What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-01-06 compared with 2021-07-07 · 222 added, 392 removed, 161 unchanged (79% of the section changed)

18 unchanged sentences

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

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

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

the impacts from inflationary trends and supply chain constraints;

and forecasted foreign currency exchange rates and commodity prices.

These forward-looking statements are generally identified with words such as “believe,” “expect,” “intend,” “plan,” “could,” “may,” “aim,” “anticipate,” “target,” “estimate” and similar expressions.

The Company undertakes no obligation to revise or update any forward-looking statements.

Actual events or results may differ materially from those projected in forward-looking statements due to various factors, including, but not limited to, those identified in Part I ― Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2020, and in the Company’s Quarterly Reports on Form 10-Q, which may be updated from time to time.

We undertake no obligation to revise or update any forward-looking statements.

Actual events or results may differ materially from those projected in forward-looking statements due to various factors, including, but not limited to, those identified in Part I ― Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2021, and in our Quarterly Reports on Form 10-Q, which may be updated from time to time.

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

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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 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.

The following summarizes the financial and operational highlights for our business during the three months ended November 30, 2021:

 Consolidated net sales increased $10.2 million, or 8%, for the three months ended November 30, 2021 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates had a favorable impact of $3.4 million on consolidated net sales for the three months ended November 30, 2021 compared to the corresponding period of the prior fiscal year.

Thus, on a constant currency basis, net sales would have increased by $6.8 million, or 5%, 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.

This favorable impact from changes in foreign currency exchange rates mainly came from our EMEA segment, which accounted for 43% of our consolidated sales for the three months ended November 30, 2021.

 Gross profit as a percentage of net sales decreased to 50.8% for the three months ended November 30, 2021 compared to 56.4% for the corresponding period of the prior fiscal year primarily due to increased global supply chain challenges, including the increased cost of raw materials and constraints related to the ongoing COVID-19 pandemic.

These ongoing challenges have resulted in increased inflation rates globally.

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.

 Consolidated net income decreased $5.1 million, or 21%, for the three months ended November 30, 2021 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates had a favorable impact of $0.6 million on consolidated net income for the three months ended November 30, 2021 compared to the corresponding period of the prior fiscal year.

Thus, on a constant currency basis, net income would have decreased $5.7 million, or 24%, from period to period.

 Diluted earnings per common share for the three months ended November 30, 2021 were $1.34 versus $1.72 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:

(i) maximizing WD-40 Multi-Use Product sales through geographic expansion, increased market penetration and the development of new and unique delivery systems;

(ii) leveraging the WD-40 brand by growing the WD-40 Specialist product line;

(iii) leveraging the strengths of the Company through broadened product and revenue base;

(iv) attracting, developing and retaining talented people;

and (v) operating with excellence .

(i) building a business for the future;

(ii) attracting, developing and engaging outstanding tribe members;

(iii) striving for operational excellence;

(iv) growing WD-40 Multi-Use Product;

(v) growing WD-40 Specialist product line;

and (vi) expanding and supporting portfolio opportunities that help us grow .

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.

Our financial results and operations continue to be impacted by the COVID-19 pandemic that began during our fiscal year 2020.

The ongoing COVID-19 pandemic has impacted global economies, the rate of inflation, supply chains, distribution networks and consumer behavior around the world.

We have experienced both favorable and unfavorable impacts to our financial results and our operations as a result of the direct and indirect effects of the COVID-19 pandemic.

For example, although sales have been negatively impacted at varying times in the regions in which we operate due to health and safety restrictions required by local governmental authorities, those negative sales impacts have generally been more than offset by increased demand for our products as a result of the shift in consumer spending patterns compared to periods before the pandemic.

This shift in spending patterns, which has included increased renovation and maintenance activities as well as increased online purchases, contributed to record sales for the Company in fiscal year 2021.

However, global supply chain issues have resulted in increased raw material and other input costs, as well as significantly higher competition for freight resources and labor constraints within distribution networks, which has also caused increased costs.

These increased costs started to negatively impact our gross margin and financial results in our fiscal year 2021, but we began to experience more significant negative impacts from this inflationary environment in the first quarter of fiscal year 2022 as evidenced by our lower gross margin as compared to the first quarter of the prior fiscal year.

Some of the supply chain 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.

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.

We are continuing to actively manage 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.

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

When we onboard new third-party manufacturers, it comes with inherent risks and in the current economic environment, it also potentially comes with higher costs.

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, or the costs associated with our initiatives to address these challenges , we believe that the changes we continue 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 supply chain constraints , as well as the inflationary environment that is impacting our raw material costs, are expected to unfavorably impact our cost of goods sold for as long as such conditions exist.

Although several vaccines and treatments are authorized for use against COVID-19, these vaccines and treatments are being produced, distributed and accepted at varying rates globally and circumstances continue to evolve with COVID-19 case count rates and new variants.

The severity and duration of this rapidly evolving pandemic remains uncertain and it is difficult for us to estimate the extent to which the COVID-19 pandemic will impact our financial results and operations in future periods.

It is also uncertain how more stable conditions surrounding the pandemic or the end of the pandemic will impact the high levels of renovation and maintenance activities that we have seen by end-users in recent periods.

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.

During the pandemic, these measures have included allowing for or requiring remote working arrangements for employees in some regions and the imposition of various travel restrictions.

In addition, we continue to develop and monitor plans to support a safe working environment for our employees which includes reentry plans for various office locations in which we operate around the world.

These plans vary by region based on the evolving situation within those regions.

In connection with these plans, we have put in place our “Work from Where” philosophy to support work-life integration, and enable management and employees to align on where work is completed.

See our risk factors disclosed in Part I―Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2021 , which was filed with the SEC on October 22, 2021 for information on risks associated with pandemics in general and COVID-19 specifically.

Results of Operations

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

Three Months Ended November 30, 2021 Compared to Three Months Ended November 30, 2020

Operating Items

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

Three Months Ended May 31,

Three Months Ended November 30,

Maintenance products

Homecare and cleaning products

Total net sales

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Income from operations

Earnings per common share - diluted

Shares used in per share calculations - diluted

EPS - diluted

Shares used in diluted EPS

(1) Homecare and cleaning products (“HCCP”)

Net Sales by Segment

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

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 May 31,

Three Months Ended November 30,

Americas Sales

The following table summarizes net sales by product line for the Americas segment, which includes the U.S., Canada and Latin America (in thousands, except percentages):

Three Months Ended November 30,

Maintenance products

Homecare and cleaning products

% of consolidated net sales

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.

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.

CC Net sales - non-GAAP (1)

(1) Current fiscal year constant currency (“CC”) net sales translated at the exchange rates in effect for the corresponding period of the prior fiscal year, compared to prior period actual net sales.

Americas Sales - Three Months Ended – November 30, 2021 Compared to November 30, 2020

Net sales of maintenance products in the Americas segment increased due to the following:

 Latin America sales increased $4.0 million, or 41%, due to higher sales throughout many markets in the region, including in our direct market in Mexico.

Increased sales were partially due to many customers building inventory levels in advance of a price increase that went into effect in November 2021.

Successful promotional programs and increased product availability also resulted in higher sales levels in many of our Latin America markets during the first quarter of fiscal year 2022.

In addition, the continued momentum from the shift in the Mexico market from a distributor model to the direct model that we made in late fiscal year 2020 favorably impacted sales.

This momentum included new distribution, increased purchasing levels from existing customers and increased product availability, all of which resulted in increased sales of $1.7 million, or 59%, in our Mexico direct market.

 The United States sales decreased $0.5 million, or 1%.

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, 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 May 31,

continued to experience increased demand for maintenance products as a result of a higher level of renovation and maintenance activities exhibited by our end-users during the COVID-19 pandemic, it also continued to experience significant supply chain constraints during the first quarter of fiscal year 2022.

As a result, sales of maintenance products were mixed from period to period due to difficulty meeting this high level of demand.

Although WD-40 Multi-Use Product sales increased $1.5 million, or 5% due to a certain level of product availability, sales of WD-40 Specialist and 3-in-One products decreased $1.3 million, or 28%, and $0.6 million, or 30%, respectively due to capacity constraints within the U.S.

supply chain.

WD-40 Specialist products are sourced at certain third-party manufacturers that have been particularly impacted by the recent global supply chain constraints.

 Canada sales remained relatively consistent period over period.

Net sales of HCCP brands in the Americas decreased primarily due to the following:

 Challenges in our Americas supply chain, primarily in the United States, resulted in decreased net sales for most HCCP brands.

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

For the Americas segment, 70% of sales came from the U.S., and 30% of sales came from Canada and Latin America combined for the three months ended November 30, 2021 compared to the distribution for the three months ended November 30, 2020 when 76% of sales came from the U.S., and 24% of sales came from Canada and Latin America.

The following table summarizes net sales by product line for the EMEA segment, which includes Europe, the Middle East, Africa and India (in thousands, except percentages):

Three Months Ended November 30,

Maintenance products

Homecare and cleaning products

% of consolidated net sales

CC Net sales - non-GAAP (2)

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

4 unchanged sentences

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 $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 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 $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.

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 .

(2) Current fiscal year constant currency net sales translated at the exchange rates in effect for the corresponding period of the prior fiscal year , compared to prior period actual net sales .

The countries and regions 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 Austria, Denmark, Switzerland, Belgium and the Netherlands).

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 $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 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 May 31,

EMEA Sales - Three Months Ended – November 30, 2021 Compared to November 30, 2020

Net sales increased in the EMEA segment primarily due to the following:

Direct Markets – EMEA (63% of net sales QTD FY2022 vs 65% QTD FY2021)

 Direct market sales increased $1.0 million, or 3%, primarily due to increased sales of WD-40 Multi-Use Product in France, Iberia and Italy of $0.8 million, $0.7 million and $0.5 million, respectively.

These increases were primarily due to new distribution and successful promotional programs during the first quarter of fiscal year 2022.

 These increases were partially offset by lower sales of maintenance products in the United Kingdom, which were down $1.2 million, or 17%, due to decreased sales of our Multi-Use Product as a result of a lower level of promotional programs that were conducted period over period.

 Sales in our direct markets benefited from the strengthening of the Pound Sterling, the functional currency of our U.K.

subsidiary, against the U.S.

However, these benefits were more than offset in the opposite direction as a result of the weakening of the Euro against the Pound Sterling from period to period for sales generated in our Euro-based direct markets.

Distributor Markets – EMEA (37% of net sales QTD FY2022 vs 35% QTD FY2021)

 Distributor market sales increased $1.8 million, or 9%, primarily due to increased sales of maintenance products in Poland, Russia and India, which were up $1.0 million, $0.7 million and $0.6 million, respectively.

 Increased sales in distributor markets were primarily due to new distribution, successful promotional programs and favorable changes in foreign currency exchange rates.

Asia-Pacific Sales

The following table summarizes net sales by product line for the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region (in thousands, except percentages):

Three Months Ended November 30,

Maintenance products

Homecare and cleaning products

% of consolidated net sales

Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region, 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 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 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 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.

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.

CC Net sales - non-GAAP (1)

Asia-Pacific Sales - Three Months Ended – November 30, 2021 Compared to November 30, 2020

Sales in the Asia-Pacific segment increased primarily due to the following:

 China sales increased $2.5 million, or 69%, primarily due to a higher level of promotional activities and many customers buying product in advance of a price increase that went into effect in December 2021.

In addition, sales increased due to the timing of customer orders from period to period.

 Asia distributor markets sales increased $2.5 million, or 36%, primarily due to higher sales of WD-40 Multi-Use Product as a result of the continued 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 first quarter of fiscal year 2022 and resulted in increased demand and higher sales in most countries, particularly in Indonesia, Malaysia, Taiwan, Singapore and Hong Kong.

 Australia sales increased $0.3 million, or 7%, primarily due to increased sales of WD-40 Specialist, which were up $0.2 million, or 45%.

The following general information regarding the timing and nature of our product costs is important when assessing fluctuations in our gross margin from period to period:

 There is often a delay of one quarter or more before changes in raw materials, such as specialty chemicals used in the formulation of our products, impact cost of products sold due to production and inventory life cycles;

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

1 unchanged sentence

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

In addition, gross margin was 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 $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 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 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 $1.4 million for the three months ended May 31, 2021 and 2020, respectively.

 In the EMEA segment, the majority of our cost of goods sold is denominated in Pound Sterling whereas sales are generated in Pound Sterling, Euro and the U.S.

The strengthening or weakening of the Euro and U.S.

Dollar against the Pound Sterling may result in foreign currency related changes to the gross margin percentage in the EMEA segment from period to period;

 O ur 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 $4.8 million and $4.1 million for the three months ended November 30, 2021 and 2020, respectively.

The following table summarizes gross margin and gross profit (in thousands, except percentages):

Three Months Ended November 30,

(1) Basis point (“bps”) change in gross margin.

Gross Margin - Three Months Ended – November 30, 2021 Compared to November 30, 2020

Gross margin decreased 560 bps primarily due to the following unfavorable impacts, partially offset by favorable impacts:

Unfavorable Impacts

Favorable Impacts

 (390) bps - Higher costs of specialty chemicals used in the formulation of our products.

 (140 ) bps - Higher warehousing, distribution and freight costs primarily from supply chain constraints in the Americas and EMEA segments as a result of the COVID-19 pandemic.

Pandemic-related supply chain challenges began to significantly impact the Americas segment starting in the second quarter of fiscal year 2021 and have continued through the first quarter of fiscal year 2022.

 (80) bps - Changes in foreign currency exchange rates in the EMEA segment.

 (70) bps - Higher filling fees paid to our third-party contract manufacturers, primarily in the Americas segment.

 120 bps - Sales price increases implemented during the last 12 months, primarily in the Americas and EMEA segments.

Selling, General and Administrative (“SG&A”) Expenses

Three Months Ended November 30,

(in thousands)

SG&A Expenses

% of net sales

SG&A Expenses - Three Months Ended – November 30, 2021 Compared to November 30, 2020

The increase in SG&A expenses from period to period was due to a variety of factors.

Changes in foreign currency exchange rates from period to period resulted in an increase of $0.7 million in SG&A expenses.

Travel and meeting expense increased $0.6 million due to the reduction in travel restrictions related to COVID-19.

In addition, freight costs increased $0.5 million due to higher sales levels as well as carrier price increases associated with supply chain constraints and limited capacity in the global distribution networks.

Employee-related costs also increased $0.2 million primarily due to higher headcount and compensation increases, which were mostly offset by lower incentive compensation accruals.

Note that 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 $1.6 million for the three months ended November 30, 2021 and 2020, respectively.

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

1 unchanged sentence

The level and types of expenses incurred within research and development can vary from period to period depending upon the types of activities being performed.

Advertising and Sales Promotion Expenses

Advertising and sales promotion expenses for the three months ended 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.

Advertising and Sales Promotion (“A&P”) Expenses

Three Months Ended November 30,

(in thousands)

% of net sales

A&P Expenses - Three Months Ended – November 30, 2021 Compared to November 30, 2020

Changes in foreign currency exchange rates increased advertising and sales promotion expenses by $0.2 million.

Thus, on a constant currency basis, advertising and sales promotion expenses for the first quarter of fiscal year 2022 would have decreased slightly from period to period primarily due to a lower level of promotional programs and marketing support in the Americas.

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 $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 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.

Total promotional costs recorded as a reduction to sales was $6.9 million and $5.8 million for three months ended November 30, 2021 and 2020, respectively.

Therefore, our total investment in advertising and sales promotion activities totaled $12.5 million and $11.3 million for the three months ended November 30, 2021 and 2020, respectively.

Income from Operations by Segment

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

Three Months Ended May 31,

Three Months Ended November 30,

Unallocated corporate (1)

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.

Americas Operating Income - Three Months Ended – November 30, 2021 Compared to November 30, 2020

Income from operations for the Americas decreased to $12.0 million, down $2.6 million, or 18%, primarily due to a lower gross margin and higher operating expenses, partially offset by a $2.1 million increase in sales.

Gross margin for the Americas segment decreased from 54.2% to 48.7% primarily due to increases in the costs of petroleum-based specialty chemicals.

In addition, gross margin was unfavorably impacted by higher costs at our third-party manufacturers and increased warehousing, distribution and freight costs due to supply chain constraints and inflationary impacts as a result of the direct and indirect effects of the COVID-19 pandemic .

These unfavorable impacts to gross margin were partially offset by the combined favorable impacts of price increases that were implemented over the last twelve months as well as increased supplier rebates primarily as a result of higher can purchase volumes from period to period .

Operating expenses increased period over period primarily due to higher outbound freight costs as a result of increased sales as well as higher freight costs in our distribution networks from period to period .

In addition, operating expenses increased period over period due to increased employee-related expenses, as well as higher travel and meeting expenses.

Operating income as a percentage of net sales decreased from 27.0% to 21.3% period over period .

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.

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 a higher level of advertising and sales promotion expenses.

EMEA Operating Income - Three Months Ended – November 30, 2021 Compared to November 30, 2020

Income from operations for the EMEA segment decreased to $14.2 million, down $3.5 million, or 20%, primarily due to a lower gross margin and an increase in operating expenses, partially offset by a $2.8 million increase in sales.

Gross margin for the EMEA segment decreased from 58.5% to 51.5% period over period primarily due to increased costs of petroleum-based specialty chemicals and aerosol cans as well as unfavorable changes in foreign currency exchange rates.

In addition, gross margin was also unfavorably impacted by increases in costs at our third-party manufacturers and increased warehousing, distribution and freight costs from period to period due to supply chain constraints and inflationary impacts as a result of the direct and indirect effects of the COVID-19 pandemic.

These unfavorable impacts to gross margin were partially offset by price increases that were implemented over the last twelve months, as well as decreases to advertising, promotional, and other discounts that we give to our customers from period to period.

Operating expenses increased period over period primarily due to higher advertising and sales promotion expenses from period to period.

In addition, operating expenses increased period over period due to increased employee-related expenses, as well as higher travel and meeting expenses.

Operating income as a percentage of net sales decreased from 32.4% to 24.7% period over period .

Non-Operating Items

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

Three Months Ended May 31,

Interest income

Interest expense

Other (expense) income, net

Provision for income taxes

Interest Income

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

Interest Expense

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 May 31, 2021 and 2020 .

Provision for Income Taxes

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.

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):

Nine Months Ended May 31,

Maintenance products

Homecare and cleaning products

Total net sales

Cost of products sold

Operating expenses

Income from operations

Earnings per common share - diluted

Shares used in per share calculations - diluted

Net Sales by Segment

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

Nine Months Ended May 31,

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

Nine Months Ended May 31,

Maintenance products

Homecare and cleaning products

% of consolidated net sales

Sales in the Americas segment, which includes the U.S., Canada and Latin America, 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.

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, 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):

Nine Months Ended May 31,

Maintenance products

Homecare and cleaning products

% of consolidated net sales

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

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 $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):

Nine Months Ended May 31,

Maintenance products

Homecare and cleaning products

% of consolidated net sales

Sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region, 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 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 $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 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.

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 $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 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 0.2 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 $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 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 $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.

Travel and meeting expenses decreased primarily due to continued initiatives to reduce the transmission of COVID-19, including the imposition of business travel restrictions for all employees and the cancellation of all large meetings, such as regional sales meetings and global leadership meetings, in support of social distancing requirements .

We continued our research and development investment, the majority of which is associated with our maintenance products, in support of our focus on innovation and renovation of our products.

Research and development costs were $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 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 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 $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):

Nine Months Ended May 31,

Unallocated corporate

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 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 $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 $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.

Asia-Pacific Operating Income - Three Months Ended – November 30, 2021 Compared to November 30, 2020

Income from operations for the Asia-Pacific segment increased to $7.3 million, up $2.2 million, or 44%, primarily due to a $5.3 million increase in sales, partially offset by a lower gross margin.

Gross margin for the Asia-Pacific segment decreased from 56.7% to 54.5% period over period primarily due to increases in advertising, promotional, and other discounts that we give to our customers, as well as increases to the cost of petroleum-based specialty chemicals and aerosol cans from period to period .

These unfavorable impacts to gross margin were partially offset by favorable changes in market mix from period to period.

Operating income as a percentage of net sales increased from 32.4% to 34.9% period over period.

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

Nine Months Ended May 31,

Three Months Ended November 30,

Interest income

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Interest Income

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

Interest income was not significant for both the three months ended November 30, 2021 and 2020.

Interest Expense

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.

Interest expense was relatively constant for both the three months ended November 30, 2021 and 2020 .

Other Income (Expense), Net

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 .

Other income (expense), net was not significant for both the three months ended November 30, 2021 and 2020 .

Provision for Income Taxes

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.

The provision for income taxes was 19.8% and 15.7% of income before income taxes for the three months ended November 30, 2021 and 2020, respectively.

The increase in the effective income tax rate from period to period was primarily due to an increase in nondeductible performance-based compensation expenses.

Net income was $18.6 million, or $1.34 per common share on a fully diluted basis, for the three months ended November 30, 2021 compared to $23.6 million, or $1.72 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 consolidated net income for the three months ended November 30,2021 compared to the corresponding period of the prior fiscal year.

Thus, on a constant currency basis, net income would have decreased $5.7 million, or 24%, from period to period.

Performance Measures and Non-GAAP Reconciliations

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Results for these performance measures may vary from period to period depending on various factors, including economic conditions and our level of investment in activities for the future such as those related to quality assurance, regulatory compliance, and intellectual property protection in order to safeguard our WD-40 brand.

The targets for these performance measures are long-term in nature, particularly those for cost of doing business and EBITDA, and we expect to make progress towards achieving them over time as our revenues increase.

The targets for these performance measures are long-term in nature, particularly those for cost of doing business and EBITDA, and we expect to make progress towards achieving them over time.

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

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

Gross margin - GAAP

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EBITDA as a percentage of net sales - non-GAAP (1)

(1) Percentages may not aggregate to EBITDA percentage due to rounding and because amounts recorded in other income (expense), net on the Company’s consolidated statement of operations are not included as an adjustment to earnings in the EBITDA calculation.

We use the performance measures above to establish financial goals and to gain an understanding of the comparative performance of the Company from period to period.

(1) Percentages may not aggregate to EBITDA percentage due to rounding and because amounts recorded in other income (expense), net on our consolidated statement of operations are not included as an adjustment to earnings in the EBITDA calculation.

We use the performance measures above to establish financial goals and to gain an understanding of our comparative performance from period to period.

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

The non-GAAP financial measures are

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

The 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.

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Cost of Doing Business (in thousands, except percentages)

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

Total operating expenses - GAAP

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EBITDA (in thousands, except percentages)

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

Net income - GAAP

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Liquidity and Capital Resources

The Company’s financial condition and liquidity remain strong.

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.

Our financial condition and liquidity remain strong.

Net cash used in operations was $0.9 million for the three months ended November 30, 2021 compared to net cash provided by operations of $23.9 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 our future results, we believe our efficient business model and the steps that we have taken leave us positioned to manage our business through this crisis as it continues to unfold.

We continue to manage all aspects of our business including, but not limited to, monitoring the financial health of our customers, suppliers and other third-party relationships, implementing gross margin enhancement strategies and developing new opportunities for growth.

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

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

We also hold borrowings under a Note Purchase and Private Shelf Agreement.

See Note 7 – 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.

In the first quarter of fiscal year 2021 we refinanced existing draws under our Credit Agreement in the United States through the issuance of new notes under the Note Agreement in the amount of $52.0 million.

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

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

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

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

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

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

During 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 May 31, 2021.

As of November 30, 2021, the entire $44.7 million outstanding balance under our line of credit resides in the EMEA segment and is denominated completely in Euros and Pound Sterling.

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

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

As of May 31, 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.

As of November 30, 2021, all outstanding draws on the revolving credit facility were classified as long-term.

In the Unites States, we held $68.8 million in fixed rate long-term borrowings as of November 30, 2021, consisting of senior notes under our Note Agreement.

We paid $0.4 million in principal payments on our Series A Notes during the first three months of fiscal year 2022.

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

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

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

We continue to monitor our compliance with all debt covenants.

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

We believe that our future cash from domestic and international operations, together with our access to funds available under our unsecured revolving credit facility, will provide adequate resources to fund both short-term and long-term operating requirements, capital expenditures, dividend payments, acquisitions, new business development activities and share repurchases.

On April 8, 2020, we 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.

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.

At November 30, 2021, we were in compliance with all debt covenants.

We continue to monitor our compliance with all debt covenants and, at the present time, we believe that the likelihood of being unable to satisfy these covenants is remote.

At November 30, 2021, we had a total of $59.5 million in cash and cash equivalents.

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

requirements, capital expenditures, dividend payments, acquisitions, new business development activities and share repurchases.

On October 12, 2021, our Board of Directors approved a new share buy-back plan.

Under the plan, which became effective on November 1, 2021, we are authorized to acquire up to $75.0 million of its outstanding shares through August 31, 2023.

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

Nine Months Ended May 31,

Net cash provided by operating activities

Three Months Ended November 30,

Net cash provided by (used in) operating activities

Net cash used in investing activities

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Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Operating Activities

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.

Net cash used in operating activities was $0.9 million for the three months ended November 30, 2021 compared to net cash provided by operating activities of $23.9 million for the corresponding period of the prior fiscal year, resulting in a net change of $24.9 million.

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

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

Our primary source of operating cash flows for the three months ended November 30, 2021 was net income of $18.6 million, which decreased approximately $5.0 million from period to period.

The change in our working capital which increased net cash used in operating activities was primarily attributable to increases in inventory in the Americas segment from period to period.

This increase in inventory was due to deliberate actions we took to stock certain raw materials and finished goods given the current challenges within supply chain.

In addition, net cash used in operating activities increased due to a larger decrease in accrued payroll and related as a result of higher earned incentive payouts in the first quarter of fiscal year 2022 compared to the same period of the prior fiscal year.

Investing Activities

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 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.

Net cash used in investing activities decreased $1.3 million to $2.4 million for the three months ended November 30, 2021 from $3.7 million for the corresponding period of the prior fiscal year, primarily due to a lower level of manufacturing-related capital expenditures within the United Kingdom and the United States from period to period.

Capital expenditures during fiscal years 2021 and 2022 were primarily related to manufacturing equipment, some of which is still 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 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.

Net cash used by financing activities increased $10.8 million to $21.9 million for the three months ended November 30, 2021 from $11.1 million for the corresponding period of the prior fiscal year.

This change was primarily due the resumption of treasury stock purchases in November 2021, resulting in increased treasury stock purchases of $7.4 million.

Additionally, in the first quarter of fiscal year 2021, we repaid $50.0 million of 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 first quarter of fiscal year 2021 with no comparable event during the current period.

In addition, increases in shares withheld to cover taxes on conversion of equity rewards of $0.8 million and increases in dividends paid to our shareholders of $0.7 million resulted in higher cash outflows from period to period.

Effect of Exchange Rate Changes

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Dollar at the end of each reporting period.

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

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

The net effect of exchange rate changes

on cash and cash equivalents, when expressed in U.S.

Dollar terms, was a decrease in cash of $1.2 million for the three months ended November 30, 2021 as compared to an increase in cash of $0.2 million for the three months ended November 30, 2020.

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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Commercial Commitments

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

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

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

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

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

Although we have definitive minimum purchase obligations 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 we have historically purchased.

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

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

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

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

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

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

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

As of November 30, 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 8 — Share Repurchase Plan, included in this report .

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 .

On December 13, 2021, the Company’s Board of Directors declared a cash dividend of $0.78 per share payable on January 31, 2022 to shareholders of record on January 14 , 2022 .

Critical Accounting Policies

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Actual results may differ from these estimates.

There have been no material changes in our critical accounting policies from those disclosed in Part II―Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 2 to our consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended August 31, 2020, which was filed with the SEC on October 21, 2020.

financial statements contained in our Annual Report on Form 10-K for the fiscal year ended August 31, 2021, which was filed with the SEC on October 22, 2021.

Recently Issued Accounting Standards

Information on Recently Issued Accounting Standards that could potentially impact the Company’s consolidated financial statements and related disclosures is incorporated by reference to Part I—Item 1, “Notes to Condensed Consolidated Financial Statements” Note 2 — Basis of Presentation and Summary of Significant Accounting Policies, included in this report .

Information on Recently Issued Accounting Standards that could potentially impact our consolidated financial statements and related disclosures is incorporated by reference to Part I—Item 1, “Notes to Condensed Consolidated Financial Statements” Note 2 — Basis of Presentation and Summary of Significant Accounting Policies, included in this report .

Quantitative and Qualitative Disclosures About Market Risk

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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