What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-07 compared with 2022-01-06 · 257 added, 153 removed, 230 unchanged (64% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

As used in this report, the terms “we,” “our,” “us” and “the Company” refer to WD-40 Company and its wholly-owned subsidiaries, unless the context suggests otherwise.

As used in this report, the terms “we,” “our,” and “us” refer to WD-40 Company and its wholly-owned subsidiaries, unless the context suggests otherwise.

Amounts and percentages in tables and discussions may not total due to rounding.

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We use results on a constant currency basis as one of the measures to understand our operating results and evaluate our performance in comparison to prior periods.

Results on a constant currency basis are not in accordance with accounting principles generally accepted in the United States of America (“non-GAAP”) and should be considered in addition to, not as a substitute for, results prepared in accordance with GAAP.

Results on a constant currency basis are not in accordance with generally accepted accounting principles in the United States of America (“non-GAAP”) and should be considered in addition to, not as a substitute for, results prepared in accordance with GAAP.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements.

This report contains forward-looking statements, which reflect the Company’s current views with respect to future events and financial performance.

This report contains forward-looking statements, which reflect our current views with respect to future events and financial performance.

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

These forward-looking statements include, but are not limited to, discussions about future financial and operating results, including:

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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;

changes in the political conditions or relations between the United States and other nations, the impacts from inflationary trends and supply chain constraints;

and forecasted foreign currency exchange rates and commodity prices.

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

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

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

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

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

We own a wide range of well-known brands that include maintenance products and homecare and cleaning products:

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

Our products are sold in various locations around the world.

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

We sell our products primarily through

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

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

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

The following summarizes the financial and operational highlights for our business during the six months ended February 28, 2022:

 Consolidated net sales increased $28.3 million, or 12%, for the six months ended February 28, 2022 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates had a favorable impact of $2.5 million on consolidated net sales for the six months ended February 28, 2022 compared to the corresponding period of the prior fiscal year.

Thus, on a constant currency basis, net sales would have increased by $25.8 million, or 11%, from period to period.

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.

This favorable impact from changes in foreign currency exchange rates mainly came from our EMEA segment, which accounted for 42% of our consolidated sales for the six months ended February 28, 2022.

 Gross profit as a percentage of net sales decreased to 50.6% for the six months ended February 28, 2022 compared to 55.9% 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.

 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.

 Consolidated net income decreased $2.8 million, or 7%, for the six months ended February 28, 2022 compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates had a favorable impact of $0.5 million on consolidated net income for the six months ended February 28, 2022 compared to the corresponding period of the prior fiscal year.

Thus, on a constant currency basis, net income would have decreased $3.3 million, or 8%, 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.

 Diluted earnings per common share for the six months ended February 28, 2022 were $2.75 versus $2.96 in the prior fiscal year period.

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

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

Significant Developments

Impact of COVID-19 on Our Business

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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.

However, global supply chain issues have resulted in increased raw material costs 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.

We began to experience more significant negative impacts from this inflationary environment in the first half of fiscal year 2022 resulting in a lower gross margin as compared to the first half of the prior fiscal year.

Some of the increasing 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 raw materials needed to manufacture our

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 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.

We have been actively working on various initiatives with our existing third-party manufacturers and we are also identifying and onboarding new third-party manufacturers.

As a result of these initiatives, we are beginning to see increases in the capacity and flexibility of our supply chain and we were more able to meet strong end-user demand during the second quarter of fiscal year 2022.

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.

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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.

To offset these unfavorable impacts to gross margin, price increases are being implemented across all of our markets and geographies.

It will take time before the full impact of these price increases is reflected in our reported results and it is possible that sales volumes may be impacted unfavorably in the short term as customers and end users adjust to increased sales prices.

The severity and duration of this rapidly evolving pandemic remain 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.

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

These plans vary by region based on the evolving situations 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.

The Impact of Russian Military Action in Ukraine

On February 24, 2022, Russian forces launched significant military action against Ukraine, which has resulted in conflict and disruption in the region.

In response to this action taken by Russia, the U.S.

and other countries immediately imposed various economic sanctions against Russia.

In the event these geopolitical tensions fail to improve or deteriorate further, additional governmental sanctions may be enacted.

The direct and indirect impacts of this evolving situation and its effect on global economies in future periods are difficult to predict.

We have suspended selling our products to markets in Russia and Belarus beginning in March 2022, which will have an unfavorable impact on our sales in future periods.

In addition, we are currently unable to sell our products in Ukraine due to the disruption in the country.

Our net sales to the regions that are directly impacted were approximately 3% of consolidated net sales for fiscal year 2021 and approximately 4% of consolidated net sales for the first half of fiscal year 2022.

We do not have significant operations in these affected regions other than the distribution and sale of our products, which occurs through marketing distributors.

As a result of this conflict, commodity markets remain subject to heightened levels of uncertainty, especially as they relate to the price of crude oil, which increased significantly in the immediate aftermath of the sanctions against Russia.

Increases in crude oil prices unfavorably impact the cost of our products and the transportation of our products.

The length and severity

of the recent increases in the price of crude oil are highly unpredictable and may unfavorably impact our cost of goods sold for as long as these conditions exist.

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.

Results of Operations

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

Three and Six Months Ended February 28, 2022 Compared to Three and Six Months Ended February 28, 2021

Operating Items

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

Three Months Ended November 30,

Three Months Ended February 28,

Six Months Ended February 28,

Maintenance products

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

Three Months Ended November 30,

Three Months Ended February 28,

Six Months Ended February 28,

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,

Three Months Ended February 28,

Six Months Ended February 28,

Maintenance products

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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

(1) Current fiscal year constant currency (“CC”) net sales translated at the foreign currency 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 – February 28, 2022 Compared to February 28, 2021

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.

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.

 United States (“U.S.”) sales increased $7.6 million, or 26%, primarily due to increased sales of WD-40 Multi-Use Product and WD-40 Specialist.

While the U.S.

has continued to experience a high level of demand for its maintenance products after the onset of the COVID-19 pandemic, it has also continued to experience significant supply chain constraints as a result of the pandemic in both periods.

However, adjustments we have made in our supply chain to increase the production capacity of our most significant products improved the availability of these products from period to period.

WD-40 Multi-Use Product sales increased by $4.7 million, or 19%, primarily due to increased product availability and price increases that went into effect in the first quarter of this fiscal year.

In addition, sales during the comparable period in the prior year were negatively impacted by severe winter storms that temporarily halted product delivery in the U.S., with no comparable event during the current fiscal year.

WD-40 Specialist products are sourced at certain third-party manufacturers that were more significantly impacted by the various global supply chain constraints experienced over the last several quarters.

WD-40 Specialist sales increased by $3.1 million, or 125%, primarily due to the improvements in these supply chain conditions which significantly improved product availability in the second quarter of this year, as well as price increases.

 Latin America sales increased $1.5 million, or 18%, primarily due to successful promotional programs and increased product availability in certain of our Latin America markets, as well as favorable impacts from sales price increases that went into effect in November 2021 in our distributor markets.

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 period over period as a result of new distribution and continued growth of the base business.

In addition, sales in Mexico increased due to customers purchasing product in advance of a price increase that went into effect in February 2022.

 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.

 Challenges in our Americas supply chain, primarily in the U.S., resulted in decreased product availability and lower net sales for most HCCP brands.

While we have been actively working to increase the capacity and flexibility of our supply chain in recent periods, the adjustments we have made to date have been more heavily focused on our most significant products, primarily our maintenance products.

 While each of our homecare and cleaning products have continued to generate positive cash flows, we have experienced flat or slightly decreased sales for many of these products in recent periods.

For the three months ended February 28, 2022, 74% of sales came from the U.S., and 26% of sales came from Canada and Latin America combined compared to the distribution for the three months ended February 28, 2021 when 72% of sales came from the U.S., and 28% of sales came from Canada and Latin America.

Americas Sales – Six Months Ended – February 28, 2022 Compared to February 28, 2021

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

sales increased $7.1 million, or 11%, due to increased sales of WD-40 Multi-Use Product and WD-40 Specialist of $6.2 million, or 11%, and $1.8 million, or 25%, respectively.

These increases for both products were primarily due to price increases that went into effect in the first quarter of this fiscal year and supply chain improvements which resulted in increased product availability as discussed above in the section for the three months ended February 28, 2022 .

These increases were slightly offset by lower 3-IN-ONE sales of $0.9 million, or 23%, due to decreased product availability as a result of the supply chain constraints we have experienced at our third-party manufacturers who produce this product.

 Latin America sales increased $5.5 million, or 31% , primarily due to higher sales throughout many markets in the region, including in our direct market in Mexico.

Increased sales were primarily due to many distributor customers and Mexico direct customers purchasing product in advance of price increases that went into effect in the first half of this fiscal year.

In addition, sales were favorably impacted by increased product availability, successful promotional programs, price increases and the continued momentum in our direct market in Mexico, as discussed above in the section for the three months ended February 28, 2022.

 Canada sales remained relatively consistent period over period.

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

 Challenges in our Americas supply chain negatively impacted net sales for these products, as discussed above in the section for the three months ended February 28, 2022.

For the six months ended February 28, 2022, 72% of sales came from the U.S., and 28% of sales came from Canada and Latin America combined, compared to the distribution for the six months ended February 28, 2021 when 75% of sales came from the U.S., and 25% 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,

Three Months Ended February 28,

Six Months Ended February 28,

Maintenance products

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Dollar are weakening or strengthening against the Pound Sterling .

(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 .

(2) Current fiscal year constant currency net sales translated at the foreign currency 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.

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

EMEA Sales – Three Months Ended – February 28, 2022 Compared to February 28, 2021

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

Direct Markets – EMEA (65% of net sales QTD FY2022 vs 67% 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.

 Direct market sales increased $2.1 million, or 6%, primarily due to increased sales of WD-40 Multi-Use Product in all direct markets, with the exception of the U.K..

 Sales in the EMEA direct markets, excluding the U.K., increased $3.1 million, or 12%.

These increases were primarily due to the favorable impacts of price increases that were implemented over the last twelve months, as well as many customers purchasing product in advance of additional price increases that will occur during the third quarter of fiscal year 2022.

 These increases were partially offset by lower sales in the U.K., which were down $1.0 million, or 12%, primarily due to a lower level of promotional programs that were conducted period over period, which was slightly offset by the favorable impacts of sales price increases.

 Sales in our direct markets were unfavorably impacted by the weakening of the Pound Sterling, the functional currency of our U.K.

subsidiary, against the U.S.

In addition, sales in our direct markets were unfavorably impacted by 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 (35% of net sales QTD FY2022 vs 33% QTD FY2021)

 Distributor market sales increased $2.2 million, or 13%, primarily due to increased sales of maintenance products in Russia, which were up $0.7 million, as well as higher sales in Turkey, Poland, and the Czech Republic, each of which was up $0.5 million.

See The Impact of Russian Military Action in Ukraine described in the “Significant Developments” section above for further information regarding the suspension of our sales to Russian markets.

 These increases were primarily due to the timing of customer orders from period to period, price increases and distributors purchasing product in advance of additional price increases that will occur during the third quarter of fiscal year 2022.

EMEA Sales – Six Months Ended – February 28, 2022 Compared to February 28, 2021

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

Direct Markets – EMEA (64% of net sales YTD FY2022 vs 66% YTD FY2021)

 Direct markets increased $3.1 million, or 5%, primarily due to increased sales of WD-40 Multi-Use Product and WD-40 Specialist in all direct markets, with the exception of the U.K.

 Sales in the EMEA direct markets, excluding the U.K.

increased $5.6 million, or 11%, primarily due to new distribution and successful promotional programs during the first quarter of fiscal year 2022, as well as the favorable impacts of price increases, as discussed above in the section for the three months ended February 28, 2022.

 These increases were partially offset by lower sales in the U.K., which were down $2.5 million, or 14%, primarily due to a lower level of promotional programs that were conducted period over period and the timing of customer orders, which were slightly offset by sales price increases.

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

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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.

Distributor Markets – EMEA (36% of net sales YTD FY2022 vs 34% YTD FY2021)

 Distributor markets increased $4.0 million, or 11%, primarily due to increased sales of the WD-40 Multi-Use Product in Poland, Russia and the Czech Republic, which were up $1.5 million, $1.3 million and $1.0 million, respectively.

 Increased sales in the distributor markets were primarily due to new distribution, successful promotional programs and favorable changes in foreign currency exchange rates during the first quarter of fiscal year 2022, as well as other impacts discussed above in the section for the three months ended February 28, 2022 .

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,

Three Months Ended February 28,

Six Months Ended February 28,

Maintenance products

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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.

Asia-Pacific Sales – Three Months Ended – February 28, 2022 Compared to February 28, 2021

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

 Asia distributor markets sales increased $3.8 million, or 64%, primarily due to higher sales of WD-40 Multi-Use Product as a result of distributors purchasing product in advance of a price increase that went into effect in March 2022, as well as the timing of customer orders and promotional programs from period to period.

In addition, sales increased due to 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 second quarter of fiscal year 2022 and resulted in increased demand and higher sales in most countries.

 China sales increased $2.0 million, or 42%, primarily due to a higher level of promotional activities as well as customers purchasing product in advance of a price increase that went into effect during the second quarter of fiscal year 2022.

 Australia sales decreased $0.3 million, or 5%, primarily due to decreased sales of homecare and cleaning products, which were down $0.2 million, or 10%.

Asia-Pacific Sales – Six Months Ended – February 28, 2022 Compared to February 28, 2021

Net sales in the Asia-Pacific segment increased due to the following drivers:

 Sales in the Asia distributor markets increased $6.3 million, or 49%, primarily due to the various impacts discussed above in the section for the three months ended February 28, 2022.

 Sales in China increased $4.4 million, or 54%, primarily due to a higher level of promotional activities as well as price increases that went into effect during the second quarter of fiscal year 2022.

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%.

 Australia sales remained relatively consistent period over period .

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:

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

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

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

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 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.

These costs totaled $4.7 million and $3.5 million for the three months ended February 28, 2022 and 2021, respectively, and $9.5 million and $7.7 million for the six months ended February 28, 2022 and 2021, respectively.

 For further information pertaining to recent trends and economic conditions affecting gross margin, please see the section titled “Significant Developments” .

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

Three Months Ended February 28,

Six Months Ended February 28,

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

Gross Margin - Three Months Ended – February 28, 2022 Compared to February 28, 2021

Gross margin decreased 500 bps primarily due to the following unfavorable impacts, partially offset by favorable impacts:

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 (370) 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.

 (110 ) bps - Higher warehousing, distribution and freight costs associated with supply chain constraints as a result of the ongoing COVID-19 pandemic, the worsening inflationary environment and initiatives to increase production capacity while these constraints exist.

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

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

 (60) bps - Higher miscellaneous costs associated with inventory and overhead in the Americas segment as well as unfavorable product mix.

 200 bps - Sales price increases implemented during the last 12 months in all three segments.

Gross Margin - Six Months Ended – February 28, 2022 Compared to February 28, 2021

Gross margin decreased 530 bps primarily due to the following unfavorable impacts, partially offset by favorable impacts:

Unfavorable Impacts

Favorable Impacts

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

 (130 ) bps - Higher warehousing, distribution and freight costs associated with supply chain constraints as a result of the ongoing COVID-19 pandemic, the worsening inflationary environment and initiatives to increase production capacity while these constraints exist.

 (80) 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.

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

 160 bps - Sales price increases implemented during the last 12 months all three segments.

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

Three Months Ended November 30,

Three Months Ended February 28,

Six Months Ended February 28,

(in thousands)

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% of net sales

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

SG&A Expenses – Three Months Ended – February 28, 2022 Compared to February 28, 2021

The decrease in SG&A expenses was primarily due to lower employee-related costs, which decreased by $1.9 million due to lower incentive compensation accruals of $3.2 million, which were partially offset by increased headcount and annual compensation increases.

The lower incentive compensation accruals are based on our most current forecast for fiscal year 2022 and we are projecting a lower level of achievement than the prior year for such compensation.

In addition, lower miscellaneous costs also decreased SG&A expenses by $0.5 million from period to period.

These decreases were significantly offset by freight cost increases of $1.2 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.

In addition, travel and meeting expense increased $0.5 million due to the reduction in travel restrictions related to COVID-19.

SG&A Expenses – Six Months Ended – February 28, 2022 Compared to February 28, 2021

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.

Freight costs increased $1.8 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.

Additionally, travel and meeting expense increased $1.1 million due to the reduction in travel restrictions related to COVID-19.

Changes in foreign currency exchange rates from period to period also resulted in an increase of $0.5 million in SG&A expenses.

These increases to SG&A expenses were offset by lower employee-related costs of $1.6 million, primarily due to lower incentive compensation accruals of $4.0 million, which were partially offset by increased headcount and annual compensation increases.

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.

Research and development costs were $1.3 million for both the three months ended February 28, 2022 and 2021, and $2.6 million and $2.9 million for the six months ended February 28, 2022 and 2021, respectively.

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

This team leverages its development capabilities by partnering with a network of outside resources including our current and prospective third-party contract manufacturers.

This team leverages its development capabilities by collaborating with a network of outside resources including our current and prospective third-party contract manufacturers.

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 (“A&P”) Expenses

Three Months Ended November 30,

Three Months Ended February 28,

Six Months Ended February 28,

(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 $6.9 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.

A&P Expenses – Three Months Ended – February 28, 2022 Compared to February 28, 2021

Although, A&P expenses increased slightly from period to period, A&P expenses as a percentage of net sales decreased primarily due to a lower level of promotional programs and marketing support in the Americas segment.

Changes in foreign currency exchange rates did not have a significant impact on A&P expenses period over period.

As a percentage of net sales, A&P 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 $6.4 million and $5.9 million for three months ended February 28, 2022 and 2021, respectively.

Therefore, our total investment in A&P activities totaled $12.0 million and $11.4 million for the three months ended February 28, 2022 and 2021, respectively.

A&P Expenses – Six Months Ended – February 28, 2022 Compared to February 28, 2021

Although A&P expenses increased slightly from period to period, A&P expenses as a percentage of net sales decreased primarily due to a lower level of promotional programs and marketing support in the Americas segment.

Changes in foreign currency exchange rates did not have a significant impact on A&P expenses period over period.

Total promotional costs recorded as a reduction to sales was $13.3 million and $11.7 million for six months ended February 28, 2022 and 2021, respectively.

Therefore, our total investment in A&P activities totaled $24.5 million and $22.7 million for the six months ended February 28, 2022 and 2021, respectively.

Income from Operations by Segment

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

Three Months Ended November 30,

Three Months Ended February 28,

Six Months Ended February 28,

Unallocated corporate

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

Americas Operating Income – Three Months Ended – February 28, 2022 Compared to February 28, 2021

Income from operations for the Americas increased to $11.2 million, up $0.9 million, or 8%, primarily due to an $8.3 million increase in sales, partially offset by a lower gross margin.

Gross margin for the Americas segment decreased from 53.5% to 46.7% primarily due to increases in the costs of petroleum-based specialty chemicals.

In addition, gross margin was

unfavorably impacted by increased warehousing, distribution and freight costs and higher costs at our third-party manufacturers 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 favorable impacts of price increases that were implemented during the first half of fiscal year 2022.

Although operating expenses remained relatively constant from period to period, there were various items that offset each other from period to period.

Operating expenses associated with higher outbound freight costs as a result of increased sales and higher freight rates, increased headcount and salaries, and higher travel and meeting expenses were completely offset by lower accrued incentive compensation and lower A&P expenses from period to period.

Operating income as a percentage of net sales decreased from 22.4% to 20.6% period over period .

Americas Operating Income – Six Months Ended – February 28, 2022 Compared to February 28, 2021

Income from operations for the Americas decreased to $23.2 million, down $1.7 million, or 7%, primarily due to a lower gross margin and higher operating expenses, partially offset by a $10.4 million increase in sales.

Gross margin for the Americas segment decreased from 53.9% to 47.7% 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.

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

These unfavorable impacts to gross margin were partially offset by the combined favorable impacts of price increases that were implemented during the first half of fiscal year 2022 as well as increased supplier rebates primarily as a result of higher aerosol 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 and higher freight rates, increased headcount and salaries, and higher travel and meeting expenses, which were partially offset by lower accrued incentive compensation and lower A&P expenses.

Operating income as a percentage of net sales decreased from 24.9% to 21.0% period over period .

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

EMEA Operating Income – Three Months Ended – February 28, 2022 Compared to February 28, 2021

Income from operations for the EMEA segment decreased to $13.7 million, down $0.5 million, or 3%, primarily due to a lower gross margin and an increase in operating expenses, partially offset by a $4.2 million increase in sales.

Gross margin for the EMEA segment decreased from 56.7% to 52.0% 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.

These unfavorable impacts to gross margin were partially offset by price increases that were implemented over the last twelve months .

Operating expenses increased $0.3 million period over period primarily due to higher A&P expenses, increased headcount and salaries, and higher travel and meeting expenses, which were significantly offset by lower accrued incentive compensation during the period.

Operating income as a percentage of net sales decreased from 28.5% to 25.4% period over period .

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

EMEA Operating Income – Six Months Ended – February 28, 2022 Compared to February 28, 2021

Income from operations for the EMEA segment decreased to $27.9 million, down $4.0 million, or 13%, primarily due to a lower gross margin and an increase in operating expenses, partially offset by a $7.1 million increase in sales.

Gross margin for the EMEA segment decreased from 57.6% to 51.8% 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 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.

Operating expenses increased $1.5 million period over period primarily due to higher A&P expenses, increased headcount and salaries, and higher travel and meeting expenses, which were partially offset by lower accrued incentive compensation.

Operating income as a percentage of net sales decreased from 30.5% to 25.0% period over period .

Asia-Pacific Operating Income – Three Months Ended – February 28, 2022 Compared to February 28, 2021

Income from operations for the Asia-Pacific segment increased to $7.9 million, up $2.7 million, or 53%, primarily due to a $5.5 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.

Gross margin for the Asia-Pacific segment decreased from 56.9% to 55.9% period over period primarily due to 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 price increases that were implemented during the first half of fiscal year 2022, as well as decreases in advertising, promotional, and other discounts given to our customers from period to period.

Operating expenses remained relatively constant from period to period.

Operating income as a percentage of net sales increased from 32.6% to 37.0% period over period.

Asia-Pacific Operating Income – Six Months Ended – February 28, 2022 Compared to February 28, 2021

Income from operations for the Asia-Pacific segment increased to $15.2 million, up $5.0 million, or 49%, primarily due to a $10.8 million increase in sales, partially offset by a lower gross margin and increased operating expenses.

Gross margin for the Asia-Pacific segment decreased from 56.8% to 55.2% period over period primarily due to 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 price increases that were implemented during the first half of fiscal year 2022, as well as decreases to advertising, promotional, and other discounts given to our customers from period to period.

Operating expenses increased $0.5 million from period to period primarily due to higher A&P expenses and increased headcount and salaries, which were partially offset by lower accrued incentive compensation .

Operating income as a percentage of net sales increased from 32.5% to 36.0% period over period .

Non-Operating Items

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

Three Months Ended November 30,

Three Months Ended February 28,

Six Months Ended February 28,

Interest income

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Interest Income

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

Interest income was not significant during the three and six months ended February 28, 2022 and 2021.

Interest Expense

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

Interest expense was relatively constant during the three and six months ended February 28, 2022 and 2021 .

Other Income (Expense), Net

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

Other income (expense), net was not significant during the three and six months ended February 28, 2022 and 2021 .

Provision for Income Taxes

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.

The provision for income taxes was 20.1% and 15.0% of income before income taxes for the three months ended February 28, 2022 and 2021, respectively.

The increase in the effective income tax rate from period to period was primarily due to a non-recurring benefit received in the prior year from the settlement of stock-based equity awards.

The provision for income taxes was 19.9% and 15.4% of income before income taxes for the six months ended February 28, 2022 and 2021, respectively.

The increase in the effective income tax rate from period to period was primarily due to non-recurring benefits received in the prior year from stock-based compensation, coupled with an increase in performance-based compensation that is not deductible for tax purposes in the current fiscal year.

Net income was $19.5 million, or $1.41 per common share on a fully diluted basis, for the three months ended February 28, 2022 compared to $17.2 million, or $1.24 per common share on a fully diluted basis, for the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates did not have a significant impact on consolidated net income for the three months ended February 28, 2022 compared to the corresponding period of the prior fiscal year.

Net income was $38.1 million, or $2.75 per common share on a fully diluted basis, for the six months ended February 28, 2022 compared to $40.8 million, or $2.96 per common share on a fully diluted basis, for the corresponding period of the prior fiscal year.

Thus, on a constant currency basis, net income would have decreased $3.3 million, or 8%, from period to period.

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

Three Months Ended November 30,

Three Months Ended February 28,

Six Months Ended February 28,

Gross margin - GAAP

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Cost of Doing Business (in thousands, except percentages)

Three Months Ended November 30,

Three Months Ended February 28,

Six Months Ended February 28,

Total operating expenses - GAAP

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EBITDA (in thousands, except percentages)

Three Months Ended November 30,

Three Months Ended February 28,

Six Months Ended February 28,

Net income - GAAP

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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.

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

Although there continues to be 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 position us 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 our liquidity, the financial health of our customers, suppliers and other third-party relationships, implementing gross margin enhancement strategies and developing new opportunities for growth.

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

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

We also hold borrowings under the Note Agreement.

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

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

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.

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

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

As of 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.

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

As of February 28, 2022, $44.8 million of the outstanding balance under our line of credit resides in the EMEA segment and is denominated in Euros and Pound Sterling and classified long-term, whereas $1.2 million is denominated in U.S.

Dollar and classified as short-term.

In the United States, we held $68.8 million in fixed rate long-term borrowings as of February 28, 2022, consisting of senior notes under our Note

We paid $0.4 million in principal payments on our Series A Notes during the first half 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 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.

At February 28, 2022, we were in compliance with all material 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 all material covenants is remote.

At February 28, 2022, we had a total of $43.3 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.

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 short-term and long-term operating 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 repurchase 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, of which $56.8 million remains available for the repurchase of common shares at February 28, 2022.

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

Three Months Ended November 30,

Net cash provided by (used in) operating activities

Six Months Ended February 28,

Net cash provided by operating activities

Net cash used in investing activities

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Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Operating Activities

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.

Net cash provided by operating activities decreased $38.4 million to $4.1 million for the six months ended February 28, 2022 from $42.5 million for the corresponding period of the prior fiscal year.

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

Our primary source of operating cash flows for the 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.

Our primary source of operating cash flows for the six months ended February 28, 2022 was net income of $38.1 million, which decreased approximately $2.8 million from period to period.

The change in our working capital, which decreased net cash provided by 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, as well as the higher carrying value of inventory due to higher raw material costs and other input costs from period to period.

Net cash provided by operating activities was further decreased due to higher earned incentive payouts in the first quarter of fiscal year 2022 compared to the same period of the prior fiscal year as well as lower level of earned incentive accruals from period to period.

In addition, increases in trade accounts receivable balances, primarily in the United Kingdom, decreased net cash provided by operating activities during the six months ended February 28, 2022 compared to the corresponding period of the prior fiscal year as a result of increased sales and the timing of payments from customers.

Investing Activities

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.

Net cash used in investing activities decreased $3.8 million to $3.6 million for the six months ended February 28, 2022 from $7.4 million for the corresponding period of the prior fiscal year, primarily due to a lower level of manufacturing-related capital expenditures within the United States and the United Kingdom 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 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.

Net cash used by financing activities increased $22.0 million to $42.3 million for the six months ended February 28, 2022 from $20.3 million for the corresponding period of the prior fiscal year.

This change was primarily due to the resumption of treasury stock purchases in November 2021, resulting in increased treasury stock purchases of $18.2 million.

In addition, increases in dividends paid to our shareholders of $2.2 million and increases in shares withheld to cover taxes on conversion of equity rewards of $0.8 million resulted in higher cash outflows from period to period.

Additionally, in the first half 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 half of fiscal year 2021 compared to $1.2 million in net proceeds from our revolving credit facility during the second quarter of fiscal year 2022.

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 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.

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 $0.9 million for the six months ended February 28, 2022 as compared to an increase in cash of $1.1 million for the six months ended February 28, 2021.

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

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

As of November 30, 2021, no such commitments were outstanding .

As of February 28, 2022, 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 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 .

On March 15, 2022, the Company’s Board of Directors declared a cash dividend of $0.78 per share payable on April 29, 2022 to shareholders of record on April 15 , 2022 .

Critical Accounting Policies

Our discussion and analysis of our operating results and financial condition is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

Our discussion and analysis of our operating results and financial condition is based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America.

Critical accounting policies are those that involve subjective or complex judgments, often as a result of the need to make estimates.

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Actual results may differ from these estimates.

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.

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, 2021, which was filed with the SEC on October 22, 2021.

Recently Issued Accounting Standards

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis