What changed in this filing

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Item 7. Management’s Discussion and Analysis

2020-10-21 compared with 2019-10-22 · 202 added, 163 removed, 247 unchanged (60% of the section changed)

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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.

We sell our products primarily through warehouse club stores, hardware stores, automotive parts outlets, industrial distributors and suppliers, mass retail and home center stores, value retailers, grocery stores, online retailers, farm supply, sport retailers, and independent bike dealers.

The following summarizes the financial and operational highlights for our business during the fiscal year ended August 31, 2020:

 Consolidated net sales increased $14.8 million, or 4%, for fiscal year 2019 compared to the prior fiscal year.

 Consolidated net sales decreased $14.9 million, or 4%, for fiscal year 2020 compared to the prior fiscal year.

Changes in foreign currency exchange rates had an unfavorable impact of $4.9 million on consolidated net sales for fiscal year 2020.

Thus, on a constant currency basis, net sales would have increased by $25.3 million, or 6%, for fiscal year 2019 compared to the prior fiscal year.

Thus, on a constant currency basis, net sales would have decreased by $10.0 million, or 2%, for fiscal year 2020 compared to 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 fiscal year ended August 31, 2020.

 Consolidated net sales for the WD-40 Specialist product line were $35.4 million which is a 13% increase for fiscal year 2019 compared to 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 54.6% for fiscal year 2020 compared to 54.9% for the prior fiscal year.

 Net income and diluted earnings per common share were unfavorably impacted for fiscal year 2019 due to a higher effective income tax rate from period to period as a result of a reserve for an uncertain tax position that was recorded in the fourth quarter of its fiscal year 2019 in the amount of $8.7 million.

The amount recorded was a result of uncertainty created by final regulations released by the U.S.

Treasury Department during fiscal year 2019 relating to the calculation of a mandatory one-time “toll tax” on unremitted foreign earnings included within the U.S.

“Tax Cuts and Jobs Act” .

 Consolidated net income decreased $9.3 million, or 14%, for fiscal year 2019 compared to the prior fiscal year.

 Consolidated net income increased $4.8 million, or 9%, for fiscal year 2020 compared to the prior fiscal year.

Changes in foreign currency exchange rates had an unfavorable impact of $1.8 million on consolidated net income for fiscal year 2020.

Thus, on a constant currency basis, net income would have decreased by $7.7 million, or 12%, for fiscal year 2019 compared to the prior fiscal year.

Thus, on a constant currency basis, net income would have increased by $6.6 million, or 12%, for fiscal year 2020 compared to the prior fiscal year.

Net income in fiscal year 2019 was unfavorably impacted by a reserve for an uncertain tax position of $8.7 million that was recorded during the fourth quarter of fiscal year 2019.

 Consolidated results for the fiscal year ended August 31, 2020 were negatively impacted by the COVID-19 pandemic.

See Significant Developments section which follows for details.

 Diluted earnings per common share for fiscal year 2020 were $4.40 versus $4.02 in the prior fiscal year.

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During the period from September 1, 2019 through August 31, 2020, the Company repurchased 92,583 shares at an average price of $181.73 per share, for a total cost of $16.8 million .

On April 8, 2020, the Company elected to temporarily suspend repurchases under this plan, which subsequently expired on August 31, 2020.

The Company elected this suspension in order to preserve cash while it continued to monitor the impact of the COVID-19 pandemic.

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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and (v) operating with excellence .

Significant Developments

During the fiscal year ended August 31, 2020, our financial results and operations were negatively impacted by the COVID-19 pandemic that began in early calendar year 2020 and as a result, our consolidated net sales decreased by $14.9 million or 4% compared to the prior fiscal year.

The pandemic was disruptive to our business in fiscal year 2020 as a result of the temporary closures, lockdowns and restrictions mandated by various governmental authorities intended to combat the COVID-19 pandemic at physical store retailers.

We were able to reduce the adverse impact of these challenging times due to the strength of our brand, the broad distribution of our products and our continued focus on our strategic initiatives.

While we experienced significant declines in sales levels in our markets where we do not have direct operations (distributor markets) and certain other markets where closures and lockdown measures were severe and extended or where sales are somewhat dependent on the industrial channel, sales in many of our direct markets and sales via ecommerce channels increased from period to period which helped to offset some of this decline in the distributor markets.

The direct markets in which we conduct business were not impacted as much by the pandemic since the channels in which we sell our products in these markets were either not included in these closures or the closures were only temporary in nature.

In addition, increased sales of our homecare and cleaning products from period to period due to the high demand for such products during the pandemic also helped to offset some of the sales declines of our maintenance products in the distributor markets.

We have taken a variety of measures during the COVID-19 pandemic 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.

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.

Due to the speed and fluidity with which the situation continues to develop and the uncertainty on whether recurring waves of the COVID-19 pandemic will occur later in calendar year 2020 or early in 2021, it is very difficult for us to estimate with certainty the extent to which the COVID-19 pandemic will impact 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 in all business segments 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 we are continually monitoring and managing this situation.

See Item 1A, “Risk Factors,” included herein for information on risks associated with pandemics in general and COVID-19 specifically.

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 will have the ability to defer the payment for the employer portion of social security taxes as part of the CARES Act, we do not believe this assistance or any other assistance provided under the CARES Act will have a material impact on our consolidated financial statements and related disclosures.

Results of Operations

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Sales for the fiscal year ended August 31, 2020 translated at the exchange rates in effect for the prior fiscal year would have been $201.2 million in the Americas segment.

Thus, on a constant currency basis, sales would have increased by $1.5 million for the fiscal year ended August 31, 2019 compared to the prior fiscal year.

Thus, on a constant currency basis, sales would have increased by $7.3 million, or 4%, for the fiscal year ended August 31, 2020 compared to the prior fiscal year.

Sales of maintenance products in the Americas segment increased $5.1 million, or 3%, for the fiscal year ended August 31, 2020 compared to the prior fiscal year .

This sales increase was driven by higher sales of maintenance products in the U.S., which were up $5.0 million, or 4%, from period to period, primarily due to higher sales of the WD-40 Specialist product line, which were up $3.8 million, or 28%, due to new distribution and successful promotional programs during fiscal year 2019.

In addition, sales of 3-IN-ONE and WD-40 BIKE brand products increased from period to period by $1.0 million, or 14%, and $0.3 million, or 75%, respectively, also due to new distribution and successful promotional programs during fiscal year 2019.

Although sales of WD-40 Multi-Use Product in the U.S.

were increased from period to period as a result of expanded distribution in the online, industrial and farm trade channels, these increases were significantly offset by the timing of the rotation of products that periodically occurs in the warehouse club channel.

The overall sales increase in the U.S.

was significantly offset by a decrease in sales of maintenance products in Latin America, which were down 6% from period to period primarily due to certain customers buying product in the third quarter of fiscal year 2018 in advance of the price increase which went into effect in the fourth quarter of fiscal year 2018, as well as declining economic conditions in the region from period to period .

Sales of homecare and cleaning products in the Americas segment decreased $2.4 million, or 11%, for the fiscal year ended August 31, 2019 compared to the prior fiscal year.

This sales decrease was driven primarily by a decrease in sales of the 2000 Flushes and Spot Shot brand products, which were down 15% and 9%, 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.

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

and Canada, which were up $5.1 million and $0.8 million, or 5% and 11%, 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 and significantly increased sales in the fourth quarter of fiscal year 2020.

The higher level of sales in the fourth quarter of fiscal year 2020 of WD-40 Multi-Use Product in both the U.S.

and Canada were partially due to increased demand for our product as a result of a higher level of renovation and maintenance activities exhibited by our end-users during the COVID-19 pandemic.

In addition, sales increased due to new distribution and successful promotional programs as well as increased sales through the ecommerce channel in the U.S.

during the COVID-19 pandemic.

These sales increases of WD-40 Multi-Use Product in the U.S.

and Canada were partially offset by a decrease in sales of such products in Latin America of $1.6 million, primarily due to various disruptions in the market related to the COVID-19 pandemic.

The disruptions from the COVID-19 pandemic primarily included decreased availability of our product in the market 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 fourth quarter.

Although sales in Latin America decreased in total, sales in Mexico increased from period to period.

During the third quarter of fiscal year 2020, we shifted away from a distribution model for Mexico where we sold product through a large wholesale customer who then supplied various retail customers, to one where we sell direct to retail customers at a higher margin.

This transition to a direct model resulted in higher sales in Mexico during the fourth quarter and full fiscal year 2020.

While we anticipate a continued successful build of our direct customer base in Mexico in future periods under this new direct model, the impact on sales in future periods resulting from this transition is uncertain at this time.

Sales of homecare and cleaning products in the Americas segment increased $1.4 million, or 7%, for the fiscal year ended August 31, 2020 compared to 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 $1.5 million or 27% 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.

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, 82% of sales came from the U.S., and 18% of sales came from Canada and Latin America combined for the fiscal year ended August 31, 2020 compared to the prior fiscal year when 81% of sales came from the U.S., and 19% of sales came from Canada and Latin America combined .

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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 $160.6 million, up $9.7 million, or 6%, for the fiscal year ended August 31, 2019 compared to the prior fiscal year.

Sales in the EMEA segment, which includes Europe, the Middle East, Africa and India, decreased to $156.2 million, down $4.4 million, or 3%, for the fiscal year ended August 31, 2020 compared to 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 fiscal year ended August 31, 2020 translated at the exchange rates in effect for the prior fiscal year would have been $159.0 million in the EMEA segment.

Thus, on a constant currency basis, sales would have increased by $17.5 million, or 12%, for the fiscal year ended August 31, 2019 compared to the prior fiscal year.

Thus, on a constant currency basis, sales would have decreased by $1.7 million, or 1%, for the fiscal year ended August 31, 2020 compared to the prior fiscal year.

The countries in Europe where we sell through a direct sales force include the U.K., Italy, France, Iberia (which includes Spain and Portugal) and the Germanics sales region (which includes Germany, Austria, Denmark, Switzerland, Belgium and the Netherlands).

Sales in the direct markets increased $5.2 million, or 5%, for the fiscal year ended August 31, 2019 compared to the prior fiscal year, primarily due to a $3.4 million, or 5%, 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, increased distribution of WD-40 EZ-REACH Flexible product as well as the timing of customer orders from period to period.

Also contributing to the overall sales increase in the direct markets were higher sales of 1001 Carpet Fresh, which were up $3.6 million, or 60%, driven by the favorable impacts of digital marketing associated with this brand.

Sales in the direct markets increased $2.4 million, or 2%, for the fiscal year ended August 31, 2020 compared to the prior fiscal year, primarily due to an increase in sales of the WD-40 BIKE and WD-40 Specialist product lines of $1.4 million and $1.1 million, or 105% and 10%, respectively, throughout the direct markets.

The increase in sales of WD-40 BIKE products was primarily due to strong demand in countries where our end-users were following recommendations to exercise outdoors in socially distanced settings due to the COVID-19 pandemic.

The increase in sales of WD-40 Specialist was primarily due to increased distribution across all direct markets and a higher level of sales in the ecommerce channel for this product line from period to period.

Sales of WD-40 Multi-Use Product were relatively constant for fiscal year 2020 compared to the prior fiscal year due to various disruptions in the direct markets during fiscal year 2020, primarily in the third quarter, related to the COVID-19 pandemic.

These disruptions included severe lockdowns measures during the third quarter of fiscal year 2020 which limited many retailers’ ability to participate in promotional activities and sell high volumes of certain products, such as our WD-40 Multi-Use Product.

However, a significant rebound in sales volumes during the fourth quarter as a result of these lockdown measures being reduced by governmental authorities and higher sales during the first half of fiscal year 2020 offset these negative impacts and resulted in a slight increase in sales of WD-40 Multi-Use Product across the direct markets for fiscal year 2020 compared to the prior fiscal year.

Sales from direct markets accounted for 70% of the EMEA segment’s sales for the fiscal year ended August 31, 2020 compared to 67% of the EMEA segment’s sales for the prior fiscal year.

The regions in the EMEA segment where we sell through local distributors include the Middle East, Africa, India, Eastern and Northern Europe.

Sales in the distributor markets increased $4.5 million, or 9%, for the fiscal year ended August 31, 2019 compared to the prior fiscal year, primarily due to higher sales of the WD-40 Multi-Use Product in Eastern Europe, particularly Russia, which was up $3.8 million, or 44%, as a result of a higher level of promotional activities and more stable economic conditions period over period.

Higher sales of WD-40 Multi-Use Product in India and Northern Europe also contributed to the overall sales increase in the distributor markets.

This increase was primarily due to a higher level of distribution resulting from increased brand building activities period over period.

Sales in the distributor markets decreased $6.7 million, or 13%, for the fiscal year ended August 31, 2020 compared to the prior fiscal year, primarily due to lower sales of the WD-40 Multi-Use Product in Eastern Europe and the Middle East, which were down 25% and 12%, 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 second half of fiscal year 2020 due to the COVID-19 pandemic.

Although sales in the EMEA direct markets rebounded in the fourth quarter of fiscal year 2020, the COVID-19 pandemic continued to negatively impact sales in the distributor markets in the fourth quarter as a result of the comprehensive lockdown measures that continued to be in place in many of these markets.

The distributor markets accounted for 30% of the EMEA segment’s total sales for the fiscal year ended August 31, 2020, compared to 33% for the prior fiscal year.

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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, increased to $68.8 million, up $4.0 million, or 6%, for the fiscal year ended August 31, 2019 compared to the prior fiscal year .

Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region, decreased to $51.8 million, down $17.0 million, or 25%, for the fiscal year ended August 31, 2020 compared to 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 fiscal year ended August 31, 2020 translated at the exchange rates in effect for the prior fiscal year would have been $53.2 million in the Asia-Pacific segment.

Thus, on a constant currency basis, sales would have increased by $6.2 million, or 10%, for the fiscal year ended August 31, 2019 compared to the prior fiscal year.

Sales in Asia, which represented 75% of the total sales in the Asia-Pacific segment, increased $4.9 million, or 10%, for the fiscal year ended August 31, 2019 compared to the prior fiscal year.

Sales in the Asia distributor markets increased $2.9 million, or 10%, primarily attributable to the timing of customer orders and various successful promotional programs in the region, particularly in South Korea, Malaysia and the Philippines.

Sales in China increased $2.0 million, or 12%, from period to period.

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

On a constant currency basis, sales would have increased by $2.8 million, or 16%, primarily due to expanded distribution in the e-commerce retail channel and successful promotional programs that were conducted throughout fiscal year 2019 .

Sales in Australia decreased $0.9 million, or 5%, for the fiscal year ended August 31, 2019 compared to the prior fiscal year.

Thus, on a constant currency basis, sales would have decreased by $15.6 million, or 23%, for the fiscal year ended August 31, 2020 compared to the prior fiscal year.

Sales in Asia, which represented 65% of the total sales in the Asia-Pacific segment, decreased $18.0 million, or 35%, for the fiscal year ended August 31, 2020 compared to the prior fiscal year.

Sales in the Asia distributor markets decreased $12.3 million, or 38%.

Sales in China decreased $5.7 million, or 30%, for the fiscal year ended August 31, 2020 compared to the prior fiscal year.

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

Extended 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 .

Although China had a reduction of certain restrictions required by local governmental authorities beginning in the third quarter of fiscal year 2020 in relation to the COVID-19 pandemic, the hardware and industrial channels continued to be significantly impacted by the COVID-19 pandemic through the remainder of fiscal year 2020 and this has resulted in reduced sales for China from period to period .

Overall, we have not yet experienced a sustained or significant rebound in sales in either the Asia distributor markets or in China due to continuing market disruptions and comprehensive lockdown measures in these markets.

Sales in Australia increased $1.0 million, or 6%, for the fiscal year ended August 31, 2020 compared to 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 $0.5 million, or 3%, primarily due to increased promotional activities and the timing of customer orders from period to period .

In addition, sales of the WD-40 Multi-Use Product in the fourth quarter of fiscal year 2018 were negatively impacted as a result of a major customer reducing their inventory levels of aerosol can products due to certain regulatory requirements.

Although this continues to be an issue, the situation was improved for this customer in fiscal year 2019, resulting in increased sales from period to period.

Gross profit increased to $232.3 million for the fiscal year ended August 31, 2019 compared to $225.3 million for the prior fiscal year.

On a constant currency basis, sales would have increased by $1.9 million, or 11%, 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 and fourth quarters of fiscal year 2020.

In addition, WD-40 Multi Use Product and WD-40 Specialist were up 3% and 12%, 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 $223.0 million for the fiscal year ended August 31, 2020 compared to $232.3 million for the prior fiscal year.

As a percentage of net sales, gross profit decreased to 54.6% for the fiscal year ended August 31, 2020 compared to 54.9% for the prior fiscal year.

Gross margin was negatively impacted by 1.1 percentage points from period to period due to unfavorable net changes in the costs of petroleum-based specialty chemicals and aerosol cans in all three segments.

Gross margin was negatively impacted by 0.9 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 0.8 percentage points due to the combined effects of increases in other miscellaneous costs and unfavorable sales mix changes from period to period in all three segments.

The unfavorable impacts in the Americas were primarily due to higher miscellaneous charges related to inventory during the fourth quarter of fiscal year 2020.

The unfavorable impacts in the EMEA segment were primarily due to changes in sales mix changes, resulting from a larger proportion of sales to lower margin customers from period to period.

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

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 0.1 percentage points.

In general, the timing of advertising, promotional and other discounts may cause fluctuations in gross margin from period to period.

associated with certain promotional activities are recorded as a reduction to sales while others are recorded as advertising and sales promotion expenses.

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

These unfavorable impacts to gross margin were significantly offset by favorable changes in the costs of petroleum-based specialty chemicals in all three segments, positively impacting gross margin by 0.8 percentage points.

There is often a delay of one quarter or more before changes in raw material costs impact cost of products sold due to production and inventory life cycles.

The average cost of crude oil which flowed through our cost of goods sold was higher during fiscal year 2019 compared to the prior fiscal year, thus resulting in negative impacts to our gross margin from period to period.

The average cost of crude oil which flowed through our cost of goods sold was lower in the fiscal year 2020 compared to prior fiscal year, thus resulting in favorable impacts to our gross margin from period to period.

Due to the volatility of the price of crude oil, it is uncertain the level to which gross margin will be impacted by such costs in future periods.

Gross margin was negatively impacted by 0.3 percentage points from period to period due to higher warehousing and in-bound freight costs, primarily in the EMEA segment.

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

Gross margin was also negatively impacted by 0.1 percentage points due to the combined effects of unfavorable sales mix changes and other miscellaneous costs, primarily in the Americas and EMEA segments, from period to period.

These unfavorable impacts to gross margin were almost completely offset by sales price increases which were implemented during the second half of fiscal year 2018 and early in fiscal year 2019 in all three segments, positively impacting gross margin by 1.1 percentage points from period to period.

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

Gross margin was also positively affected by 0.6 percentage points from period to period due to sales price increases, primarily in the EMEA segment, during fiscal year 2020.

Favorable changes in the costs of aerosol cans in the Americas and EMEA segments also positively affected gross margin by 0.1 percentage points.

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.

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Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses for the fiscal year ended August 31, 2019 increased $2.5 million to $123.9 million from $121.4 million for the prior fiscal year .

As a percentage of net sales, SG&A expenses decreased to 29.3% for the fiscal year ended August 31, 2019 from 29.7% for the prior fiscal year.

The increase in SG&A expenses was primarily attributable to higher employee-related costs, increased professional services costs, and a higher level of expenses associated with travel and meetings.

Employee-related costs, which include salaries, incentive compensation, profit sharing, stock-based compensation and other fringe benefits, increased by $3.6 million.

This increase was primarily due to increased headcount and annual compensation increases, which take effect in the first quarter of the fiscal year, as well as higher earned incentive compensation and stock-based compensation expense from period to period.

Professional services costs increased $2.2 million primarily due to increased legal expenses from period to period in the Americas segment.

This increase from period to period was significantly due to a favorable legal judgment of $1.5 million which was recorded in the fourth quarter of fiscal year 2018 whereas no comparable favorable judgement occurred in fiscal year 2019.

In addition, travel and meeting expenses increased $0.6 million due to a higher level of travel expenses in the Americas and EMEA segments associated with various sales meetings and activities in support of our strategic initiatives.

These increases were partially offset by favorable changes in foreign currency exchange rates, which decreased SG&A expenses by $2.7 million from period to period.

Additionally, other miscellaneous expenses decreased $1.2 million period over period, the largest of which were related to research and development costs and charitable contributions.

Selling, general and administrative (“SG&A”) expenses for the fiscal year ended August 31, 2020 decreased $1.9 million to $122.0 million from $123.9 million for the prior fiscal year .

As a percentage of net sales, SG&A expenses increased to 29.9% for the fiscal year ended August 31, 2020 from 29.3% for 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 $3.1 million, partially due to lower sales from period to period.

Travel and meeting expenses decreased by $3.0 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.

Favorable changes in foreign currency exchange rates also decreased SG&A expenses by $1.0 million from period to period.

These decreases were partially offset by an increase of $3.3 million in employee-related costs 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.

Professional services fees, including those associated with cloud-based software, also increased by $1.7 million from period to period.

In addition, other miscellaneous expenses increased by $0.2 million 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.

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Advertising and Sales Promotion Expenses

Advertising and sales promotion expenses for the fiscal year ended August 31, 2019 increased $1.0 million to $23.3 million from $22.3 for the prior fiscal year.

As a percentage of net sales, these expenses were 5.5% for both the fiscal years ended August 31, 2019 and 2018.

Changes in foreign currency exchange rates had a favorable impact on such expenses of $0.6 million from period to period.

Thus, on a constant currency basis, advertising and sales promotion expenses for fiscal year 2019 would have increased by $1.6 million, primarily due to a higher level of promotional programs and marketing support in the Americas and EMEA segments from period to period .

Investment in global advertising and sales promotion expenses for fiscal year 2020 is expected to be between 5.5% and 6.0% of net sales .

Advertising and sales promotion expenses for the fiscal year ended August 31, 2020 decreased $1.7 million to $21.6 million from $23.3 million for the prior fiscal year.

As a percentage of net sales, these expenses were 5.3% and 5.5% for the fiscal years ended August 31, 2020 and 2019, respectively.

Changes in foreign currency exchange rates did not have a significant impact on advertising and sales promotion expenses for fiscal year 2020.

The decreased level of advertising and sales promotion expenses was primarily due to the reduction of promotional program spending in the EMEA and Asia-Pacific segments due to indirect effects of the COVID-19 pandemic during the second half 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 fiscal year 2021 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 were $18.9 million and $19.7 million for the fiscal years ended August 31, 2019 and 2018, respectively.

Total promotional costs recorded as a reduction

to sales were $20.5 million and $18.9 million for the fiscal years ended August 31, 2020 and 2019, respectively.

Therefore, our total investment in advertising and sales promotion activities totaled $42.1 million and $42.2 million for the fiscal years ended August 31, 2020 and 2019, respectively .

Amortization of Definite-lived Intangible Assets Expense

Amortization of our definite-lived intangible assets remained relatively constant at $2.7 million and $3.0 million for the fiscal years ended August 31, 2019 and 2018, respectively.

Amortization of our definite-lived intangible assets decreased $0.5 million to $2.2 million for the fiscal years ended August 31, 2020, compared to $2.7 million for the prior fiscal year.

This decrease from period to period was primarily due to decreased amortization associated with the 2000 Flushes trade name, which became fully amortized during the third quarter of fiscal year 2020 .

Income from Operations by Segment

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These expenses are reported separate from the Company’s identified segments and are included in Selling, General and Administrative expenses on the Company’s consolidated statements of operations.

Income from operations for the Americas segment increased to $50.1 million, up $1.1 million, or 2%, for the fiscal year ended August 31, 2019 compared to the prior fiscal year, primarily due to a $1.1 million increase in sales and lower operating expenses.

As a percentage of net sales, gross profit for the Americas segment remained constant at 53.5% period over period.

Although gross margin was positively impacted by sales price increases from period to period, these favorable impacts were mostly offset by the combined negative impacts of increased costs of petroleum-based specialty chemicals and aerosol cans from period to period.

Operating expenses decreased $0.4 million period over period, primarily due to lower earned incentive compensation, decreased research and development costs and lower charitable contributions.

These decreases in operating expenses were partially offset by increased advertising and promotion expenditures and a favorable legal judgment of $1.5 million which we received and recorded in the fourth quarter of fiscal year 2018 resulting in lower than normal legal expenses in the Americas segment in fiscal year 2018.

Operating income as a percentage of net sales increased from 25.4% to 25.8% period over period.

Income from operations for the EMEA segment increased to $37.2 million, up $1.0 million, or 3%, for the fiscal year ended August 31, 2019 compared to the prior fiscal year, primarily due to a $9.7 million increase in sales, which was significantly offset by a lower gross margin and higher operating expenses.

As a percentage of net sales, gross profit for the EMEA segment decreased from 57.7% to 56.6% period over period primarily due to unfavorable sales mix changes and other miscellaneous costs, increased costs of petroleum-based specialty chemicals and a higher level of advertising, promotional and other discounts that we gave to our customers from period to period.

These unfavorable impacts were significantly offset by sales price increases and favorable changes in foreign currency exchange rates from period to period.

The higher sales were accompanied by a $2.9 million increase in total operating expenses period over period, primarily due to higher earned incentive compensation and increased headcount from period to period, as well as a higher level of advertising and sales promotion expenses.

Income from operations for the Americas segment increased to $51.1 million, up $1.0 million, or 2%, for the fiscal year ended August 31, 2020 compared to the prior fiscal year, primarily due to a $6.5 million increase in sales, significantly offset by higher operating expenses and a lower gross margin.

As a percentage of net sales, gross profit for the Americas segment decreased from 53.5% to 53.2% period over period primarily due to higher miscellaneous charges related to inventory during the fourth quarter of fiscal year 2020 and higher discounts that were given to customers in fiscal year 2020.

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

Operating expenses increased $1.7 million period over period, primarily due to higher earned incentive compensation and freight costs from period to period.

These increases in operating expenses were offset by lower travel and meeting expenses due to initiatives adopted by the Company during the third quarter of fiscal year 2020 in order to help reduce the transmission of COVID-19.

Operating income as a percentage of net sales decreased from 25.8% to 25.5% period over period.

Income from operations for the Asia-Pacific segment increased to $20.8 million, up $1.7 million, or 9%, for the fiscal year ended August 31, 2019 compared to the prior fiscal year, primarily due to a $4.0 million increase in sales and a higher gross margin, which were partially offset by higher operating expenses.

As a percentage of net sales, gross profit for the Asia-Pacific segment increased from 54.0% to 54.5% period over period primarily due to sales price increases, lower manufacturing costs and favorable sales mix changes from period to period.

These favorable impacts were partially offset by increased costs of petroleum-based specialty chemicals and a higher level of advertising, promotional and other discounts that we gave to our customers from period to period.

The higher sales were accompanied by a $0.8 million increase in total operating expenses period over period, primarily due to higher earned incentive compensation and increased freight costs associated with shipping products to our customers from period to period.

Income from operations for the EMEA segment increased to $37.6 million, up $0.4 million, or 1%, for the fiscal year ended August 31, 2020 compared to the prior fiscal year, primarily due to lower operating expenses of $3.2 million, significantly offset by lower net sales of $4.4 million and a lower gross margin.

As a percentage of net sales, gross profit for the EMEA segment decreased from 56.6% to 56.4% period over period primarily due to increases in warehousing, distribution and freight costs as well as unfavorable changes in foreign currency exchange rates from period to period.

These unfavorable impacts to gross margin were significantly offset by sales price increases from period to period.

In addition, declines in the costs of petroleum-based specialty chemicals favorably impacted gross margin from period to period.

The impacts of these declines in oil prices in future periods is uncertain due to the volatility of the price of crude oil.

Operating expenses decreased $3.2 million period over period, primarily due to decreased outbound freight costs and lower 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 in order to help 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 increased from 23.2% to 24.1% period over period.

Income from operations for the Asia-Pacific segment decreased to $15.0 million, down $5.8 million, or 28%, for the fiscal year ended August 31, 2020 compared to the prior fiscal year, primarily due to a $17.0 million decrease in sales, which was partially offset by lower cost of goods sold and operating expenses.

As a percentage of net sales, gross profit for the Asia-Pacific segment remained constant at 54.5% period over period.

Gross margin was negatively impacted by increases to advertising, promotional, and other discounts that we give to our customers from period to period.

Increases in warehousing, distribution and freight costs from period to period also negatively impacted gross margin.

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

The lower sales were accompanied by a $3.5 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 decreased from 30.3% to 28.9% period over period.

Non-Operating Items

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Interest Expense

Interest expense decreased $1.7 million for the fiscal year ended August 31, 2019 compared to the prior fiscal year primarily due to a decreased outstanding balance on our revolving credit facility and lower interest rates related to draws on this credit facility that are denominated in Euros and Pound Sterling at our U.K.

Interest expense remained relatively constant at $2.4 million and $2.5 million for the fiscal years ended August 31, 2020 and 2019, respectively.

Other Income (Expense), Net

Other income (expense), net increased by $0.4 million for the fiscal year ended August 31, 2019 compared to the prior fiscal year primarily due to an increase of $0.5 million in net foreign currency exchange gains from period to period.

A significant portion of the foreign currency exchange gains that were recorded for the fiscal year 2019 were related to the large repatriations from our U.K.

subsidiary which were transacted during fiscal year 2019 .

Other income (expense), net decreased by an insignificant amount of $0.1 million to $0.6 million for the fiscal year ended August 31, 2020.

Provision for Income Taxes

The provision for income taxes was 19.6% of income before income taxes for the fiscal year ended August 31, 2020 compared to 30.8% for the prior fiscal year.

The increase in the effective income tax rate from period to period was primarily due to the uncertain tax position in the amount of $8.7 million related to the toll tax that was recorded in the fourth quarter of fiscal year 2019.

In addition, the remeasurement of deferred income taxes related to the Tax Act, which was recorded as a provisional benefit and discrete item in fiscal year 2018, resulted in a favorable impact of $6.8 million to the Company’s fiscal year 2018 effective income tax rate.

These one-time impacts resulted in a significantly higher fiscal year 2019 effective income tax rate compared to the prior fiscal year.

In addition, the effective income tax rate for both fiscal years 2019 and 2018 were favorably impacted by the Tax Act’s lower statutory tax rate.

As the Company’s fiscal year ends on August 31st, the Tax Act resulted in a blended federal statutory tax rate of 25.7% for fiscal year 2018.

For fiscal year 2019, however, the Tax Act was in effect for the Company’s full year and resulted in a federal statutory tax rate for the year of 21%.

The tax rate was also favorably impacted in fiscal year 2019 by the net benefit received from the application of the GILTI and FDII calculations which were partially offset by the loss of the Domestic Production Activities Deduction.

For additional information on the Tax Act, see Part IV—Item 15, “Exhibits, Financial Statement Schedules” Note 13 — Income Taxes, included in this report

The decrease in the effective income tax rate from period to period was primarily due to an uncertain tax position in the amount of $8.7 million associated with the Tax Cuts and Jobs Act mandatory one-time “toll tax” on unremitted foreign earnings that was recorded in the fourth quarter of fiscal year 2019.

This resulted in a significantly higher fiscal year 2019 effective income tax rate compared to fiscal year 2020.

In the fourth quarter of fiscal year 2020, the U.S.

Treasury released regulations related to a High-Tax Exception for those jurisdictions subject to the Global Intangible Low Taxed Income (“GILTI”) tax.

These newly released regulations resulted in an immaterial favorable impact to the fiscal year 2020 tax provision.

Net income was $60.7 million, or $4.40 per common share on a fully diluted basis, for fiscal year 2020 compared to $55.9 million, or $4.02 per common share on a fully diluted basis, for the prior fiscal year.

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Depreciation (in operating departments)

Cost of doing business

Cost of doing business - non-GAAP

Cost of doing business as a percentage of net sales - non-GAAP

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Net cash provided by operations was $72.7 million for fiscal year 2020 compared to $62.9 million for fiscal year 2019.

We believe we continue to be well positioned to weather any uncertainty in the capital markets and global economy due to our strong balance sheet and efficient business model, along with our growing and diversified global revenues.

Although there continues to be a certain level of 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 fiscal year 2020 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.

Our principal sources of liquidity are our existing cash and cash equivalents, as well as cash generated from operations and cash currently available from our existing $100.0 million unsecured Credit Agreement with Bank of America, which expires on January 22, 2024.

Our principal sources of liquidity are our existing cash and cash equivalents, as well as cash generated from operations and cash currently available from our existing unsecured Credit Agreement with Bank of America.

We use proceeds of the revolving credit facility primarily for our general working capital needs.

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

See Note 7 – Debt for additional information on these agreements.

In the first quarter of fiscal year 2019, we repatriated a portion of our unremitted foreign earnings in the amount of $20.0 million from our U.K.

subsidiary and used these funds to repay $20.0 million of short-term outstanding draws on our line of credit.

During the second quarter of fiscal year 2019, the Company repatriated additional unremitted foreign earnings from its U.K.

subsidiary and paid its entire $44.0 million U.S.

Dollar balance of long-term outstanding draws and replaced them with an equivalent amount of draws in Euros and Pound Sterling at our U.K.

See Part IV—Item 15, “Exhibits, Financial Statement Schedules” 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.

On September 30, 2020, we entered into the first amendment to the Credit agreement and a third amendment to the Note Agreement and refinanced existing draws under our Credit Agreement in the United States through the issuance of new notes under the Note Agreement in the amount of $52.0 million.

See Part IV—Item 15, “Exhibits, Financial Statement Schedules” Note 18 – Subsequent Events for additional information on these agreements.

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

Dollars in the Americas segment, as well as in Euros and Pound Sterling in the EMEA segment.

Euro and Pound Sterling denominated draws will fluctuate in U.S.

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

During fiscal year 2019, the Company borrowed an additional $20.0 million on the line of credit in U.S.

Dollars which it intends to repay in less than twelve months.

During the fiscal year ended August 31, 2020, the Company 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 did not have any 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.

The Company repaid $55.0 million of these outstanding draws in the fourth quarter of fiscal year 2020 in anticipation of the changes that it made to its debt structure in September 2020 to include more long-term debt.

See Note 18 – Subsequent Events for additional information.

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

As of August 31, 2019, we had a $62.2 million balance of outstanding draws on the revolving credit facility, of which $42.2 million was classified as long-term and the remaining $20.0 million was classified as short-term.

In addition, net borrowings repaid under the autoborrow agreement in the United States were $2.4 million and we paid $0.8 million in principal payments on our Series A Notes during fiscal year 2019.

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.

See Note 7 – Debt for additional information on these financial covenants.

At August 31, 2019, we were in compliance with all debt covenants and believe it is unlikely we will fail to comply with any of these covenants over the next twelve months.

We would need to have a significant decrease in sales and/or a significant increase in expenses in order for us to not comply with the debt covenants.

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 in the United States.

At August 31, 2019, we had a total of $27.2 million in cash and cash equivalents and short-term investments.

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 August 31, 2020, we had a $95.9 million balance of outstanding draws on the revolving credit facility.

This entire amount was classified as long-term as of August 31, 2020 based on our ability and intent assessment as well as considerations related to debt structure changes and refinancing discussed in detail in Note 18 – Subsequent Events .

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 fiscal year 2020.

There are 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.

See Note 8 – Debt and Note 18 – Subsequent Events for additional information on these financial covenants.

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

We continue to monitor our compliance with all debt covenants.

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.

On April 8, 2020 we temporarily suspended repurchases under our approved share buy-back plan, which subsequently expired on August 31, 2020, in order to preserve cash while we continued to monitor the impacts of the COVID-19 pandemic.

At August 31, 2020, we had a total of $56.5 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.

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Net cash provided by operating activities

Net cash provided by (used in) investing activities

Net cash used in investing activities

Net cash used in financing activities

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Operating Activities

Net cash provided by operating activities decreased $1.9 million to $62.9 million for fiscal year 2019 from $64.8 million for fiscal year 2018.

Net cash provided by operating activities increased $9.8 million to $72.7 million for fiscal year 2020 from $62.9 million for fiscal year 2019.

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

Our primary source of operating cash flows for fiscal year ended August 31, 2019 was net income of $55.9 million, which decreased $ 9.3 million from period to period.

However, differences in adjustments to reconcile net income to cash and changes in our working capital increased net cash provided by operating activities from period to period and nearly offset this decrease in net income.

This was primarily attributable to account balances that were impacted by the Tax Act, particularly the increase in other long-term liabilities due to an $8.7 million uncertain tax position that was recorded in the fourth quarter of fiscal year 2019.

For additional information on this uncertain tax position, see Part IV – Item 15, “Exhibits, Financial Statement Schedules” Note 13 – Income Taxes, included in this report.

In addition, planned increases in inventory levels during fiscal year 2019 and increases in the trade accounts receivable balances due primarily to increased sales also impacted changes in working capital .

Our primary source of operating cash flows for fiscal year ended August 31, 2020 was net income of $60.7 million, which increased $ 4.8 million from period to period.

Changes in our working capital further increased net cash provided by operating activities from period to period.

This was primarily attributable to increases accounts payable and accrued liabilities during fiscal year 2020 compared with decreases in these accounts during the prior fiscal year.

In addition, higher planned increases in inventory levels during fiscal year 2019 compared to fiscal year 2020 when inventory levels only increased slightly also impacted changes in working capital.

These increases in working capital were partially offset by the increase in long-term liabilities and income taxes payable in fiscal year 2019 due to an $8.7 million uncertain tax position that was recorded in the fourth quarter related to the Tax Act.

Such account balances only increased slightly in fiscal year 2020, resulting in a change in working capital which decreased cash provided by operating activities from period to period .

Investing Activities

Net cash used in investing activities was $12.7 million for fiscal year 2019 compared to net cash provided by investing activities of $71.2 million for fiscal year 2018 .

This change was significantly due to net maturities of short-term investments of $83.3 million during fiscal year 2018, whereas net maturities of short-term investments during fiscal year 2019 were insignificant.

The $83.3 million of net maturities for the fiscal year 2018 was entirely due to a short-term investment held by our U.K.

subsidiary which matured in April 2018 and was not reinvested.

Also contributing to the change in total net cash inflows and outflows was an increase of $0.9 million in capital expenditures from period to period .

Net cash used in investing activities was $18.9 million for fiscal year 2020 compared to $12.7 million for fiscal year 2019 .

This change was significantly due to an increase of $6.0 million in capital expenditures from period to period due to manufacturing-related capital expenditures within the U.K.

and the United States.

Financing Activities

Net cash used in financing activities decreased $52.4 million to $69.0 million for fiscal year 2019 from $121.4 million f or fiscal year 2018 primarily due to $87.2 million in net repayments of the Company’s revolving line of credit during fiscal year 2018, compared to only $2.9 million in fiscal year 2019.

Offsetting this decrease in total cash outflows was the issuance of the Company’s Series A Notes for $20.0 million in fiscal year 2018.

No such cash inflow occurred during fiscal year 2019 and principal payments made on these notes increased $0.4 million from period to period.

Also offsetting the decrease in total cash outflows was an increase of $7.0 million in treasury stock purchases, an increase of $3.3 million in dividends paid, and a $1.0 million increase in shares withheld to cover taxes upon conversions of equity awards from period to period.

Net cash used in financing activities decreased $42.3 million to $26.7 million for fiscal year 2020 from $69.0 million f or fiscal year 2019, primarily due to $29.6 million in net proceeds on the Company’s revolving line of credit during fiscal year 2020, compared to $2.9 million in net repayments during fiscal year 2019.

Also contributing to this decrease in total cash outflows was the suspension of treasury stock repurchases beginning in the third quarter of fiscal year 2020, which resulted in a decrease in treasury stock repurchases of $12.8 million period over period.

Offsetting these decreases in cash outflows was an increase in dividends paid of $3.2 million during fiscal year 2020 compared to the prior fiscal year.

Effect of Exchange Rate Changes

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

Dollar terms, was a decrease in cash of $2.8 million for both fiscal years 2019 and 2018 and $0.3 million for fiscal year 2017.

Dollar terms was an increase in cash of $2.2 million in fiscal year 2020, and a decrease in cash of $2.8 million for both fiscal years 2019 and 2018.

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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Minimum purchase obligations (3)

(1) We were committed under non-cancellable capital and operating leases at August 31, 2019.

Our capital leases were not significant as of August 31, 2019.

(1) We were committed under non-cancellable financing and operating leases at August 31, 2020.

Our financing leases were not significant as of August 31, 2020.

(2) Includes anticipated cash payments for short and long-term borrowings not inclusive of estimated interest payments, which are not expected to be material on an annual basis.

For additional details on these borrowings, including ability and intent assessment on the Company’s credit facility agreement with Bank of America, refer to the information set forth in Part IV—Item 15, “Exhibits, Financial Statement Schedules” Note 7 – Debt.

Based on our most recent cash projections and anticipated business activities, we do not expect to borrow material additional amounts on this credit facility during fiscal year 2020.

For additional details on these borrowings, including ability and intent assessment on the Company’s credit facility agreement with Bank of America and debt structure changes

subsequent to August 31, 2020, refer to the information set forth in Part IV—Item 15, “Exhibits, Financial Statement Schedules”, Note 8 – Debt and Note 18 – Subsequent Events.

As described in Note 18, the Company amended its credit facility agreement subsequent to August 31, 2020 and extended the maturity date of this facility from March 16, 2025 to September 30, 2025.

In addition, the Company refinanced a portion of its draws on this credit facility through the issuance of Series B and Series C senior notes which mature in November 2027 and November 2030, respectively.

As a result, $95.9 million of borrowings that were due within 4 and 5 years from August 31, 2020 were subsequently amended or refinanced and are no longer due until a period of greater than 5 years after August 31, 2020.

At this time, we are not able to estimate additional amounts we expect to borrow during fiscal year 2021 due to the uncertainty caused by the COVID-19 pandemic and its impact on our financial results and operations.

(3) We have ongoing relationships with various third-party suppliers (contract manufacturers) that manufacture our products and third-party distribution centers who warehouse and ship our products to customers.

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We are committed to purchase the products produced by the contract manufacturers based on the projections provided and these commitments are not included in the table above.

Upon the termination of

contracts with contract manufacturers, we obtain certain inventory control rights and are obligated to work with the contract manufacturer to sell through all product held by or manufactured by the contract manufacturer on our behalf during the termination notification period.

Upon the termination of contracts with contract manufacturers, we obtain certain inventory control rights and are obligated to work with the contract manufacturer to sell through all product held by or manufactured by the contract manufacturer on our behalf during the termination notification period.

If any inventory remains at the contract manufacturer at the termination date, we are obligated to purchase such inventory which may include raw materials, components and finished goods.

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In determining the transaction price, management evaluates whether the price is subject to refund or adjustment related to variable consideration to determine the net consideration to which we expect to be entitled.

We record estimates of variable consideration, which primarily includes rebates (cooperative marketing programs and volume-based discounts), coupon offers, cash discount allowances, and sales returns, as a reduction of sales in the consolidated statements of operations.

These estimates are based on the most likely outcome method considering all reasonably available information, including current and past trade promotion spending patterns, status of trade promotion activities and the interpretation of historical spending trends by customer and category, customer agreements and/or currently known factors that arise in the normal course of business.

We record estimates of variable consideration, which primarily includes rebates/other discounts (cooperative marketing programs, volume-based discounts, shelf price reductions and allowances for shelf space, charges from customers for services they provided to us related to the sale and penalties/fines charged to us by our customers for failing to adhere to contractual obligations), coupon offers, cash discount allowances, and sales returns, as a reduction of sales in the consolidated statements of operations.

These estimates are based on the expected value method considering all reasonably available information, including current and past trade promotion spending patterns, status of trade promotion activities and the interpretation of historical spending trends by customer and category, customer agreements and/or currently known factors that arise in the normal course of business.

We review our assumptions and adjust these estimates accordingly on a quarterly basis.

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We recognize accrued interest and penalties related to uncertain tax positions as a component of income tax expense.

As a result of the “Tax Cuts and Jobs Act” (the “Tax Act”), which became effective beginning January 1, 2018, the U.S.

has transitioned from a worldwide tax system to a modified territorial tax system, under which corporations are primarily taxed on income earned within the country’s borders, rather than on a worldwide basis.

We are still required to make assertions on whether our foreign subsidiaries will invest their undistributed earnings indefinitely and these assertions are based on the capital needs of the foreign subsidiaries.

Due to the passage of the Tax Act, we reevaluated our indefinite reinvestment assertion for our foreign subsidiaries in May 2018 and changed our assertion for certain of our foreign subsidiaries.

As a result, we no longer consider unremitted earnings of any of our foreign subsidiaries to be indefinitely reinvested.

The costs associated with repatriating unremitted foreign earnings, including U.S.

The Company is required to make assertions on whether our foreign subsidiaries will invest their undistributed earnings indefinitely and these assertions are based on the capital needs of the foreign subsidiaries.

Generally, unremitted earnings of our foreign subsidiaries are not considered to be indefinitely reinvested.

However, there are exceptions regarding our newly formed subsidiary in Mexico as well as specific statutory remittance restrictions imposed on our China subsidiary.

Costs associated with repatriating unremitted foreign earnings, including U.S.

state income taxes and foreign withholding taxes, are immaterial to the Company’s consolidated financial statements.

For additional information on the Tax Act, see Part IV—Item 15, “Exhibits, Financial Statement Schedules” Note 13 — Income Taxes, included in this report.

Valuation of Goodwill

The carrying value of goodwill is reviewed for possible impairment in accordance with the authoritative guidance on goodwill, intangibles and other.

We assess for possible impairments to goodwill at least annually during our second fiscal quarter and otherwise when events or changes in circumstances indicate that an impairment condition may exist.

During the second quarter of fiscal year 2019, we performed our annual goodwill impairment test.

The annual goodwill impairment test was performed at the reporting unit level as required by the authoritative guidance.

During the fiscal year 2019 annual goodwill impairment test, we performed a qualitative assessment of each reporting unit to determine whether it was more likely than not that the fair value of a reporting unit was less than its carrying amount.

In performing this qualitative assessment, we assessed relevant events and circumstances that may impact the fair value and the carrying amount of each of our reporting units.

Factors that were considered included, but were not limited to, the following:

(1) macroeconomic conditions;

(2) industry and market conditions;

(3) historical financial performance and expected financial performance, including the continued impacts of the Tax Act;

(4) other entity specific events, such as changes in management or key personnel;

and (5) events affecting our reporting units, such as a change in the composition of net assets or any expected dispositions.

Based on the results of this qualitative assessment, we determined that it is more likely than not that the carrying value of each of our reporting units is less than its fair value as of the goodwill impairment testing date and, thus, the quantitative analysis was not required.

As a result, we concluded that no impairment of our goodwill existed as of February 28, 2019 .

We also did not identify or record any impairment losses related to our goodwill during our annual impairment tests performed in fiscal years 2018 or 2017.

While we believe that the estimates and assumptions used in our goodwill impairment test and analyses are reasonable, actual events and results could differ substantially from those included in the calculation.

In the event that business conditions change in the future, we may be required to reassess and update our forecasts and estimates used in subsequent goodwill impairment analyses.

If the results of these future analyses are lower than current estimates, an impairment charge to our goodwill balances may result at that time.

In addition, there were no indicators of impairment identified as a result of our review of events and circumstances related to our goodwill subsequent to February 28, 2019.

For additional information on income tax matters, see Part IV—Item 15, “Exhibits, Financial Statement Schedules” Note 14 — Income Taxes, included in this report.

Impairment of Definite-Lived Intangible Assets

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There were no indicators of potential impairment identified as a result of the Company’s review of events and circumstances related to its existing definite-lived intangible assets for the periods ended August 31, 2020, 2019 or 2018.

The Company’s review of events and circumstances included consideration of the ongoing COVID-19 pandemic.

Recently Issued Accounting Standards

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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-K

Item 7. Management’s Discussion and Analysis