What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-07 compared with 2021-04-08 · 269 added, 283 removed, 284 unchanged (66% of the section changed)

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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 six months ended February 28, 2021:

 Consolidated net sales increased $37.9 million for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates had a favorable impact of $5.5 million on consolidated net sales for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year.

Thus, on a constant currency basis, net sales would have increased by $32.4 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 six months ended February 28, 2021.

 Gross profit as a percentage of net sales increased to 55.9% for the six months ended February 28, 2021 compared to 53.9% for the corresponding period of the prior fiscal year.

 Consolidated net income increased $14.3 million, or 54%, for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates had a favorable impact of $1.5 million on consolidated net income for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year.

Thus, on a constant currency basis, net income would have increased $12.8 million.

 Although consolidated results for the six months ended February 28, 2021 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 six months ended February 28, 2021 were $2.96 versus $1.92 in the prior fiscal year period.

The following summarizes the financial and operational highlights for our business during the nine months ended May 31, 2021:

 Consolidated net sales increased $76.0 million, or 26%, for the nine months ended May 31, 2021 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates had a favorable impact of $13.2 million on consolidated net sales for the nine months ended May 31, 2021 compared to the corresponding period of the prior fiscal year.

Thus, on a constant currency basis, net sales would have increased by $62.8 million, or 21%, 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 nine months ended May 31, 2021.

 Gross profit as a percentage of net sales increased to 54.9% for the nine months ended May 31, 2021 compared to 54.0% for the corresponding period of the prior fiscal year.

 Consolidated net income increased $20.8 million, or 51%, for the nine months ended May 31, 2021 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates had a favorable impact of $2.9 million on consolidated net income for the nine months ended May 31, 2021 compared to the corresponding period of the prior fiscal year.

Thus, on a constant currency basis, net income would have increased $17.9 million, or 44%, from period to period.

 Although consolidated results for the nine months ended May 31, 2021 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 the Impact of COVID-19 on Our Business section which follows for details.

 Diluted earnings per common share for the nine months ended May 31, 2021 were $4.48 versus $2.98 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:

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and (v) operating with excellence .

Significant Developments

Sales increased in all three segments during the six months ended February 28, 2021 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 have been 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 six months ended February 28, 2021 increased 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 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 many of our homecare and cleaning products due to the high demand for such products during the pandemic.

These combined impacts produced a 19% increase in our consolidated net sales during the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year, a period in which the COVID-19 pandemic had not yet resulted in significant government restrictions on movement and commerce in most regions, with the exception of certain regions within our Asia-Pacific segment.

We are continuing to actively manage and monitor supply chain and transportation disruptions and constraints that have arisen periodically within all three of our business segments during the COVID-19 pandemic, which has both directly and indirectly impacted our suppliers and other third-party distribution centers and manufacturers.

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.

These challenges were significantly compounded in the Americas segment during the second quarter of fiscal year 2021 as a result of severe winter storms in parts of the United States that directly impacted some of our third-party contract manufacturers and distribution centers.

While we have been successful in managing most of the disruptions in our supply chain and the distribution of our products as a result of the pandemic, the timing and magnitude of the challenges that we experienced in our supply chain in the Americas segment during the second quarter of fiscal year 2021 resulted in us not being able to meet the high level of demand for our products by customers and end-users in certain markets.

In addition, the Americas has incurred significant additional costs within its supply chain as a result of these constraints.

Although we have positioned ourselves to address these disruptions in the Americas supply chain and we will continue to manage these challenges in our global supply chain and distribution networks in future periods, we are not able at this time to estimate the degree of the impact of future disruptions within our supply chain or the level of additional costs that we will continue to incur due to these challenges.

Some of these additional costs are expected to unfavorably impact our cost of goods sold for the remainder of fiscal year 2021 and this will result in a lower gross margin for the second half of fiscal year 2021 as compared to the gross margin that we realized for the first six months of the fiscal year.

We are continually monitoring and actively managing this situation with our supply chain.

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 six months ended February 28, 2021, many regions globally are experiencing continued fluctuations in their COVID-19 case counts.

This has resulted in governmental authorities periodically adjusting temporary closures, lockdowns and restriction policies intended to combat the COVID-19 pandemic at certain physical store retailers, suppliers and manufacturers in reaction to those changes.

These 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, 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 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 have included requiring remote working arrangements for employees where practicable.

We are continuing to follow 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.

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 significantly 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 the COVID-19 pandemic will remain our top priorities as we have our employees return to working at our global office locations.

Impact of COVID-19 on Our Business

In fiscal year 2020, our financial results and operations were negatively impacted for many of our markets by the COVID-19 pandemic, particularly in the third and fourth quarters, during the early stages of the pandemic which began in early calendar year 2020.

We have since been able to reduce the adverse impacts of the COVID-19 pandemic on our business due to the strength of our brands, our increased focus on e-commerce, the global expansion in the distribution of our products and a continued focus on our strategic initiatives and our strong culture and the dedication of our employees .

As a result of these activities and the shift in consumer spending patterns towards products such as ours during the pandemic, we have experienced increased sales period over period in most of our markets during each of the first three quarters of fiscal year 2021.

Sales during the nine months ended May 31, 2021 increased 26% compared to the corresponding period of the prior fiscal year primarily due to a higher level of renovation and maintenance activities by end-users during the pandemic, recoveries in many markets due to improvements in public health and safety related to the pandemic, and increased distribution and sales within the e-commerce channel.

We are continuing to actively manage and monitor supply chain and transportation disruptions and constraints that have arisen periodically within all three of our business segments, but particularly in the Americas, during the COVID-19 pandemic.

Some of the challenges that we have experienced include general aerosol production capacity constraints and competition for such capacity by other companies who utilize the same third-party manufacturers for their aerosol production, as well as significant competition for freight resources and increased raw material and other input costs that have resulted due to these constraints.

In addition, supply chains at many companies globally are being strained due to shortages of certain materials and this is impacting the ability of our third-party manufacturers to procure certain of the raw materials needed to manufacture our products.

These challenges have periodically resulted in us not being able to meet the high level of demand for our products by customers and end-users in certain markets, most significantly those markets in our Americas segment where demand for aerosols has significantly outpaced the available production capacity in the region .

We have been actively working on various initiatives in partnership with our third-party manufacturers in order to increase the capacity and flexibility of our supply chain to meet strong end-user demand.

Although we are not able to estimate the degree of the impact or the costs associated with potential future disruptions within our supply chain and distribution networks, we believe that the changes we are working to implement as a result of the pandemic will have a positive lasting impact on our ability to better manage any future disruptions.

However, some of the additional costs resulting from these recent constraints in our supply chain and distribution network are expected to unfavorably impact our cost of goods sold and lower our gross margin in the near-term.

Although several vaccines and treatments are authorized for use against COVID-19, these vaccines and treatments are being produced and distributed at varying rates globally.

Therefore, uncertainty continues to exist regarding the severity and duration of this rapidly evolving pandemic and it remains difficult for us to estimate the extent to which the COVID-19 pandemic will impact our financial results and operations in future periods.

Also, as social distancing requirements resulting from the COVID-19 pandemic continue to lessen in future periods, it is uncertain how this will impact the high levels of renovation and maintenance activities by end-users in recent periods, which have contributed to our strong sales in fiscal year 2021.

If such activities decrease in future periods, this could adversely impact our financial results.

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

These measures have included requiring remote working arrangements for employees where practicable and the imposition of travel restrictions.

These policies and initiatives will continue to impact how we operate for as long as they are in effect and we are still working to determine and implement safe and effective phased office reentry plans for employees at all of our office locations globally .

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.

Results of Operations

Three Months Ended February 28, 2021 Compared to Three Months Ended February 29, 2020

Three Months Ended May 31, 2021 Compared to Three Months Ended May 31, 2020

Operating Items

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

Three Months Ended February 28/29,

Three Months Ended May 31,

Maintenance products

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

Three Months Ended February 28/29,

Three Months Ended May 31,

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

Three Months Ended February 28/29,

Three Months Ended May 31,

Maintenance products

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% of consolidated net sales

Sales in the Americas segment, which includes the U.S., Canada and Latin America, decreased to $46.2 million, down $0.7 million, or 1%, for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates did not have a significant impact on sales for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year.

Sales of maintenance products in the Americas segment decreased $1.1 million, or 3%, for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year.

This sales decrease was mainly driven by decreased sales of maintenance products in the U.S., which were down $3.5 million or 11%, from period to period due to supply chain constraints and disruptions related to the COVID-19 pandemic during the second quarter of fiscal year 2021.

In particular, widespread supply chain disruptions within the consumer products industry during the pandemic has increased competition for production capacity, particularly at some of our third-party manufacturers.

While we have been successful in managing most of the supply chain and distribution disruptions related to the pandemic, the magnitude of these challenges increased during the second quarter of fiscal year 2021 and were significantly compounded as a result of severe winter storms in parts of the United States that directly impacted some of our third-party contract manufacturers and distribution centers.

This combination of factors resulted in us not being able to meet the high level of demand for our products by customers and end-users in certain markets during the second quarter of fiscal year 2021.

These sales decreases were partially offset by increased sales of maintenance products in the Latin America region, which were up $1.9 million or 28%.

Sales in the Americas segment, which includes the U.S., Canada and Latin America, increased to $60.0 million, up $10.0 million, or 20%, for the three months ended May 31, 2021 compared to the corresponding period of the prior fiscal year.

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

Sales for the three months ended May 31, 2021 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $59.4 million in the Americas segment.

Thus, on a constant currency basis, sales would have increased by $9.3 million, or 19%, from period to period.

Sales of maintenance products in the Americas segment increased $12.4 million, or 28%, for the three months ended May 31, 2021 compared to the corresponding period of the prior fiscal year.

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

and Canada, which were up $5.4 million or 151%, $5.1 million or 13%, and $1.9 million or 87%, respectively, from period to period.

Sales in the corresponding period of the prior fiscal year were negatively impacted by various disruptions and lockdowns in the market related to the early stages of the COVID-19 pandemic.

As improvements in public health and safety restrictions have occurred in many regions within the Americas, the Company has been more able to grow sales of its WD-40 Multi-Use Product through increased market penetration.

Sales in Latin America increased primarily 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 shift in distribution model combined with increased demand for our product, primarily due to decreased COVID restrictions, resulted in increased sales in Latin America during the first half of fiscal year 2021 compared to the corresponding period of the prior fiscal year.

Sales of maintenance products in Canada also increased $0.6 million from period to period primarily as a result of a higher level of renovation and maintenance activities exhibited by our end-users during the COVID-19 pandemic as well as increased sales within the ecommerce channel.

Sales of homecare and cleaning products in the Americas increased $0.4 million, or 10%, for the three months ended February 28, 2021 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 $0.4 million or 31% from period to period.

We started to experience a significant increase in sales of many 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.

Late 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.

The continued momentum from the shift in distribution model combined with increased demand for our product and decreased COVID-19 restrictions, resulted in increased sales in Latin America during fiscal year 2021 compared to the corresponding period of the prior fiscal year.

Sales of maintenance products in the U.S.

and Canada also increased from period to period primarily as a result of a higher level of renovation and maintenance activities exhibited by our end-users during the COVID-19 pandemic.

Although the U.S.

experienced some improvements in its supply chain in the third quarter of fiscal year 2021 resulting in higher sales of maintenance products from period to period, it is still having periodic challenges meeting the high level of demand for our products seen in the market, particularly for WD-40 Specialist products which are sourced at certain third-party manufacturers that were heavily impacted by the recent global supply chain constraints .

As a result of these challenges, sales of the WD-40 Specialist product line decreased 33% for the three months ended March 31, 2021 compared to the corresponding period in the prior fiscal year.

Sales of homecare and cleaning products in the Americas decreased $2.4 million, or 37%, for the three months ended May 31, 2021 compared to the corresponding period of the prior fiscal year.

This sales decrease was experienced across all homecare and cleaning brands in the Americas due to particularly strong sales in the third quarter of the prior fiscal year.

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

During the third quarter of fiscal year 2021, we have seen demand for these homecare and cleaning products return to more normal levels due to improvements in public health and fewer safety restrictions related to the pandemic in many regions within the Americas.

Sales levels for our homecare and cleaning products in the Americas were also negatively impacted during the three months ended May 31, 2021 by the challenges in our Americas supply chain.

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, 72% of sales came from the U.S., and 28% of sales came from Canada and Latin America combined for the three months ended February 28, 2021 compared to the distribution for the three months ended February 29, 2020 when 78% of sales came from the U.S., and 22% of sales came from Canada and Latin America.

For the Americas segment, 77% of sales came from the U.S., and 23% of sales came from Canada and Latin America combined for the three months ended May 31, 2021 compared to the distribution for the three months ended May 31, 2020 when 87% of sales came from the U.S., and 13% of sales came from Canada and Latin America.

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

Three Months Ended February 28/29,

Three Months Ended May 31,

Maintenance products

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Dollar are weakening or strengthening against the Pound Sterling .

Sales in the EMEA segment, which includes Europe, the Middle East, Africa and India, increased to $49.8 million, up $8.1 million, or 19%, for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year.

Sales in the EMEA segment, which includes Europe, the Middle East, Africa and India, increased to $58.6 million, up $26.1 million, or 80%, for the three months ended May 31, 2021 compared to the corresponding period of the prior fiscal year.

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

Sales for the three months ended February 28, 2021 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $47.9 million in the EMEA segment.

Sales for the three months ended May 31, 2021 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $52.9 million in the EMEA segment.

Thus, on a constant currency basis, sales would have increased by $20.4 million, or 63%, from period to period.

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

Sales in the direct markets increased to $33.3 million, up $3.7 million, or 13%, for the three months ended February 28, 2021, 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 $2.8 million or 14% and $1.0 million or 31%, respectively, throughout all of the direct markets.

Sales in the direct markets increased to $40.2 million, up $18.5 million, or 85%, for the three months ended May 31, 2021, compared to the corresponding period of the prior fiscal year primarily due to increased sales of WD-40 Multi-Use Product, WD-40 Specialist and 3-In-One of $11.5 million or 81%, $2.5 million or 94%, and $2.0 million or 112%, respectively, throughout all of 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 and the success of promotional programs that were conducted during the third quarter of fiscal year 2021 to meet the high level of demand.

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

Sales from direct markets accounted for 67% of the EMEA segment’s sales for the three months ended February 28, 2021 compared to 71% for the corresponding period of the prior fiscal year .

In addition, sales levels were much higher compared to the prior period due to severe lockdowns measures that occurred during the third quarter of fiscal year 2020 which limited many retailers’ ability to participate in promotional activities and sell high volumes of certain products.

Sales from direct markets accounted for 69% of the EMEA segment’s sales for the three months ended May 31, 2021 compared to 67% for the corresponding period of the prior fiscal year .

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

Sales in the distributor markets increased $4.3 million, or 35%, for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year, primarily due to increased sales of the WD-40 Multi-Use Product in India, the Middle East and Northern Europe, which were up $1.8 million, $1.4 million, and $1.0 million, respectively.

Sales in the distributor markets increased $7.6 million, or 70%, for the three months ended May 31, 2021 compared to the corresponding period of the prior fiscal year, primarily due to increased sales of the WD-40 Multi-Use Product in Eastern Europe, the Middle East and Northern Europe, which were up $2.9 million, $1.7 million, and $1.7 million, respectively.

This increase in sales from period to period was primarily due to the continued recoveries in the EMEA distributor markets which had previously experienced more severe lockdowns during the second half of fiscal year 2020 due to the COVID-19 pandemic.

During the first half 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 33% of the EMEA segment’s total sales for the three months ended February 28, 2021, compared to 29% for the corresponding period of the prior fiscal year .

During the first nine months 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 to meet the higher level of demand caused by increases in renovation and maintenance activities by end-users during the pandemic.

The distributor markets accounted for 31% of the EMEA segment’s total sales for the three months ended May 31, 2021, compared to 33% for the corresponding period of the prior fiscal year .

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

Three Months Ended February 28/29,

Three Months Ended May 31,

Maintenance products

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% of consolidated net sales

Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region, increased to $15.9 million, up $4.5 million, or 39%, for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year.

Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region, increased to $17.8 million, up $2.1 million, or 14%, for the three months ended May 31, 2021 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 February 28, 2021 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $15.1 million in the Asia-Pacific segment.

Sales for the three months ended May 31, 2021 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 increased by $0.7 million, or 5%, from period to period.

Sales in Asia, which represented 67% of the total sales in the Asia-Pacific segment, increased $3.0 million, or 39%, for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year.

Sales in China increased $3.3 million, or 227%, primarily due to improved market conditions as a result of the reduction of COVID-19 lockdown measures compared to the corresponding period of the prior fiscal year when the COVID-19 outbreak was in its earliest stages.

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

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

No such comparable event occurred in the second quarter of the current fiscal year.

Sales in the Asia distributor markets decreased $0.3 million, or 4%, for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year primarily due to a shift in the timing of customer orders from period to period, particularly in Indonesia, Singapore and the Philippines, and the delayed shipment of certain customer orders in the second quarter of fiscal year 2021 as a result of shipping container shortages.

Sales in Australia increased $1.5 million, or 39%, for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year.

Sales in Asia, which represented 66% of the total sales in the Asia-Pacific segment, increased $1.1 million, or 10%, for the three months ended May 31, 2021 compared to the corresponding period of the prior fiscal year.

Sales in the Asia distributor markets increased $1.5 million, or 26%, for the three months ended May 31, 2021 compared to the corresponding period of the prior fiscal year primarily due to increased sales of WD-40 Multi-Use Product of $1.2 million or 22%, primarily due to the easing of COVID-19 lockdown measures and restrictions compared to the corresponding period of the prior fiscal year.

These reduced lockdown measures positively impacted economic conditions during the third quarter of fiscal year 2021 and resulted in increased demand and higher sales period over period, particularly in the Philippines, South Korea and Indonesia.

Sales in China decreased $0.5 million, or 9%, primarily due to a higher level of sales in the third quarter of fiscal year 2020 associated with the timing of COVID-19 restrictions and shipping activities during that period.

In the third quarter of the prior fiscal year, China had a significant number of orders that were expected to be shipped to customers in early February 2020 after the Chinese New Year’s holiday and those shipments could not take place due to COVID-19.

This resulted in a backlog of orders being shipped in the third quarter of fiscal year 2020 due to the easing of COVID-19 restrictions.

No such comparable event occurred in the current fiscal year.

Sales in Australia increased $1.1 million, or 22%, for the three months ended May 31, 2021 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 $1.0 million, or 26%, primarily due to increased demand for WD-40 Multi Use Product and WD-40 Specialist, which were up $0.5 million, or 37%, and $0.4 million or 92%, respectively, due to a higher level of renovation and maintenance activities undertaken by our end-users during the COVID-19 pandemic which resulted in increased sales.

In addition, demand for homecare and cleaning products were up $0.6 million or 32%, from period to period, primarily as a result of the COVID-19 pandemic.

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 our key customers remaining open for business during the COVID-19 pandemic .

Gross profit increased to $62.0 million for the three months ended February 28, 2021 compared to $53.6 million for the corresponding period of the prior fiscal year.

As a percentage of net sales, gross profit increased to 55.4% for the three months ended February 28, 2021 compared to 53.6% for the corresponding period of the prior fiscal year.

Gross margin was favorably impacted by 1.6 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, which was late in the second quarter of our fiscal year 2020, the price of crude oil dropped significantly for a period of several months.

Although the price

of crude oil has recently recovered to the prices seen in early calendar year 2020, the average cost of crude oil which flowed through our cost of goods sold was lower during the second 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.

On a constant currency basis, sales in Australia would have remained constant from period to period at $4.9 million.

Negative sales impacts to Australia due to the COVID-19 pandemic have continued to be limited in fiscal year 2021 as COVID-19 case numbers have remained relatively low in Australia since the initial outbreak and governmental authorities had adopted less severe lockdown requirements.

This has resulted in our key customers remaining open for business during the COVID-19 pandemic during both fiscal year 2020 and 2021.

Sales of maintenance products in Australia during the third quarter of fiscal year 2021 were favorably impacted by a higher level of renovation and maintenance activities undertaken by our end-users period over period.

This increase was almost completely offset by lower sales of homecare and cleaning products, as we have seen demand for these products return to more normal levels due to improvements in public health and reduced safety restrictions related to the pandemic.

Gross profit increased to $72.5 million for the three months ended May 31, 2021 compared to $53.1 million for the corresponding period of the prior fiscal year.

As a percentage of net sales, gross profit decreased to 53.1% for the three months ended May 31, 2021 compared to 54.0% for the corresponding period of the prior fiscal year.

Gross margin was unfavorably impacted by 1.8 percentage points due to increases in manufacturing costs, changes in sales mix and higher miscellaneous costs from period to period.

The increased manufacturing costs were primarily driven by higher labor and overhead costs at our third-party manufacturers caused by global supply chain constraints as a result of the COVID-19 pandemic.

These pandemic-related challenges began to significantly impact the Americas segment starting in the second quarter of fiscal year 2021 and continued in the third quarter.

No such challenges existed in the third quarter of the prior fiscal year since it was early in the pandemic.

Gross margin was unfavorably impacted by 0.5 percentage points due to changes in foreign currency exchange rates from period to period in the EMEA segment .

Gross margin was also unfavorably impacted by 0.1 percentage points from period to period due to unfavorable changes in the costs of petroleum-based specialty chemicals.

Although petroleum-based specialty chemicals favorably impacted gross margin during the first half of fiscal year 2021 as compared to the prior fiscal year, such costs have increased significantly over the last several months and is starting to negatively impact our gross margin.

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.

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 0.5 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 0.2 percentage points from period to period due to sales price increases, primarily in the EMEA and Asia-Pacific segments during the last twelve months.

Gross margin was also positively impacted by 0.2 percentage points due to the favorable impacts of changes to product mix and market mix, primarily in the Asia-Pacific segment resulting from increased sales in China from period to period.

Changes in foreign currency exchange rates from period to period in the EMEA segment positively impacted by 0.2 percentage points.

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 0.6 percentage points from period to period.

Gross margin was also negatively impacted by 0.3 percentage points from period to period due to increases to advertising, promotional, and other discounts that we give to our customers, primarily in the EMEA and Americas segments.

The recent increases in the price of crude oil that we are seeing in the market are expected to unfavorably impact our cost of goods sold for as long as these costs remain at these higher levels

These unfavorable impacts to gross margin were partially offset by favorable changes in the costs of aerosol cans in the EMEA segment due to increased sales which resulted in higher can rebates , positively impacting gross margin by 0.8 percentage points.

In addition, gross margin was favorably impacted by 0.3 percentage points due to changes in warehousing and in bound freight costs, primarily in our EMEA segment.

Since warehousing costs are primarily fixed in nature, gross margin was favorably impacted due to the smaller impact that such fees had as a result of significantly higher sales in the third quarter of this fiscal year as compared to the corresponding period of the prior fiscal year.

In bound freight costs in the third quarter of this fiscal year were lower than last fiscal year due to additional freight costs incurred last year associated with the movement of certain raw materials and finished goods in preparation for Brexit.

Gross margin was also positively impacted by 0.3 percentage points from period to period due to decreases to advertising, promotional, and other discounts that we give to our customers, primarily in the Americas and Asia-Pacific segments.

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

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

Several of the unfavorable impacts to gross margin were caused by the widespread supply chain disruptions and constraints within the consumer products industry and distribution networks that occurred during the second quarter of fiscal year 2021 related to the COVID-19 pandemic.

These disruptions and constraints have included increased competition for more limited production capacity at our third-party manufacturers and reduced availability of freight providers, both of which have resulted in increased costs to the Company.

The recent increase in the magnitude of these trends combined with the continued increases in the price of crude oil that we are seeing in the market are expected to unfavorably impact our cost of goods sold for the remainder of fiscal year 2021 and this will result in a lower gross margin for the second half of fiscal year 2021 as compared to the gross margin that we have realized for the first six months of the fiscal year.

In addition, gross margin was positively impacted by 0.1 percentage points from period to period due to sales price increases, primarily in the EMEA and Americas segments during the last twelve months.

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 $3.5 million and $3.1 million for the three months ended February 28, 2021 and February 29, 2020, respectively.

These costs totaled $4.9 million and $3.1 million for the three months ended May 31, 2021 and 2020, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses for the three months ended February 28, 2021 increased $5.6 million to $35.5 million from $29.9 million for the corresponding period of the prior fiscal year.

As a percentage of net sales, SG&A expenses increased to 31.7% for the three months ended February 28, 2021 compared to 29.9% 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 $5.9 million as a result of increased incentive compensation accruals, increased headcount and higher stock-based compensation from period to period.

Selling, general and administrative (“SG&A”) expenses for the three months ended May 31, 2021 increased $10.2 million to $38.1 million from $27.9 million for the corresponding period of the prior fiscal year.

As a percentage of net sales, SG&A expenses decreased to 28.0% for the three months ended May 31, 2021 compared to 28.4% 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 $6.1 million as a result of increased incentive compensation accruals and higher stock-based compensation from period to period resulting from stronger financial results from period to period.

Changes in foreign currency exchange rates from period to period increased SG&A expenses by $1.9 million.

Increases in freight costs associated with higher sales from period to period also increased SG&A expenses by $0.3 million.

In addition, professional services fees increased $0.3 million due to increased cloud-based software usage and license fees and other miscellaneous expenses increased $0.2 million from period to period.

These increases to SG&A expenses were offset by a decrease in travel and meeting expenses of $1.7 million from period to period.

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 .

Increases in freight costs associated with higher sales levels as well as carrier price increases due to constraints and limited capacity in the global distribution networks from period to period also increased SG&A expenses by $1.5 million.

professional services fees increased $0.8 million due to increased cloud-based software usage and license fees.

There was also a slight decrease in SG&A expenses of $0.1 million from period to period due to lower miscellaneous costs.

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 $1.3 million and $1.5 million for the three months ended February 28, 2021 and February 29, 2020, respectively.

Research and development costs were $1.3 million and $1.4 million for the three months ended May 31, 2021 and 2020, respectively.

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

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Advertising and Sales Promotion Expenses

Advertising and sales promotion expenses for the three months ended February 28, 2021 increased $0.6 million, or 13%, to $5.5 million from $4.9 million for the corresponding period of the prior fiscal year .

As a percentage of net sales, these expenses remained constant at 4.9% for both the three months ended February 28, 2021 and February 29, 2020.

Changes in foreign currency exchange rates did not have a significant impact on advertising and sales promotion expenses for the three months ended February 28, 2021.

Advertising and sales promotion expenses for the three months ended May 31, 2021 increased $1.9 million, or 39%, to $6.7 million from $4.8 million for the corresponding period of the prior fiscal year .

As a percentage of net sales, these expenses increased to 4.9% for the three months ended May 31, 2021 compared to 4.8% for the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates from period to period increased advertising and sales promotion expenses by $0.4 million for the three months ended May 31, 2021.

The increase in advertising and sales promotion expenses was primarily due to a higher level of promotional programs and marketing support in all three segments as a result of increased consumer demand and higher sales from period to period.

As a percentage of net sales, advertising and sales promotion expenses may fluctuate period to period based upon the type of marketing activities we employ and the period in which the costs are incurred.

Total promotional costs recorded as a reduction to sales was $5.9 million and $4.5 million for three months ended February 28, 2021 and February 29, 2020, respectively.

Therefore, our total investment in advertising and sales promotion activities totaled $11.4 million and $9.4 million for the three months ended February 28, 2021 and February 29, 2020, respectively.

Total promotional costs recorded as a reduction to sales was $6.7 million and $5.0 million for three months ended May 31, 2021 and 2020, respectively.

Therefore, our total investment in advertising and sales promotion activities totaled $13.4 million and $9.8 million for the three months ended May 31, 2021 and 2020, respectively.

Amortization of Definite-lived Intangible Assets Expense

Amortization of our definite-lived intangible assets decreased to $0.4 million for the three months ended February 28, 2021 compared to $0.7 million for the corresponding period in the prior year due to decreased amortization associated with the 2000 Flushes trade name, which became fully amortized during the third quarter of fiscal year 2020.

Amortization of our definite-lived intangible assets decreased to $0.4 million for the three months ended May 31, 2021 compared to $0.6 million for the corresponding period in the prior year 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 February 28/29,

Three Months Ended May 31,

Unallocated corporate (1)

Income from operations for the Americas decreased to $10.4 million, down $1.0 million, or 9%, for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year, primarily due to a $1.2 million increase in operating expenses and a $0.7 million decrease in sales, partially offset by a higher gross margin.

Operating expenses increased period over period primarily due to higher accruals for incentive compensation and other employee-related costs.

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.

In addition, operating

expenses were favorably impacted by decreased amortization associated with the 2000 Flushes trade name, which became fully amortized during the third quarter of fiscal year 2020.

As a percentage of net sales, gross profit for the Americas segment increased from 52.4% to 53.5% 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.

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 from period to period.

Income from operations for the Americas increased to $15.6 million, up $1.2 million, or 8%, for the three months ended May 31, 2021 compared to the corresponding period of the prior fiscal year, primarily due to a $10.0 million increase in sales, partially offset by both a lower gross margin and higher operating expenses.

Operating expenses increased period over period primarily due to higher accruals for incentive compensation and stock-based compensation , as well as higher outbound freight

costs due to the increase in sales and higher freight costs in our distribution networks from period to period .

As a percentage of net sales, gross profit for the Americas segment decreased from 53.1% to 51.2% period over period primarily due to increases in costs at our third-party manufacturers from period to period due to supply chain constraints as a result of the COVID-19 pandemic .

These unfavorable impacts to gross margin were partially offset by the combined favorable impacts of decreased costs of petroleum-based specialty chemicals and aerosol cans as well as decreases to advertising, promotional, and other discounts that we give to our customers, from period to period.

Operating income as a percentage of net sales decreased from 28.8% to 26.0% period over period .

Income from operations for the EMEA segment increased to $14.2 million, up $3.6 million, or 34% from period to period, primarily due to a $8.1 million increase in sales and a higher gross margin, partially offset by a $1.7 million increase in operating expenses.

As a percentage of net sales, gross profit for the EMEA segment increased from 55.0% to 56.7% 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 favorable changes to exchange rates and 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 increases to advertising, promotional, and other discounts that we give to our customers from period to period.

The increased sales were accompanied by a $1.7 million increase in total operating expenses period over period, primarily due to higher accruals for incentive compensation and other employee-related costs as well as increased outbound freight costs due to the higher sales volumes.

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

Operating income as a percentage of net sales increased from 25.3% to 28.5% period over period .

Income from operations for the Asia-Pacific segment increased to $5.2 million, up $2.1 million, or 67%, for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year, primarily due to a $4.5 million increase in sales and a higher gross margin, partially offset by a $0.9 million increase in operating expenses.

As a percentage of net sales, gross profit for the Asia-Pacific segment increased from 53.1% to 56.9% 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 and decreases to advertising, promotional, and other discounts that we give to our customers from period to period.

These favorable impacts to gross margin were slightly offset by the unfavorable impact of increased costs of aerosol cans from period to period.

The increased sales were accompanied by a $0.9 million increase in total operating expenses period over period, primarily due to a higher level of advertising and sales promotion expenses and higher accruals for incentive compensation.

Income from operations for the EMEA segment increased to $15.3 million, up $8.1 million, or 113% from period to period, primarily due to a $26.1 million increase in sales, partially offset by a lower gross margin and a $5.9 million increase in operating expenses.

As a percentage of net sales, gross profit for the EMEA segment decreased from 54.9% to 54.4% period over period primarily due to increased costs of petroleum-based specialty chemicals, unfavorable changes to exchange rates and increases in costs at our third-party manufacturers from period to period.

These unfavorable impacts to gross margin were partially offset by the decreased costs of aerosol cans and lower warehousing, distribution and freight costs from period to period.

The increased sales were accompanied by a $5.9 million increase in total operating expenses period over period, primarily due to higher accruals for incentive compensation and stock-based compensation as well as increased advertising and promotional expenses and outbound freight costs due to the higher sales volumes.

Operating income as a percentage of net sales increased from 22.1% to 26.1% period over period .

Income from operations for the Asia-Pacific segment decreased to $5.2 million, down $0.5 million, or 9%, for the three months ended May 31, 2021 compared to the corresponding period of the prior fiscal year, primarily due to a $1.7 million increase in operating expenses, partially offset by higher sales and a slightly higher gross margin.

As a percentage of net sales, gross profit for the Asia-Pacific segment increased from 55.2% to 55.3% period over period primarily due to decreases to the cost of petroleum-based specialty chemicals, as well as decreases to advertising, promotional, and other discounts that we give to our customers from period to period .

These favorable impacts to gross margin were almost completely offset by unfavorable changes in both sales product mix and market mix, as well as increased costs of aerosol cans from period to period.

Operating income as a percentage of net sales decreased from 36.7% to 29.5% period over period.

Non-Operating Items

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

Three Months Ended February 28/29,

Three Months Ended May 31,

Interest income

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Interest Income

Interest income was insignificant for both the three months ended February 28, 2021 and February 29, 2020.

Interest income was insignificant for both the three months ended May 31, 2021 and 2020.

Interest Expense

Interest expense remained relatively constant at $0.6 million for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year .

Interest expense decreased to $0.6 million for the three months ended May 31, 2021 compared to $0.8 million during the corresponding period of the prior fiscal year, primarily due to a lower balance on our line of credit from period to period .

Other Income (Expense), Net

Other income (expense), net was insignificant for both the three months ended February 28, 2021 and February 29, 2020 .

Other income (expense), net was insignificant for both the three months ended May 31, 2021 and 2020 .

Provision for Income Taxes

The provision for income taxes was 15.0% and 17.6% of income before income taxes for the three months ended February 28, 2021 and February 29, 2020, respectively.

The decrease in the effective income tax rate from period to period was primarily due to an increase in excess tax benefits from settlements of stock-based equity awards, as well as the release of liabilities related to uncertain tax positions due to the expiration of statutes during the second quarter of fiscal year 2021.

Net income was $17.2 million, or $1.24 per common share on a fully diluted basis, for the three months ended February 28, 2021 compared to $14.3 million, or $1.04 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 $0.6 million on net income for the three months ended February 28, 2021 compared to the corresponding period of the prior fiscal year.

The provision for income taxes was 21.9% and 23.9% of income before income taxes for the three months ended May 31, 2021 and 2020, respectively.

The decrease in the effective income tax rate from period to period was primarily due to higher earnings from foreign operations resulting in an increase in the benefit received from the application of the Foreign-Derived Intangible Income calculation, coupled with a one-time benefit received in fiscal year 2021 from an Investment Tax Credit.

Net income was $21.0 million, or $1.52 per common share on a fully diluted basis, for the three months ended May 31, 2021 compared to $14.5 million, or $1.06 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 $1.4 million on net income for the three months ended May 31, 2021 compared to the corresponding period of the prior fiscal year.

On a constant currency basis, net income would have increased by $5.1 million from period to period.

Six Months Ended February 28, 2021 Compared to Six Months Ended February 29, 2020

Nine Months Ended May 31, 2021 Compared to Nine Months Ended May 31, 2020

Operating Items

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

Six Months Ended February 28/29,

Nine Months Ended May 31,

Maintenance products

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

Six Months Ended February 28/29,

Nine Months Ended May 31,

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

Six Months Ended February 28/29,

Nine Months Ended May 31,

Maintenance products

1 unchanged sentence

% of consolidated net sales

Sales in the Americas segment, which includes the U.S., Canada and Latin America, increased to $100.3 million, up $6.8 million, or 7%, for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year.

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

Sales for the six months ended February 28, 2021 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $100.8 million in the Americas segment.

Thus, on a constant currency basis, sales would have increased by $7.3 million, or 8%, from period to period .

Sales of maintenance products in the Americas segment increased $5.7 million, or 7%, for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year.

This sales increase was mainly driven by increased sales of maintenance products in the Latin America and Canada, which were up $4.7 million and $1.2 million, or 35% and 23%, respectively, 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 in Canada, including within the e-commerce channel.

Sales in the Americas segment, which includes the U.S., Canada and Latin America, increased to $160.4 million, up $16.7 million, or 12%, for the nine months ended May 31, 2021 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates did not have a material impact on sales for the Americas segment from period to period.

Sales of maintenance products in the Americas segment increased $18.1 million, or 14%, for the nine months ended May 31, 2021 compared to the corresponding period of the prior fiscal year.

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

and Canada, which were up $10.1 million or 60%, $5.0 million or 5% and $3.0 million or 42%, respectively, from period to period.

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 resulted in increased sales of maintenance products in all three regions.

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

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

Sales of maintenance products in the United States were relatively constant, down only $0.1 million, or less than 1%, from period to period.

Although sales were significantly higher in the United States during the first three months of fiscal year 2021 due to increased demand driven by higher renovation and maintenance activities exhibited by our end users, this was more than offset by lower sales during the second quarter of fiscal year 2021 as a result of supply chain constraints and disruptions related to the both COVID-19 pandemic and the severe winter storms that impacted parts of the United States.

For further information on these supply chain disruptions in the United States during the second quarter of fiscal year 2021, see Results of Operations – Americas for the three months ended February 28, 2021 within Part I―Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Sales of homecare and cleaning products in the Americas increased $1.1 million, or 11%, for the six months ended February 28, 2021 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 $1.2 million or 39% from period to period.

We started to experience a significant increase in sales of most 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.

Early 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 nine months of fiscal year 2021 compared to the corresponding period of the prior fiscal year.

Although the U.S.

As a result of these challenges, sales of the WD-40 Specialist product line decreased 15% for the nine months ended March 31, 2021 compared to the corresponding period in the prior fiscal year.

Sales of homecare and cleaning products in the Americas decreased $1.4 million, or 8%, for the nine months ended May 31, 2021 compared to the corresponding period of the prior fiscal year.

This sales decrease was driven primarily by a decrease in sales of Lava and X-14 brand products in the U.S., which were down $0.9 million or 40% and $0.6 million or 42%, respectively, from period to period.

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

During the third quarter of fiscal year 2021, we have seen demand for these homecare and cleaning products return to more normal levels due to improvements in public health and safety restrictions related to the pandemic in many regions within the Americas.

Sales levels for our homecare and cleaning products in the Americas were also negatively impacted during the nine months ended May 31, 2021 by the challenges in our Americas supply chain.

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, 75% of sales came from the U.S., and 25% of sales came from Canada and Latin America combined for the six months ended February 28, 2021 compared to the distribution for the six months ended February 29, 2020 when 79% of sales came from the U.S., and 21% of sales came from Canada and Latin America.

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 nine months ended May 31, 2021 compared to the distribution for the nine months ended May 31, 2020 when 82% of sales came from the U.S., and 18% of sales came from Canada and Latin America.

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

Six Months Ended February 28/29,

Nine Months Ended May 31,

Maintenance products

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% of consolidated net sales

Sales in the EMEA segment, which includes Europe, the Middle East, Africa and India, increased to $104.6 million, up $23.6 million, or 29%, for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year.

Sales in the EMEA segment, which includes Europe, the Middle East, Africa and India, increased to $163.2 million, up $49.6 million, or 44%, for the nine months ended May 31, 2021 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 six months ended February 28, 2021 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $99.9 million in the EMEA segment.

Sales for the nine months ended May 31, 2021 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $152.9 million in the EMEA segment.

Thus, on a constant currency basis, sales would have increased by $39.3 million, or 35%, from period to period.

Sales in the direct markets increased to $68.7 million, up $14.3 million, or 26%, for the six months ended February 28, 2021 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 $9.9 million or 26% and $2.7 million or 45%, respectively, throughout all of the direct markets.

Sales in the direct markets increased to $108.9 million, up $32.8 million, or 43%, for the nine months ended May 31, 2021 compared to the corresponding period of the prior fiscal year primarily due to increased sales of WD-40 Multi-Use Product, WD-40 Specialist and WD-40 Bike of $21.5 million or 41%, $5.2 million or 61% and $2.2 million or 145%, respectively, throughout all of the direct markets.

Additionally, sales of 3-In-One increased $2.9 million or 49% during the period.

These increases in sales were 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 and the success of promotional programs that were conducted during the third quarter of fiscal year 2021 to meet the high level of demand.

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

Sales from direct markets accounted for 66% of the EMEA segment’s sales for the six months ended February 28, 2021 compared to 67% for the corresponding period of the prior fiscal year .

In addition, sales levels were much higher in the third quarter of fiscal year 2021 compared to the prior period due to severe lockdowns measures that occurred during the third quarter of fiscal year 2020 which limited many retailers’ ability to participate in promotional activities and sell high volumes of certain products.

Sales from direct markets accounted for 67% of the EMEA segment’s sales for the nine months ended May 31, 2021 compared to 67% for the corresponding period of the prior fiscal year .

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

Sales in the distributor markets increased $9.2 million, or 35%, for the six months ended February 28, 2021 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, India, the Middle East and Eastern Europe, which were up $3.3 million, $2.9 million, $1.4 million and $1.3 million, respectively.

This increase in sales from period to period was primarily due to recoveries experienced during the first half 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 half 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 34% of the EMEA segment’s total sales for the six months ended February 28, 2021, compared to 33% for the corresponding period of the prior fiscal year .

Sales in the distributor markets increased $16.8 million, or 45%, for the nine months ended May 31, 2021 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, India, and the Middle East, which were up $5.0 million, $4.1 million, $3.9 million and $3.1 million, respectively.

This increase in sales from period to period was primarily due to recoveries experienced during 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 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 to meet the higher level of demand caused by increases in renovation and maintenance activities by end-users during the pandemic.

The distributor markets accounted for 33% of the EMEA segment’s total sales for the nine months ended May 31, 2021, compared to 33% for the corresponding period of the prior fiscal year .

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

Six Months Ended February 28/29,

Nine Months Ended May 31,

Maintenance products

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% of consolidated net sales

Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region, increased to $31.6 million, up $7.5 million, or 31%, for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year.

Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region, increased to $49.3 million, up $9.7 million, or 24%, for the nine months ended May 31, 2021 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 six months ended February 28, 2021 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $30.3 million in the Asia-Pacific segment.

Sales for the nine months ended May 31, 2021 translated at the exchange rates in effect for the corresponding period of the prior fiscal year would have been $46.6 million in the Asia-Pacific segment.

Thus, on a constant currency basis, sales would have increased by $7.0 million, or 18%, from period to period.

Sales in Asia, which represented 67% of the total sales in the Asia-Pacific segment, increased $4.9 million, or 30%, for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year.

Sales in China increased $4.5 million, or 119%, primarily due to improved market conditions as a result of the reduction of COVID-19 lockdown measures compared to the corresponding period of the prior fiscal year when the COVID-19 outbreak was in its earliest stages during the second quarter of fiscal year 2020.

In addition, sales in China during the first half of fiscal year 2020 were negatively impacted due to activities associated with the country’s preparation for the 70th Anniversary National Day in China which resulted in temporary factory closures and slowed market conditions, as well as government restrictions imposed in response to the COVID-19 pandemic.

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

No such comparable event occurred in the first half of the current fiscal year.

Sales in the Asia distributor markets increased $0.4 million, or 3%, for the six months ended February 28, 2021 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 half of fiscal year 2021 compared to late in fiscal year 2020, which resulted in a higher level of sales particularly during the first three months of fiscal year 2021.

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 during the six months ended February 28, 2021.

Sales in Australia increased $2.6 million, or 33%, for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year.

Sales in Asia, which represented 67% of the total sales in the Asia-Pacific segment, increased $6.0 million, or 22%, for the nine months ended May 31, 2021 compared to the corresponding period of the prior fiscal year.

Sales in China increased $4.0 million, or 46%, primarily due to improved market conditions as a result of the reduction of COVID-19 lockdown measures compared to the corresponding period of the prior fiscal year when the COVID-19 outbreak resulted in significant governmental restrictions on movement and commerce.

Sales in the Asia distributor markets increased $1.9 million, or 11%, for the nine months ended May 31, 2021 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 fiscal year 2021 compared to late in fiscal year 2020.

These reduced lockdown measures have positively impacted economic conditions and resulted in increased demand and higher sales period over period, particularly in the Philippines, South Korea, Indonesia and Hong Kong, during the nine months ended May 31, 2021.

Sales in Australia increased $3.7 million, or 31%, for the nine months ended May 31, 2021 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 $1.8 million, or 14%, partially due to continued increased demand for homecare and cleaning products, which were up $1.4 million, or 27%, as a result of the COVID-19 pandemic.

In addition, sales of WD-40 Multi Use Product and WD-40 Specialist were up $0.9 million, or 27%, and $0.5 million, or 57%, respectively, from period to period primarily due to a higher level of renovation and maintenance activities undertaken by our end-users during the COVID-19 pandemic which resulted in increased sales.

In addition, sales of maintenance products were up $2.3 million, or 31%, from period to period primarily due to a higher level of renovation and maintenance activities undertaken by our end-users during the COVID-19 pandemic which resulted in increased sales.

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

Gross profit increased to $132.3 million for the six months ended February 28, 2021 compared to $107.1 million for the corresponding period of the prior fiscal year.

As a percentage of net sales, gross profit increased to 55.9% for the six months ended February 28, 2021 compared to 53.9% for the corresponding period of the prior fiscal year.

Gross profit increased to $204.7 million for the nine months ended May 31, 2021 compared to $160.2 million for the corresponding period of the prior fiscal year.

As a percentage of net sales, gross profit increased to 54.9% for the nine months ended May 31, 2021 compared to 54.0% for the corresponding period of the prior fiscal year.

Gross margin was favorably impacted by 1.2 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, which was late in the second quarter of our fiscal year 2020, the price of crude oil dropped significantly for a period of several months.

Although the price of crude oil has recently recovered to the prices seen in early calendar year 2020, the average cost of crude oil which flowed through our cost of goods sold was lower during the first half 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.

Although the price of crude oil has recently recovered to the prices seen in early calendar year 2020, the average cost of crude oil which flowed through our cost of goods sold was lower during the first nine months 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.

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.

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 0.3 percentage points from period to period due to sales price increases, primarily in the EMEA and Asia Pacific segments during the last twelve months.

Changes in foreign currency exchange rates from period to period in the EMEA segment positively impacted by 0.1 percentage points.

Gross margin was also negatively impacted by 0.1 percentage point from period to period due to the combined effects of changes to sales mix and increases in other miscellaneous costs from period to period in the Americas and EMEA segments, which were significantly offset by favorable market mix changes in the Asia-Pacific segment.

In addition, gross margin was negatively impacted by 0.1 percentage point from period to period due to increases to advertising, promotional, and other discounts that we give to our customers, primarily in the EMEA segment .

In addition, gross margin was positively impacted by 0.2 percentage points from period to period due to sales price increases in all three segments during the last twelve months.

These favorable impacts to gross margin were partially offset by an unfavorable impact of 1.0 percentage points due to increases in manufacturing costs and higher miscellaneous costs from period to period.

These pandemic-related challenges began to significantly impact the Americas segment starting in the second quarter of fiscal year 2021 and continued in the third quarter.

No such challenges existed in the corresponding periods of the prior fiscal year.

Gross margin was also negatively impacted by 0.2 percentage points from period to period due to higher warehousing and in-bound freight costs, primarily in the Americas and EMEA segments.

Changes in foreign currency exchange rates from period to period in the EMEA segment negatively impacted by 0.1 percentage points.

These costs totaled $7.7 million and $6.1 million for the six months ended February 28, 2021 and February 29, 2020, respectively.

These costs totaled $12.5 million and $9.3 million for the nine months ended May 31, 2021 and 2020, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses for the six months ended February 28, 2021 increased $9.0 million to $71.5 million from $62.5 million for the corresponding period of the prior fiscal year.

As a percentage of net sales, SG&A expenses decreased to 30.2% for the six months ended February 28, 2021 compared to 31.5% 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 $8.9 million due to increased incentive compensation accruals, 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 $1.4 million.

Selling, general and administrative (“SG&A”) expenses for the nine months ended May 31, 2021 increased $19.2 million to $109.6 million from $90.4 million for the corresponding period of the prior fiscal year.

As a percentage of net sales, SG&A expenses decreased to 29.4% for the nine months ended May 31, 2021 compared to 30.5% 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 $15.1 million due to increased incentive compensation accruals and higher stock-based compensation from period to period resulting from stronger financial results from period to period.

Changes in foreign currency exchange rates from period to period increased SG&A expenses by $3.0 million.

In addition, professional services fees increased $0.9 million due to increased cloud-based software usage and license fees, and other miscellaneous expenses increased $0.5 million from period to period.

In addition, professional services fees increased $1.7 million due to increased cloud-based software usage and license fees.

Other miscellaneous expenses also increased $0.6 million from period to period.

These increases to SG&A expenses were offset by a decrease in travel and meeting expenses of $4.0 million from period to period.

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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 $2.9 million and $3.2 million for the six months ended February 28, 2021 and February 29, 2020, respectively.

Research and development costs were $4.2 million and $4.6 million for the nine months ended May 31, 2021 and 2020, respectively.

Advertising and Sales Promotion Expenses

Advertising and sales promotion expenses for the six months ended February 28, 2021 increased $0.6 million, or 6%, to $11.0 million from $10.4 million for the corresponding period of the prior fiscal year .

As a percentage of net sales, these expenses decreased to 4.7% for the six months ended February 28, 2021 from 5.3% for the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates did not have a significant impact on advertising and sales promotion expenses for the six months ended February 28, 2021.

The increase in advertising and sales promotion expenses was primarily

due to a higher level of promotional programs and marketing support in all three segments as a result of increased consumer demand and higher sales from period to period.

These increases were partially offset by the decrease of physical marketing and sampling activities from period to period, such as the cancellations of trade shows, due to the continued indirect effects of the COVID-19 pandemic during the first half of fiscal year 2021 and this resulted in a decreased in advertising and sales promotion expenses as a percentage of net sales from period to period.

Advertising and sales promotion expenses for the nine months ended May 31, 2021 increased $2.5 million, or 16%, to $17.7 million from $15.2 million for the corresponding period of the prior fiscal year .

As a percentage of net sales, these expenses decreased to 4.7% for the nine months ended May 31, 2021 from 5.1% for the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates increased advertising and sales promotion expenses by $0.7 million for the nine months ended May 31, 2021.

These increases were partially offset by the decrease of physical marketing and sampling activities from period to period, such as the cancellations of trade shows, due to the continued indirect effects of the COVID-19 pandemic during the first nine months of fiscal year 2021 and this resulted in a decreased in advertising and sales promotion expenses as a percentage of net sales from period to period.

Total promotional costs recorded as a reduction to sales for the six months ended February 28, 2021 were $11.7 million compared to $9.5 million for the corresponding period of the prior fiscal year.

Therefore, our total investment in advertising and sales promotion activities totaled $22.7 million and $19.9 million for the six months ended February 28, 2021 and February 29, 2020, respectively.

Total promotional costs recorded as a reduction to sales for the nine months ended May 31, 2021 were $18.4 million compared to $14.5 million for the corresponding period of the prior fiscal year.

Therefore, our total investment in advertising and sales promotion activities totaled $36.1 million and $29.7 million for the nine months ended May 31, 2021 and 2020, respectively.

Amortization of Definite-lived Intangible Assets Expense

Amortization of our definite-lived intangible assets decreased to $0.7 million for the six months ended February 28, 2021 compared to $1.3 million for the six months ended February 29, 2020 due to decreased amortization associated with the 2000 Flushes trade name, which became fully amortized during the third quarter of fiscal year 2020.

Amortization of our definite-lived intangible assets decreased to $1.1 million for the nine months ended May 31, 2021 compared to $1.9 million for the nine months ended May 31, 2020 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):

Six Months Ended February 28/29,

Nine Months Ended May 31,

Unallocated corporate

Income from operations for the Americas increased to $25.0 million, up $3.0 million, or 14%, for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year, primarily due to a $6.8 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 52.8% to 53.9% 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.

The increased sales were accompanied by a $1.7 million increase in total operating expenses period over period, primarily due to higher accruals for incentive compensation and other employee-related costs, as well as higher outbound freight costs due to the increase in sales and higher freight costs in the market from period to period.

Income from operations for the Americas increased to $40.6 million, up $4.2 million, or 11%, for the nine months ended May 31, 2021 compared to the corresponding period of the prior fiscal year, primarily due to a $16.7 million increase in sales which was partially offset by higher operating expenses.

As a percentage of net sales, gross profit for the Americas segment remained constant at 52.9%.

The combined favorable impacts of decreased costs of petroleum-based specialty chemicals and aerosol cans as well as decreases to advertising, promotional, and other discounts that we give to our customers increased our gross margin from period to period.

These favorable impacts to gross margin were completely offset by higher third-party manufacturing costs as well as increased warehousing, distribution and freight costs.

The increased sales were accompanied by a $4.7 million increase in total operating expenses period over period, primarily due to higher accruals for incentive compensation and stock-based compensation, as well as higher outbound freight costs due to increased sales and higher freight costs in the market 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 .

In addition, operating expenses were favorably impacted by decreased amortization associated with the 2000 Flushes trade name, which became fully amortized during the third quarter of fiscal year 2020.

Operating income as a percentage of net sales increased from 23.5% to 24.9% period over period.

Income from operations for the EMEA segment increased to $31.9 million, up $12.7 million, or 66%, for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year, primarily due to a $23.6 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 55.4% to 57.6% 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.

The increased sales were accompanied by a $2.6 million increase in total operating expenses period over period, primarily due to higher accruals for incentive compensation and other employee-related costs, as well as increased outbound freight costs due to the higher sales.

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 remained stable at 25.3% from period to period.

Income from operations for the EMEA segment increased to $47.2 million, up $20.9 million, or 79%, for the nine months ended May 31, 2021 compared to the corresponding period of the prior fiscal year, primarily due to a $49.6 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 55.3% to 56.5% period over period primarily due to the combined favorable impacts of decreased costs of aerosol cans and petroleum-based specialty chemicals, as well as sales price increases from period to period.

These favorable impacts to gross margin were partially offset by unfavorable changes in third-party manufacturing costs, as well as increases in warehousing, distribution and freight costs, and increases to advertising, promotional, and other discounts that we give to our customers from period to period.

The increased sales were accompanied by a $8.5 million increase in total operating expenses period over period, primarily due to higher accruals for incentive compensation and stock-based compensation, as well as increased outbound freight costs and increased advertising and sales promotion expenses due to higher sales from period to period.

Operating income as a percentage of net sales increased from 23.2% to 28.9% period over period.

Income from operations for the Asia-Pacific segment increased to $10.2 million, up $3.9 million, or 62%, for the six months ended February 28, 2021 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, which were partially offset by higher operating expenses.

As a percentage of net sales, gross profit for the Asia-Pacific segment increased from 53.6% to 56.8% 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.

Income from operations for the Asia-Pacific segment increased to $15.5 million, up $3.4 million, or 29%, for the nine months ended May 31, 2021 compared to the corresponding period of the prior fiscal year, primarily due to a $9.7 million increase in sales and a higher gross margin, which were partially offset by higher operating expenses.

As a percentage of net sales, gross profit for the Asia-Pacific segment increased from 54.2% to 56.3% 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 from period to period.

These favorable impacts to gross margin were slightly offset by the unfavorable impact of increased costs of aerosol cans from period to period.

The increased sales were accompanied by a $1.1 million increase in total operating expenses period over period, primarily due to higher accruals for incentive compensation and other employee costs, as well as increased outbound freight costs and other miscellaneous costs from period to period.

The increased sales were accompanied by a $2.8 million increase in total operating expenses period over period, primarily due to higher accruals for incentive compensation and other employee costs, as well as a higher level of advertising and sales promotion expenses and increased outbound freight costs from period to period.

Operating income as a percentage of net sales increased from 30.4% to 31.4% period over period.

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

Six Months Ended February 28/29,

Nine Months Ended May 31,

Interest income

3 unchanged sentences

Interest Income

Interest income was insignificant for both the six months ended February 28, 2021 and February 29, 2020.

Interest income was insignificant for both the nine months ended May 31, 2021 and 2020.

Interest Expense

Interest expense increased $0.1 million for the six months ended February 28, 2021 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.

Interest expense remained relatively constant at $1.8 million for the nine months ended May 31, 2021 compared to the corresponding period of the prior fiscal year.

Other Income (Expense), Net

Other income (expense), net changed by $0.6 million for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year primarily due to foreign currency exchange gains of $0.2 million in the current year compared to $0.4 million of foreign currency losses during the corresponding period of the prior fiscal year as a result of fluctuations in the foreign currency exchange rates for both the U.S.

Other income (expense), net changed by $0.7 million for the nine months ended May 31, 2021 compared to the corresponding period of the prior fiscal year primarily due to foreign currency exchange gains of $0.3 million in the current year compared to $0.4 million of foreign currency losses 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 .

Provision for Income Taxes

The provision for income taxes was 15.4% and 16.3% of income before income taxes for the six months ended February 28, 2021 and February 29, 2020, respectively.

The decrease in the effective income tax rate from period to period was primarily due to a benefit from the High Tax Exemption associated with Global Intangible Low Taxed Income during the first half of fiscal year 2021, as well as an increase in excess tax benefits from settlements of stock-based equity awards.

The impact of these items on income tax expense percentages was partially offset by the effect of significantly higher pre-tax income for the six months ended February 28, 2021 when compared to the corresponding period in the prior fiscal year.

Net income was $40.8 million, or $2.96 per common share on a fully diluted basis, for the six months ended February 28, 2021 compared to $26.5 million, or $1.92 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 $1.5 million on net income for the six months ended February 28, 2021 compared to the corresponding period of the prior fiscal year.

The provision for income taxes was 17.7% and 19.1% of income before income taxes for the nine months ended May 31, 2021 and 2020, respectively.

The decrease in the effective income tax rate from period to period was primarily due to a benefit from the High Tax Exclusion associated with Global Intangible Low Taxed Income during the first half of fiscal year 2021, as well as an increase in excess earnings from foreign operations resulting in an increase in the benefit received from the application of the Foreign-Derived Intangible Income calculation.

Net income was $61.8 million, or $4.48 per common share on a fully diluted basis, for the nine months ended May 31, 2021 compared to $41.0 million, or $2.98 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 $2.9 million on net income for the nine months ended May 31, 2021 compared to the corresponding period of the prior fiscal year.

On a constant currency basis, net income would have increased by $17.9 million from period to period.

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

Three Months Ended February 28/29,

Six Months Ended February 28/29,

Three Months Ended May 31,

Nine Months Ended May 31,

Gross margin - GAAP

5 unchanged sentences

We believe that these measures provide our shareholders with additional insights into the Company’s results of operations and how we run our business.

The non-GAAP financial measures are supplemental in nature and should not be considered in isolation or as alternatives to net income, income from operations or other financial information prepared in accordance with GAAP as indicators of the Company’s performance or operations.

The non-GAAP financial measures are

supplemental in nature and should not be considered in isolation or as alternatives to net income, income from operations or other financial information prepared in accordance with GAAP as indicators of the Company’s performance or operations.

The use of any non-GAAP measure may produce results that vary from the GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies.

1 unchanged sentence

Cost of Doing Business (in thousands, except percentages)

Three Months Ended February 28/29,

Six Months Ended February 28/29,

Three Months Ended May 31,

Nine Months Ended May 31,

Total operating expenses - GAAP

5 unchanged sentences

EBITDA (in thousands, except percentages)

Three Months Ended February 28/29,

Six Months Ended February 28/29,

Three Months Ended May 31,

Nine Months Ended May 31,

Net income - GAAP

6 unchanged sentences

The Company’s financial condition and liquidity remain strong.

Net cash provided by operations was $42.5 million for the six months ended February 28, 2021 compared to $23.4 million for the corresponding period of the prior fiscal year.

Net cash provided by operations was $64.0 million for the nine months ended May 31, 2021 compared to $40.8 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.

4 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 with Bank of America on September 30, 2020, and a third amendment to the Note Agreement.

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.

4 unchanged sentences

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 February 28, 2021.

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 May 31, 2021.

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

1 unchanged sentence

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 February 28, 2021, we had a $47.9 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 six months of fiscal year 2021, which had an outstanding balance of $17.6 million as of February 28, 2021.

As of May 31, 2021, we had a $48.1 million balance of outstanding draws on the revolving credit facility, all of which was classified as long-term.

In addition, we paid $0.8 million in principal payments on our Series A Notes during the first nine months of fiscal year 2021, which had an outstanding balance of $17.2 million as of May 31, 2021.

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

1 unchanged sentence

See Note 8 – Debt for additional information on these financial covenants.

At February 28, 2021, we were in compliance with all debt covenants.

At May 31, 2021, we were in compliance with all debt covenants.

We continue to monitor our compliance with all debt covenants.

2 unchanged sentences

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 will continue to evaluate future authorizations under its share buy-back program and the Board will consider approval based on management’s recommendations.

At February 28, 2021, we had a total of $72.4 million in cash and cash equivalents.

The Company will continue to evaluate future authorizations of share buy-backs.

At May 31, 2021, we had a total of $80.4 million in cash and cash equivalents.

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

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

Six Months Ended February 28/29,

Nine Months Ended May 31,

Net cash provided by operating activities

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Operating Activities

Net cash provided by operating activities increased $19.1 million to $42.5 million for the six months ended February 28, 2021 from $23.4 million for the corresponding period of the prior fiscal year.

Net cash provided by operating activities increased $23.2 million to $64.0 million for the nine months ended May 31, 2021 from $40.8 million for the corresponding period of the prior fiscal year.

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

Our primary source of operating cash flows for the six months ended February 28, 2021 was net income of $40.8 million, which increased $14.3 million from period to period.

The changes in our working capital which decreased net cash provided by operating activities were primarily attributable to increases in trade accounts receivable balances during the six months ended February 28, 2021 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 accrued payroll and related expenses during the first six months of fiscal year 2021 primarily due to increased accruals of incentive compensation from period to period.

In addition, accounts payable in the EMEA segment increased due to higher levels of production and the timing of payments to vendors from period to period.

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

Our primary source of operating cash flows for the nine months ended May 31, 2021 was net income of $61.8 million, which increased $20.8 million from period to period.

The changes in our working capital which decreased net cash provided by operating activities were primarily attributable to increases in trade and other accounts receivable balances during the nine months ended May 31, 2021 compared to the corresponding period of the prior fiscal year as a result of significantly increased sales from period to period.

In addition, the change in working

capital was impacted by increases to inventory from period to period.

These working capital changes were partially offset by increases in accounts payable in the EMEA and the Americas segments due to higher levels of production and the timing of payments to vendors from period to period.

In addition, accrued payroll and related expenses increased during the first nine months of fiscal year 2021 primarily due to significantly increased accruals of incentive compensation from period to period.

Investing Activities

Net cash used in investing activities decreased $3.1 million to $7.4 million for the six months ended February 28, 2021 from $10.5 million for the corresponding period of the prior fiscal year, primarily due to decreased capital expenditures.

Net cash used in investing activities decreased $6.7 million to $10.4 million for the nine months ended May 31, 2021 from $17.1 million for the corresponding period of the prior fiscal year, primarily due to decreased capital expenditures.

Capital expenditures decreased by $6.6 million primarily due to the renovations and equipping of the Company’s office building in Milton Keynes, England that were completed in the first quarter of fiscal year 2020 and a lower level of manufacturing-related capital expenditures within the U.K.

and the United States from period to period .

Capital expenditures during the first half 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.

Capital expenditures during 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 used by financing activities increased $10.5 million to $20.3 million for the six months ended February 28, 2021 from $9.8 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 $18.5 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 $20.5 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 of $0.9 million and increases in dividends paid to our shareholders of $0.8 million, respectively, resulted in higher cash outflows from period to period.

Net cash used by financing activities was $30.6 million for the nine months ended May 31, 2021 compared to net cash provided by financing activities of $37.5 million for the corresponding period of the prior fiscal year resulting in a net change of $68.1 million .

This change was primarily due to $80.0 million in net proceeds that we drew under our line of credit in March 2020 in response to the COVID-19 pandemic with no comparable event occurring in the first nine months of fiscal year 2021.

In the first quarter of fiscal year 2021, we repaid $50.0 million of such 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 net borrowing activity resulted in a $2.0 million cash inflow during the period compared to $84.6 million in net proceeds on our line of credit in the corresponding period of the prior fiscal year.

In addition, increases in dividends paid to our shareholders of $1.5 million and increases in shares withheld to cover taxes on conversion of equity rewards of $0.9 million, 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 $16.8 million from period to period.

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

Dollar terms, was an increase in cash of $1.1 million and $0.2 million for six months ended February 28, 2021 and February 29, 2020, respectively.

Dollar terms, was an increase in cash of $0.9 million and $0.2 million for nine months ended May 31, 2021 and 2020, respectively.

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

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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 to six 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

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

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

As of February 28, 2021, no such commitments were outstanding .

As of May 31, 2021, no such commitments were outstanding .

Share Repurchase Plan

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

On March 16, 2021, the Company’s Board approved a 7% increase in the regular quarterly cash dividend, increasing it from $0.67 per share to $0.72 per share.

The $0.72 per share dividend declared on March 16, 2021 is payable on April 30, 2021 to shareholders of record on April 16, 2021.

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

On June 15, 2021, the Company’s Board of Directors declared a cash dividend of $0.72 per share payable on July 30, 2021 to shareholders of record on July 16 , 2021 .

Critical Accounting Policies

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis