What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-01-07 compared with 2020-07-09 · 206 added, 381 removed, 178 unchanged (77% of the section changed)

24 unchanged sentences

WD-40 Company (“the Company”), based in San Diego, California, is a global marketing organization dedicated to creating positive lasting memories by developing and selling products that solve problems in workshops, factories and homes around the world.

We market our maintenance products and our homecare and cleaning products under the following well-known brands:

We market a wide range of maintenance products and homecare and cleaning products under the following well-known brands:

WD-40®, 3-IN-ONE®, GT85®, X-14®, 2000 Flushes®, Carpet Fresh®, no vac®, Spot Shot®, 1001®, Lava® and Solvol®.

Currently included in the WD-40 brand are the WD-40 Multi-Use Product and the WD-40 Specialist® and WD-40 BIKE® product lines .

Our brands are sold in various locations around the world.

Our products are sold in various locations around the world.

Maintenance products are sold worldwide in markets throughout North, Central and South America, Asia, Australia, Europe, the Middle East and Africa.

Homecare and cleaning products are sold primarily in North America, the United Kingdom (“U.K.”) and Australia.

We sell our products primarily through mass

retail and home center stores, warehouse club stores, grocery stores, hardware stores, automotive parts outlets, sport retailers, independent bike dealers, 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 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.

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

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 three months ended November 30, 2020:

 Consolidated net sales increased $26.0 million for the three months ended November 30, 2020 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates had a favorable impact of $2.8 million on consolidated net sales for the three months ended November 30, 2020 compared to the corresponding period of the prior fiscal year.

Thus, on a constant currency basis, net sales would have increased by $23.2 million from period to period.

This favorable impact from changes in foreign currency exchange rates mainly came from our EMEA segment, which accounted for 44% of our consolidated sales for the three months ended November 30, 2020.

 Gross profit as a percentage of net sales increased to 56.4% for the three months ended November 30, 2020 compared to 54.3% for the corresponding period of the prior fiscal year.

 Consolidated net income increased $11.4 million, or 94%, for the three months ended November 30, 2020 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates had a favorable impact of $0.8 million on consolidated net income for the three months ended November 30, 2020 compared to the corresponding period of the prior fiscal year.

Thus, on a constant currency basis, net income would have increased $10.6 million.

 Although consolidated results for the three months ended November 30, 2020 were significantly improved from the same period last fiscal year due to a variety of factors, the Company’s operations and business continue to be 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 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.

 Diluted earnings per common share for the three months ended November 30, 2020 were $1.72 versus $0.88 in the prior fiscal year period.

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

5 unchanged sentences

Significant Developments

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.

Sales increased in all three segments during the three months ended November 30, 2020 as compared to the corresponding period of the prior fiscal year.

Although our financial results and operations continued to be impacted by the COVID-19 pandemic that began in early calendar year 2020, we were able to reduce the adverse impacts of these challenging times due to the strength of our brands, increased focus on e-commerce, global expansion in the distribution of our products and a continued focus on our strategic initiatives.

While we experienced significant sales declines in fiscal year 2020 as compared to the previous full fiscal year, sales during the first quarter of fiscal year 2021 rebounded significantly due to various reasons, including the following:

 Continued increases in renovation and maintenance activities by end-users during the pandemic, particularly in North America, some countries in EMEA and in Australia;

 Increased distribution and sales within the e-commerce channel;

 Recoveries we are experiencing in industrial channels globally as well as in markets where we do not have direct operations (distributor markets), particularly in our EMEA and Asia distributor markets where these distributors have been participating in more of our promotional activities and have been adjusting to more normal levels of inventory for our products;

 Significant increases in sales of our WD-40 Bike product;

 Continued increased sales of our homecare and cleaning products due to the high demand for such products during the pandemic.

These combined impacts produced a 26% increase in our consolidated net sales during the first quarter of fiscal year 2021 compared to the corresponding period of the prior fiscal year, a period in which the COVID-19 pandemic had not yet commenced.

Due to the speed and fluidity with which the situation continues to evolve, 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.

Although sales increased during the first quarter of fiscal year 2021, many regions globally are experiencing increased COVID-19 case counts and governmental authorities are reimplementing temporary closures, lockdowns and restrictions intended to combat the COVID-19 pandemic at certain physical store retailers, suppliers and manufacturers.

These increased restrictions may have negative economic impacts on our customers and may limit the ability of our customers in certain trade channels and markets to sell our products, which could adversely impact our financial results and operations for the remainder of fiscal year 2021.

We also cannot predict when certain restrictions to protect our customers, retailers and our employees will be either increased or safely reduced in future periods.

These impacts could be material in all business segments during any future period affected either directly or indirectly by this pandemic.

Also, if social distancing requirements resulting from the COVID-19 pandemic lessen in future periods, particularly as vaccinations become more widely available, this may result in a decrease in renovation and maintenance activities by end-users which could adversely impact our financial results.

In addition, if there are decreases in future periods in the benefits provided to our end-users via government assistance programs which have been put in place due to the pandemic, this may also impact the level of renovation and maintenance activities that we have experienced in recent periods and this could adversely impact our financial results.

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

Some of the challenges that we have experienced at our third-party manufacturers include general capacity constraints and competition for such capacity by other companies who utilize the same third-party manufacturers.

While we have been successful to date in managing such disruptions in our supply chain and the distribution of our products, we have experienced some challenges in meeting the high level of demand for our products by customers and end-users in certain markets.

Although we have positioned ourselves to continue managing these challenges in our supply chain and distribution networks in future periods, we are not able at this time to estimate the impact of future disruptions within our supply chain or the additional costs that we might incur due to these challenges and we are continually monitoring and managing this situation.

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.

These policies and

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

As a result of these policies and initiatives, travel and meeting expenses have decreased significantly, positively impacting our net income.

If the current social distancing requirements and policies lessen in future periods, travel and meeting expenses may return to higher levels.

To date, we have been successful in conducting our daily operations and meeting the requirements in all areas of our business with these work-from-home arrangements.

We are still working to determine 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 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 May 31, 2020 Compared to Three Months Ended May 31, 2019

See the Company’s risk factors disclosed in Part I―Item 1A, “Risk Factors,” in its Annual Report on Form 10-K for the fiscal year ended August 31, 2020 , which was filed with the SEC on October 21, 2020 for information on risks associated with pandemics in general and COVID-19 specifically.

Three Months Ended November 30, 2020 Compared to Three Months Ended November 30, 2019

Operating Items

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

Three Months Ended May 31,

Three Months Ended November 30,

Maintenance products

8 unchanged sentences

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

Three Months Ended May 31,

Three Months Ended November 30,

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

Three Months Ended May 31,

Three Months Ended November 30,

Maintenance products

1 unchanged sentence

% of consolidated net sales

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.

Sales in the Americas segment, which includes the U.S., Canada and Latin America, increased to $54.2 million, up $7.5 million, or 16%, for the three months ended November 30, 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 November 30, 2020 compared to the corresponding period of the prior fiscal year.

Sales of maintenance products in the Americas segment increased $6.8 million, or 16%, for the three months ended November 30, 2020 compared to the corresponding period of the prior fiscal year.

This sales increase was mainly driven by increased sales of maintenance products in the U.S.

and Latin America, which were up $3.4 million and $2.8 million, or 10% and 42%, respectively, from period to period.

In addition, sales of maintenance products in Canada increased $0.6 million from period to period.

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 resulted in increased sales of maintenance products across the Americas, including within the e-commerce channel.

This increased demand resulted in sales increases period over period in the Americas of WD-40 Multi-Use Product, WD-40 Specialist and WD-40 Bike of 14%, 20% and 295%, respectively.

In addition, sales in Latin America increased due to the transition to the direct marketing model in Mexico.

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

This resulted in increased sales in Latin America during the first quarter of fiscal year 2021 compared to the corresponding period of the prior fiscal year.

Sales of homecare and cleaning products in the Americas increased $0.6 million, or 13%, for the three months ended November 30, 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 $0.7 million or 47% 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, 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.

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 fiscal years prior to the start of the COVID-19 pandemic.

For the Americas segment, 76% of sales came from the U.S., and 24% of sales came from Canada and Latin America combined for the three months ended November 30, 2020 compared to the distribution for the three months ended November 30, 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):

Three Months Ended May 31,

Three Months Ended November 30,

Maintenance products

1 unchanged sentence

% of consolidated net sales

(1) While the Company’s reporting currency is the U.S.

Dollar, the functional currency of our U.K.

subsidiary, the entity in which the EMEA results are generated, is Pound Sterling.

Although the functional currency of this subsidiary is Pound Sterling, approximately 50% of its sales are generated in Euro and 20% are generated in U.S.

As a result, the Pound Sterling sales and earnings for the EMEA segment can be negatively or positively impacted from period to period upon translation from these currencies depending on whether the Euro and U.S.

Dollar are weakening or strengthening against the Pound Sterling .

Sales in the EMEA segment, which includes Europe, the Middle East, Africa and India, 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.

Sales in the EMEA segment, which includes Europe, the Middle East, Africa and India, increased to $54.7 million, up $15.5 million, or 40%, for the three months ended November 30, 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 November 30, 2020 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $52.1 million in the EMEA segment.

Thus, on a constant currency basis, sales would have increased by $12.8 million, or 33%, 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 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.

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 .

Sales in the direct markets increased to $35.4 million, up $10.6 million, or 43%, for the three months ended November 30, 2020, compared to the corresponding period of the prior fiscal year primarily due to increased sales of WD-40 Multi-Use Product and WD-40 Specialist of $7.1 million or 41% and $1.7 million or 61%, respectively, throughout the direct markets.

This increase in sales was primarily due to increased demand for our products as a result of a higher level of renovation and maintenance activities exhibited by our end-users during the COVID-19 pandemic.

This increased demand and consumption of our products resulted in increased sales, particularly within the e-commerce channel.

Sales from direct markets accounted for 65% of the EMEA segment’s sales for the three months ended November 30, 2020 compared to 63% for the corresponding period of the prior fiscal year .

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

Sales in the distributor markets decreased $3.6 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 .

Sales in the distributor markets increased $4.9 million, or 34%, for the three months ended November 30, 2020 compared to the corresponding period of the prior fiscal year, primarily due to increased sales of the WD-40 Multi-Use Product in Northern Europe, Eastern Europe and India, which were up 62%, 24% and 120%, respectively.

This increase in sales from period to period was primarily due to recoveries experienced during the first quarter of fiscal year 2021 in distributor markets that previously experienced more severe lockdowns during the second half of fiscal year 2020 due to the COVID-19 pandemic.

During the first quarter of fiscal year 2021, many of these regions experienced improved economic conditions as a result of reductions in COVID-19 related restrictions.

This allowed our marketing distributors to participate in more of our promotional activities and to adjust to more normal levels of inventory for our product, which resulted in increased sales.

In addition, continued increases in renovation and maintenance activities by end-users during the pandemic also positively impacted sales in some of our distributor markets.

The distributor markets accounted for 35% of the EMEA segment’s total sales for the three months ended November 30, 2020, compared to 37% 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 May 31,

Three Months Ended November 30,

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 $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 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.

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

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

In addition, 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 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.

Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region, increased to $15.6 million, up $3.0 million, or 24%, for the three months ended November 30, 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 Asia-Pacific segment from period to period.

Sales for the three months ended November 30, 2020 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $15.2 million in the Asia-Pacific segment.

Thus, on a constant currency basis, sales would have increased by $2.6 million, or 21%, from period to period.

Sales in Asia, which represented 67% of the total sales in the Asia-Pacific segment, increased $1.9 million, or 23%, for the three months ended November 30, 2020 compared to the corresponding period of the prior fiscal year.

Sales in China increased $1.2 million, or 53%, primarily due to the timing of customer orders as well as increased sales within the e-commerce channel during the first quarter of fiscal year 2021.

In addition, sales in China during the first quarter of fiscal year 2020 were negatively impacted due to activities associated with the country’s preparation for the 70 th Anniversary National Day in China which resulted in temporary factory closures and slowed market conditions, with no comparable event occurring in the first quarter of the current fiscal year.

Sales in the Asia distributor markets increased $0.7 million, or 11%, for the three months ended November 30, 2020 compared to the corresponding period of the prior fiscal year.

These increased sales were primarily due to the easing of COVID-19 lockdown measures in many of the Asia markets during the first quarter of fiscal year 2021 compared to late in fiscal year 2020.

These reduced lockdown measures have positively impacted economic conditions in industrial channels and resulted in marketing distributors adjusting to more normal levels of our product, which resulted in increased sales period over period.

Sales in Australia increased $1.1 million, or 28%, for the three months ended November 30, 2020 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates had a favorable impact on sales in Australia.

On a constant currency basis, sales in Australia would have increased by $0.8 million, or 21%, primarily due to continued increased demand for homecare and cleaning products, which were up $0.7 million, or 44%, as a result of the COVID-19 pandemic.

In addition, sales of WD-40 Multi Use Product and WD-40 Specialist were up 20% and 25%, respectively, from period to period primarily due to a higher level of renovation and maintenance activities exhibited by our end-users during the COVID-19 pandemic which resulted in increased sales.

Negative sales impacts to Australia due to the COVID-19 pandemic have continued to be limited in fiscal year 2021 since COVID-19 case numbers have remained relatively low in Australia since the initial outbreak 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 increased to $70.2 million for the three months ended November 30, 2020 compared to $53.5 million for the corresponding period of the prior fiscal year.

As a percentage of net sales, gross profit increased to 56.4% for the three months ended November 30, 2020 compared to 54.3% for the corresponding period of the prior fiscal year.

Gross margin was favorably impacted by 2.6 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 for a period of several months.

Although the price of crude oil has partially recovered in recent months, it has not returned to the much higher levels seen during the first quarter of the prior fiscal year.

There is often a delay of one quarter

or more before changes in raw material costs impact the 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 lower during the first quarter of fiscal year 2021 compared to the corresponding period of the 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 also positively impacted by 0.8 percentage points due to favorable changes in the costs of aerosol cans in the EMEA and Americas segments.

In addition, gross margin was positively impacted by 0.4 percentage points from period to period due to sales price increases, primarily in the EMEA and Asia Pacific segments during the last twelve months.

These favorable impacts to gross margin were partially offset by higher warehousing and in-bound freight costs, primarily in the EMEA and Americas segments, negatively impacting gross margin by 1.2 percentage points from period to period.

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 sales mix, related to market, product and customer mix, as well as increases in other miscellaneous costs from period to period in the Americas and EMEA 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 $4.7 million for the three months ended May 31, 2020 and 2019, respectively.

These costs totaled $4.1 million and $3.0 million for the three months ended November 30, 2020 and 2019, respectively.

Selling, General and Administrative Expenses

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 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 .

Selling, general and administrative (“SG&A”) expenses for the three months ended November 30, 2020 increased $3.4 million to $36.0 million from $32.6 million for the corresponding period of the prior fiscal year.

As a percentage of net sales, SG&A expenses decreased to 28.9% for the three months ended November 30, 2020 compared to 33.1% for the corresponding period of the prior fiscal year.

The increase in SG&A expenses from period to period was due to a variety of factors, but most significantly due to increased employee-related costs of $3.0 million due to increased earned incentive compensation, increased headcount, and higher stock-based compensation from period to period.

Increases in freight costs associated with higher sales from period to period also increased SG&A expenses by $1.0 million.

Changes in foreign currency exchange rates from period to period increased SG&A expenses by $0.6 million.

In addition, professional services fees, including cloud-based software, increased $0.6 million and other miscellaneous expenses increased $0.4 million from period to period.

These increases to SG&A were offset by a decrease in travel and meeting expenses of $2.2 million.

Travel and meeting expenses decreased primarily due to continued initiatives 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.

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 $1.4 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.

Research and development costs were $1.6 million and $1.7 million for the three months ended November 30, 2020 and 2019, respectively.

Our research and development team engages in consumer research, product development, current product improvements 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 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.

Advertising and sales promotion expenses for the three months ended November 30, 2020 decreased $0.1 million, or 1%, to $5.5 million from $5.6 million for the corresponding period of the prior fiscal year .

As a percentage of net sales, these expenses decreased to 4.4% for the three months ended November 30, 2020 from 5.7% 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 November 30, 2020.

The decrease in advertising and sales promotion expenses was primarily within the Asia-Pacific segment due to differences in the timing of promotional activities from period to period as well as a lower level of trade shows and marketing activities due to the COVID-19 pandemic.

Advertising and sales promotion expenses as a percentage of net sales was significantly lower in the first quarter of fiscal year 2021 compared to the corresponding period of the prior fiscal year, partially due to higher sales and a reduction of activities at physical

locations in all three segments due to indirect effects of the COVID-19 pandemic, including the cancellations of trade shows and fewer opportunities for physical marketing and sampling activities.

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 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.

Total promotional costs recorded as a reduction to sales for the three months ended November 30, 2020 were $5.8 million compared to $5.0 million for the corresponding period of the prior fiscal year.

Therefore, our total investment in advertising and sales promotion activities totaled $11.3 million and $10.6 million for the three months ended November 30, 2020 and 2019, respectively.

Amortization of Definite-lived Intangible Assets Expense

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.

Amortization of our definite-lived intangible assets decreased to $0.4 million for the three months ended November 30, 2020 compared to $0.7 million for the three months ended November 30, 2019 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

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

Three Months Ended May 31,

Three Months Ended November 30,

Unallocated corporate

(1) Unallocated corporate expenses are general corporate overhead expenses not directly attributable to any one of the operating segments.

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

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 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.

Income from operations for the Americas increased to $14.6 million, up $4.0 million, or 38%, for the three months ended November 30, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $7.5 million increase in sales and a higher gross margin, partially offset by higher operating expenses.

As a percentage of net sales, gross profit for the Americas segment increased from 53.1% to 54.2% period over period primarily due to the combined favorable impacts of decreased costs of petroleum-based specialty chemicals and aerosol cans from period to period, as well as decreases to advertising, promotional, and other discounts that we give to our customers.

These favorable impacts to gross margin were partially offset by increases in warehousing, distribution and freight costs as well as unfavorable changes in sales mix and higher miscellaneous costs.

Operating expenses increased $0.5 million period over period , primarily due to higher accruals for earned incentive compensation and other employee-related costs, as well as higher outbound freight costs due to the increase in sales from period to period.

These increases in operating expenses were partially offset by 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 and decreased amortization from period to period.

Operating income as a percentage of net sales increased from 22.6% to 27.0% period over period.

Non-Operating Items

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

Three Months Ended May 31,

Interest income

Interest expense

Other (expense) income, net

Provision for income taxes

Interest Income

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

Interest Expense

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 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):

Nine Months Ended May 31,

Maintenance products

Homecare and cleaning products

Total net sales

Cost of products sold

Income from operations for the EMEA segment increased to $17.7 million, up $9.2 million, or 107%, for the three months ended November 30, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $15.5 million increase in sales and a higher gross margin, partially offset by higher operating expenses.

As a percentage of net sales, gross profit for the EMEA segment increased from 55.9% to 58.5% period over period primarily due to the combined favorable impacts of decreased costs of petroleum-based specialty chemicals and aerosol cans from period to period, as well as sales price increases from period to period.

These favorable impacts to gross margin were partially offset by increases in warehousing, distribution and freight costs, as well as higher miscellaneous costs from period to period.

Operating expenses

Income from operations

Earnings per common share - diluted

Shares used in per share calculations - diluted

Net Sales by Segment

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

Nine Months Ended May 31,

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

Nine Months Ended May 31,

Maintenance products

Homecare and cleaning products

% of consolidated net sales

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 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):

Nine Months Ended May 31,

Maintenance products

Homecare and cleaning products

% of consolidated net sales

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 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 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.

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 $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):

Nine Months Ended May 31,

Maintenance products

Homecare and cleaning products

% of consolidated net sales

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 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 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 $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 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 $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 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 $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 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 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 $1.9 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):

Nine Months Ended May 31,

Unallocated corporate

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.

increased $0.9 million period over period, primarily due to increased outbound freight costs due to the higher sales, as well as higher accruals for earned incentive compensation and other employee-related costs.

These increases in operating expenses were partially offset by lower travel and meeting expenses due to the Company’s COVID-19 pandemic reduced travel initiatives .

Operating income as a percentage of net sales increased from 21.9% to 32.4% period over 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.

Income from operations for the Asia-Pacific segment increased to $5.1 million, up $1.9 million, or 58%, for the three months ended November 30, 2020 compared to the corresponding period of the prior fiscal year, primarily due to a $3.0 million increase in sales and higher gross margin, which were partially offset by slightly higher operating expenses.

As a percentage of net sales, gross profit for the Asia-Pacific segment increased from 54.0% to 56.7% period over period primarily due to decreases to the cost of petroleum-based specialty chemicals and favorable changes in both sales product mix and market mix, as well as sales price increases from period to period .

These favorable impacts to gross margin were slightly offset by i ncreases to advertising, promotional, and other discounts that we give to our customers.

The increased sales were accompanied by a $0.2 million increase in total operating expenses period over period, primarily due to higher accruals for earned incentive compensation and increased outbound freight costs, which were partially offset by a lower level of advertising and sales promotion expenses from period to period.

Operating income as a percentage of net sales increased from 25.5% to 32.4% period over period.

1 unchanged sentence

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

Nine Months Ended May 31,

Three Months Ended November 30,

Interest income

Interest expense

Other (expense) income, net

Other income (expense), net

Provision for income taxes

Interest Income

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

Interest income was insignificant for both the three months ended November 30, 2020 and 2019.

Interest Expense

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 $1.0 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 .

Interest expense increased $0.1 million for the three months ended November 30, 2020 compared to the corresponding period of the prior fiscal year primarily due to higher aggregate outstanding balances on our credit and note agreements combined from period over period.

Other Income (Expense), Net

Other income (expense), net was insignificant for both the three months ended November 30, 2020 and 2019.

Provision for Income Taxes

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.

The provision for income taxes was 15.7% and 14.7% of income before income taxes for the three months ended November 30, 2020 and 2019, respectively.

Discrete benefits, primarily those related to excess tax benefits from settlements of stock-based equity awards, reduced the effective income tax rate to a level significantly below the anticipated annual effective tax rate for each period.

Although these discrete benefits increased from period to period, they decreased as a percentage of pre-tax income due to significantly higher pre-tax income during the first quarter of fiscal year 2021 and resulted in a higher effective income tax rate from period to period.

Net income was $23.6 million, or $1.72 per common share on a fully diluted basis, for the three months ended November 30, 2020 compared to $12.2 million, or $0.88 per common share on a fully diluted basis, for the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates had a favorable impact of $0.8 million on net income for the three months ended November 30, 2020 compared to the corresponding period of the prior fiscal year.

On a constant currency basis, net income would have increased by $10.6 million from period to period.

Performance Measures and Non-GAAP Reconciliations

6 unchanged sentences

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

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

Gross margin - GAAP

9 unchanged sentences

Cost of Doing Business (in thousands, except percentages)

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

Total operating expenses - GAAP

5 unchanged sentences

EBITDA (in thousands, except percentages)

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

Net income - GAAP

6 unchanged sentences

The Company’s financial condition and liquidity remain strong.

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.

Net cash provided by operations was $23.9 million for the three months ended November 30, 2020 compared to $15.2 million for the corresponding period of the prior fiscal year.

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 have taken 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.

3 unchanged sentences

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.

Included in Note 8 – Debt is information on the Credit Agreement that we amended with Bank of America on September 30, 2020, and a third amendment to the Note Agreement .

In the first quarter of fiscal year 2021, we 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.

We have historically maintained a balance of outstanding draws on our line of credit in U.S.

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

1 unchanged sentence

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

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.

During the first quarter of fiscal year 2021, we repaid $50.0 million of our U.S.

borrowings outstanding under our line of credit using $52.0 million in proceeds that we received on September 30, 2020 from the issuance and sale of the Series B and C Notes which mature in November

2027 and 2030, respectively.

Our remaining outstanding balance under our line of credit is denominated completely in Euros and Pound Sterling as of November 30, 2020.

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

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.

We have the ability to refinance any draws under the line of credit with successive short-term borrowings through the September 30, 2025 maturity date of the Credit Agreement.

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.

As of November 30, 2020, we had a $45.9 million balance of outstanding draws on the revolving credit facility, all of which was classified as long-term.

In addition, we paid $0.4 million in principal payments on our Series A Notes during the first three months of fiscal year 2021, which had an outstanding balance of $17.6 million as of November 30, 2020.

There were no other letters of credit outstanding or restrictions on the amount available on our line of credit or notes.

Per the terms of both the Note Agreement and the Credit Agreement, our consolidated leverage ratio cannot be greater than three and a half 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 May 31, 2020, we were in compliance with all debt covenants.

At November 30, 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 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.

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

Management does not expect to seek Board approval for a new share buy-back plan until it starts to see a reduced level of uncertainty regarding the pandemic’s impact on the economy.

At November 30, 2020, we had a total of $65.8 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):

Nine Months Ended May 31,

Three Months Ended November 30,

Net cash provided by operating activities

4 unchanged sentences

Operating Activities

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.

Net cash provided by operating activities increased $8.7 million to $23.9 million for the three months ended November 30, 2020 from $15.2 million for the corresponding period of the prior fiscal year.

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

Our primary source of operating cash flows for the nine months ended May 31, 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 .

Our primary source of operating cash flows for the three months ended November 30, 2020 was net income of $23.6 million, which increased $11.4 million from period to period.

The changes in our working capital from period to period, which decreased net cash provided by operating activities, were primarily attributable to increases in trade accounts receivable balances during the three months ended November 30, 2020 compared to the corresponding period of the prior fiscal year as a result of significantly increased sales from period to period.

These working capital changes were partially offset by increases in accounts payable in the EMEA segment related to increased production and the timing of payments to vendors from period to period.

In addition, accrued payroll and related expenses decreased by a lower amount during the first quarter of fiscal year 2021 primarily due to lower payments of earned incentive compensation from period to period.

The change in working capital was also impacted by increases to income tax accruals related to the higher pre-tax income during the first quarter of fiscal year 2021 compared to the corresponding period of the prior fiscal year.

Investing Activities

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 fiscal year 2020.

Net cash used in investing activities decreased $2.1 million to $3.7 million for the three months ended November 30, 2020 from $5.8 million for the corresponding period of the prior fiscal year, primarily due to decreased capital expenditures.

Capital expenditures decreased by $2.2 million primarily due to the renovations and equipping of the Company’s office building in Milton Keynes, England that were occurring and were completed in the first quarter of fiscal year 2020.

Capital expenditures during the first quarter of fiscal year 2021 were primarily related to manufacturing equipment which is currently under construction and will be located at our third-party manufacturers in the United States and the United Kingdom once completed.

Financing Activities

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.

Net cash used in financing activities increased $2.6 million to $11.1 million for the three months ended November 30, 2020 from $8.5 million for the corresponding period of the prior fiscal year.

This change was primarily due to a decrease in net proceeds from our debt instruments of $5.9 million.

In the first quarter of fiscal year 2021, we repaid $50.0 million of our U.S.

borrowings outstanding under our line of credit using $52.0 million in proceeds that we received from the issuance and sale of senior notes during the quarter.

This resulted in a $2.0 million cash inflow during the period compared to $7.9 million in net proceeds on our line of credit in the corresponding period of the prior fiscal year.

In addition, increases in shares withheld to cover taxes on conversion of equity rewards and dividends paid of $0.9 million and $0.8 million, respectively, resulted in higher cash outflows from period to period.

Offsetting these increases in cash outflows was a decrease in treasury stock repurchases due to the suspension of such repurchases beginning in the third quarter of fiscal year 2020, which resulted in a decrease in cash outflows of $5.0 million from period to period .

Effect of Exchange Rate Changes

5 unchanged sentences

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 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.

Dollar terms, was an increase in cash of $0.2 million and $0.5 million for the three months ended November 30, 2020 and 2019, respectively.

These changes were primarily due to fluctuations in various foreign currency exchange rates from period to period.

For the three months ended November 30, 2020, the majority was related to the fluctuations in the Chinese Yuan against the U.S.

Dollar whereas for the three months ended November 30, 2019, it was primarily related to fluctuations in the Pound Sterling against the U.S.

Off-Balance Sheet Arrangements

1 unchanged sentence

Commercial Commitments

We have ongoing relationships with various suppliers (contract manufacturers) who manufacture our products.

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

The contract manufacturers maintain title and control of certain raw materials and components, materials utilized in finished products, and of the finished products themselves until shipment to our customers or third-party distribution centers in accordance with agreed upon shipment terms.

Although we have definitive minimum purchase obligations included in the contract terms with certain of our contract manufacturers, when such obligations have been included, they have either been immaterial or the minimum amounts have been such that they are well below the volume of goods that the Company has historically purchased.

In the ordinary course of business, we communicate supply needs to our contract manufacturers based on orders and short-term projections, ranging from two months to five months.

In the ordinary course of business, we communicate supply needs to our contract manufacturers based on orders and short-term projections, ranging from two to six months.

We are committed to purchase the products produced by the contract manufacturers based on the projections provided.

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

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 products 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 .

The amounts for inventory purchased under termination commitments have been immaterial.

In addition to the commitments to purchase products from contract manufacturers described above, we may also enter into commitments with other manufacturers to purchase finished goods and components to support innovation initiatives and/or supply chain initiatives.

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

As of November 30, 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 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.

On December 7, 2021, the Company’s Board of Directors declared a cash dividend of $0.67 per share payable on January 29, 2021 to shareholders of record on January 15, 2021.

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

3 unchanged sentences

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 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.

6 unchanged sentences

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