the U.K.

and the United States.

In addition, capital expenditures increased due to the renovations and equipping of the Company’s new office building in Milton Keynes, England.

The renovations to the new U.K.

office building were completed and employees located in the U.K.

were relocated to it during the first quarter of 2020.

were relocated to it during the first quarter of fiscal year 2020.

Financing Activities

Net cash used in financing activities decreased $18.7 million to $9.8 million for the six months ended February 29, 2020 from $28.5 million for the corresponding period of the prior fiscal year primarily due to higher proceeds provided by the Company’s revolving credit facility, which increased $18.1 million during the six months ended February 29, 2020 compared to the corresponding period of the prior fiscal year.

Also contributing to cash inflows was a reduction in treasury stock purchases of $2.4 million from period to period.

Net cash provided by financing activities was $37.5 million for the nine months ended May 31, 2020 compared to net cash used in financing activities of $38.8 million for the corresponding period of the prior fiscal year, resulting in a net change of $76.3 million.

This change was primarily due to higher proceeds provided by the Company’s revolving credit facility, which increased $73.3 million during the nine months ended May 31, 2020 compared to the corresponding period of the prior fiscal year.

This increase was primarily due the $80.0 million that we drew in U.S.

Dollars in March 2020 in response to the COVID-19 pandemic.

Also contributing to cash inflows was a reduction in treasury stock purchases of $5.6 million from period to period due to us temporarily suspending repurchases under our current share buy-back plan in early April 2020 in order to preserve cash while we continue to monitor the impacts of the COVID-19 pandemic.

Offsetting these increases in cash inflows was an increase in dividends paid of $2.4 million from period to period.

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The net effect of exchange rate changes on cash and cash equivalents, when expressed in U.S.

Dollar terms, was an increase in cash of $0.2 million for the six months ended February 29, 2020 as compared to a decrease in cash of $1.1 million for six months ended February 28, 2019.

Dollar terms, was an increase in cash of $0.2 million for the nine months ended May 31, 2020 as compared to a decrease in cash of $2.4 million for nine months ended May 31, 2019.

These changes were primarily due to fluctuations in various foreign currency exchange rates from period to period, but the majority is related to the fluctuations in the Pound Sterling against the U.S.

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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, 2020, no such commitments were outstanding .

As of May 31, 2020, no such commitments were outstanding .

Share Repurchase Plan

The information required by this item is incorporated by reference to Part I—Item 1, “Notes to Condensed Consolidated Financial Statements” Note 9 — Share Repurchase Plan, included in this report .

On March 17, 2020, the Company’s Board of declared a cash dividend of $0.67 per share payable on April 30, 2020 to shareholders of record on April 17, 2020.

On June 16, 2020, the Company’s Board of declared a cash dividend of $0.67 per share payable on July 31, 2020 to shareholders of record on July 17, 2020.

Our ability to pay dividends could be affected by future business performance, liquidity, capital needs, alternative investment opportunities and loan covenants .

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The following areas all require the use of judgments and estimates:

revenue recognition, accounting for income

taxes, valuation of goodwill and impairment of definite-lived intangible assets.

revenue recognition, 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis