WD 40 CO 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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. The following information is provided as a supplement to, and should be read in conjunction with, the unaudited condensed consolidated financial statements and notes thereto included in Part I ― Item 1 of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended August 31, 2021, which was filed with the Securities and Exchange Commission (“SEC”) on October 22, 2021. In order to show the impact of changes in foreign currency exchange rates on our results of operations, we have included constant currency disclosures, where necessary, in the Overview and Results of Operations sections which follow. Constant currency disclosures represent the translation of our current fiscal year revenues and expenses from the functional currencies of our subsidiaries to U.S. Dollars using the exchange rates in effect for the corresponding period of the prior fiscal year. 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 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 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: growth expectations for maintenance products; expected levels of promotional and advertising spending; anticipated input costs for manufacturing and the costs associated with distribution of our products; plans for and success of product innovation, the impact of new product introductions on the growth of sales; anticipated results from product line extension sales; 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 our financial results; 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. 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. Overview The Company 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 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. Maintenance products are sold worldwide in markets throughout North, Central and South America, Asia, Australia, Europe, the Middle East and Africa. Homecare and cleaning products are sold primarily in North America, the United Kingdom (“U.K.”) and Australia. We sell our products primarily through 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. 21 Highlights 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 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 $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 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: (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 . Significant Developments Impact of COVID-19 on Our Business 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 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 22 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 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 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. 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. 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. 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 counts and new variants. 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. 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. 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 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 23 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 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 February 28, Six Months Ended February 28, Change from ‎ Prior Year Change from ‎ Prior Year 2022 2021 Dollars Percent 2022 2021 Dollars Percent Net sales: Maintenance products $ 121,901 $ 102,728 $ 19,173 19% $ 247,931 $ 217,072 $ 30,859 14% HCCP (1) 8,085 9,177 (1,092) (12)% 16,801 19,392 (2,591) (13)% Total net sales 129,986 111,905 18,081 16% 264,732 236,464 28,268 12% Cost of products sold 64,468 49,898 14,570 29% 130,744 104,211 26,533 25% Gross profit 65,518 62,007 3,511 6% 133,988 132,253 1,735 1% Operating expenses 40,775 41,352 (577) (1)% 85,185 83,206 1,979 2% Income from operations $ 24,743 $ 20,655 $ 4,088 20% $ 48,803 $ 49,047 $ (244) - Net income $ 19,508 $ 17,191 $ 2,317 13% $ 38,063 $ 40,814 $ (2,751) (7)% EPS - diluted $ 1.41 $ 1.24 $ 0.17 14% $ 2.75 $ 2.96 $ (0.21) (7)% Shares used in diluted EPS 13,705 13,729 (24) - 13,805 13,718 87 1% (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 February 28, Six Months Ended February 28, Change from ‎ Prior Year Change from ‎ Prior Year 2022 2021 Dollars Percent 2022 2021 Dollars Percent Americas $ 54,497 $ 46,157 $ 8,340 18% $ 110,785 $ 100,344 $ 10,441 10% EMEA 54,063 49,813 4,250 9% 111,618 104,563 7,055 7% Asia-Pacific 21,426 15,935 5,491 34% 42,329 31,557 10,772 34% Total $ 129,986 $ 111,905 $ 18,081 16% $ 264,732 $ 236,464 $ 28,268 12% ‎ 24 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 February 28, Six Months Ended February 28, Change from ‎ Prior Year Change from ‎ Prior Year 2022 2021 Dollars Percent 2022 2021 Dollars Percent Maintenance products $ 50,409 $ 41,310 $ 9,099 22% $ 102,393 $ 89,812 $ 12,581 14% HCCP 4,088 4,847 (759) (16)% 8,392 10,532 (2,140) (20)% Total $ 54,497 $ 46,157 $ 8,340 18% $ 110,785 $ 100,344 $ 10,441 10% % of consolidated net sales 42% 41% 42% 43% CC Net sales - non-GAAP (1) $ 54,678 $ 46,157 $ 8,521 18% $ 110,471 $ 100,344 $ 10,127 10% (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:  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 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. 25 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:  U.S. 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. EMEA Sales 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 February 28, Six Months Ended February 28, Change from ‎ Prior Year Change from ‎ Prior Year 2022 2021 Dollars Percent 2022 2021 Dollars Percent Maintenance products $ 52,093 $ 47,736 $ 4,357 9% $ 107,536 $ 100,114 $ 7,422 7% HCCP 1,970 2,077 (107) (5)% 4,082 4,449 (367) (8)% Total (1) $ 54,063 $ 49,813 $ 4,250 9% $ 111,618 $ 104,563 $ 7,055 7% % of consolidated net sales 42% 45% 42% 44% CC Net sales - non-GAAP (2) $ 54,617 $ 49,813 $ 4,804 10% $ 109,695 $ 104,563 $ 5,132 5% (1) While the Company’s reporting currency is the U.S. Dollar, the functional currency of our U.K. subsidiary, the entity in which the EMEA results are generated, is Pound Sterling. Although the functional currency of this subsidiary is Pound Sterling, approximately 50% of its sales are generated in Euro and 15-20% are generated in U.S. Dollar. As a result, the Pound Sterling sales and earnings for the EMEA segment can be negatively or positively impacted from period to period upon translation from these currencies depending on whether the Euro and U.S. Dollar are weakening or strengthening against the Pound Sterling . (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 . 26 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 – 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 $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. Dollar. 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. subsidiary, against the U.S. Dollar. 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. ‎ 27 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 February 28, Six Months Ended February 28, Change from ‎ Prior Year Change from ‎ Prior Year 2022 2021 Dollars Percent 2022 2021 Dollars Percent Maintenance products $ 19,399 $ 13,682 $ 5,717 42% $ 38,002 $ 27,146 $ 10,856 40% HCCP 2,027 2,253 (226) (10)% 4,327 4,411 (84) (2)% Total $ 21,426 $ 15,935 $ 5,491 34% $ 42,329 $ 31,557 $ 10,772 34% % of consolidated net sales 16% 14% 16% 13% CC Net sales - non-GAAP (1) $ 21,579 $ 15,935 $ 5,644 35% $ 42,035 $ 31,557 $ 10,478 33% (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 . 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.  Australia sales remained relatively consistent period over period . 28 Gross Profit 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. 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 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. Dollar. 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; and  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 $4.7 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 February 28, Six Months Ended February 28, 2022 2021 Change from ‎ Prior Year 2022 2021 Change from ‎ Prior Year Gross profit $ 65,518 $ 62,007 $ 3,511 $ 133,988 $ 132,253 $ 1,735 Gross margin 50.4% 55.4% (500) bps (1) 50.6% 55.9% (530) bps (1) (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: 1010 Unfavorable Impacts Favorable Impacts  (370) bps - Higher costs of specialty chemicals used in the formulation of our products.  (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. ‎ 29 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: 1010 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.  (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 February 28, Six Months Ended February 28, Change from ‎ Prior Year Change from ‎ Prior Year (in thousands) 2022 2021 Dollars Percent 2022 2021 Dollars Percent SG&A expenses $ 34,819 $ 35,478 $ (659) (2)% $ 73,242 $ 71,455 $ 1,787 3% % of net sales 26.8% 31.7% 27.7% 30.2% 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. 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 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 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. 30 Advertising and Sales Promotion (“A&P”) Expenses Three Months Ended February 28, Six Months Ended February 28, Change from ‎ Prior Year Change from ‎ Prior Year (in thousands) 2022 2021 Dollars Percent 2022 2021 Dollars Percent A&P expenses $ 5,596 $ 5,512 $ 84 2% $ 11,220 $ 11,031 $ 189 2% % of net sales 4.3% 4.9% 4.2% 4.7% 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 February 28, Six Months Ended February 28, Change from ‎ Prior Year Change from ‎ Prior Year 2022 2021 Dollars Percent 2022 2021 Dollars Percent Americas $ 11,217 $ 10,356 $ 861 8% $ 23,234 $ 24,982 $ (1,748) (7)% EMEA 13,715 14,176 (461) (3)% 27,928 31,919 (3,991) (13)% Asia-Pacific 7,925 5,188 2,737 53% 15,227 10,247 4,980 49% Unallocated corporate (8,114) (9,065) 951 10% (17,586) (18,101) 515 3% Total $ 24,743 $ 20,655 $ 4,088 20% $ 48,803 $ 49,047 $ (244) - Americas 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 31 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 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 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. 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 . 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. 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 given to our customers from period to period. 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 . ‎ 32 Asia-Pacific 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 56.9% 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 February 28, Six Months Ended February 28, 2022 2021 Change 2022 2021 Change Interest income $ 21 $ 19 $ 2 $ 46 $ 38 $ 8 Interest expense $ 613 $ 610 $ 3 $ 1,233 $ 1,180 $ 53 Other income (expense), net $ 252 $ 151 $ 101 $ (77) $ 330 $ (407) Provision for income taxes $ 4,895 $ 3,024 $ 1,871 $ 9,476 $ 7,421 $ 2,055 Interest Income Interest income was not significant during the three and six months ended February 28, 2022 and 2021. Interest Expense 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 during the three and six months ended February 28, 2022 and 2021 . Provision for Income Taxes 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. ‎ 33 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 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. 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. Performance Measures and Non-GAAP Reconciliations In managing our business operations and assessing our financial performance, we supplement the information provided by our financial statements with certain non-GAAP performance measures. These performance measures are part of our current 55/30/25 business model, which includes gross margin, cost of doing business, and earnings before interest, income taxes, depreciation and amortization (“EBITDA”), the latter two of which are non-GAAP performance measures. Cost of doing business is defined as total operating expenses less amortization of definite-lived intangible assets, impairment charges related to intangible assets and depreciation in operating departments, and EBITDA is defined as net income (loss) before interest, income taxes, depreciation and amortization. We target our gross margin to be at or above 55% of net sales, our cost of doing business to be at 30% of net sales, and our EBITDA to be above 25% of net sales. 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. The following table summarizes the results of these performance measures for the periods presented: Three Months Ended February 28, Six Months Ended February 28, 2022 2021 2022 2021 Gross margin - GAAP 50% 55% 51% 56% Cost of doing business as a percentage of net sales - non-GAAP 30% 36% 31% 34% EBITDA as a percentage of net sales - non-GAAP (1) 21% 20% 20% 22% (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 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. Reconciliations of these non-GAAP financial measures to our financial statements as prepared in accordance with GAAP are as follows: 34 Cost of Doing Business (in thousands, except percentages) Three Months Ended February 28, Six Months Ended February 28, 2022 2021 2022 2021 Total operating expenses - GAAP $ 40,775 $ 41,352 $ 85,185 $ 83,206 Amortization of definite-lived intangible assets (360) (362) (723) (720) Depreciation (in operating departments) (1,112) (1,077) (2,210) (2,119) Cost of doing business $ 39,303 $ 39,913 $ 82,252 $ 80,367 Net sales $ 129,986 $ 111,905 $ 264,732 $ 236,464 Cost of doing business as a percentage of net sales - non-GAAP 30% 36% 31% 34% EBITDA (in thousands, except percentages) Three Months Ended February 28, Six Months Ended February 28, 2022 2021 2022 2021 Net income - GAAP $ 19,508 $ 17,191 $ 38,063 $ 40,814 Provision for income taxes 4,895 3,024 9,476 7,421 Interest income (21) (19) (46) (38) Interest expense 613 610 1,233 1,180 Amortization of definite-lived intangible assets 360 362 723 720 Depreciation 1,736 1,396 3,359 2,738 EBITDA $ 27,091 $ 22,564 $ 52,808 $ 52,835 Net sales $ 129,986 $ 111,905 $ 264,732 $ 236,464 EBITDA as a percentage of net sales - non-GAAP 21% 20% 20% 22% Liquidity and Capital Resources Overview Our financial condition and liquidity remain strong. 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. 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 revolving credit facility under the Credit Agreement with Bank of America. We use proceeds of the revolving credit facility primarily for our general working capital needs. We also hold borrowings under the Note Agreement. See Note 7 – Debt for additional information on these agreements. 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. 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 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 35 Agreement. 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. Per the terms of both the Note Agreement and the Credit Agreement, our consolidated leverage ratio cannot be greater than three and a half to one and our consolidated interest coverage ratio cannot be less than three to one. See Note 7 – Debt for additional information on these financial covenants. 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. 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. Cash Flows The following table summarizes our cash flows by category for the periods presented (in thousands): Six Months Ended February 28, 2022 2021 Change Net cash provided by operating activities $ 4,083 $ 42,510 $ (38,427) Net cash used in investing activities (3,571) (7,366) 3,795 Net cash provided by used in financing activities (42,267) (20,311) (21,956) Effect of exchange rate changes on cash and cash equivalents (884) 1,086 (1,970) Net (decrease) increase in cash and cash equivalents $ (42,639) $ 15,919 $ (58,558) Operating Activities 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 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 $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. ‎ 36 Financing Activities 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 All of our foreign subsidiaries currently operate in currencies other than the U.S. Dollar and a significant portion of our consolidated cash balance is denominated in these foreign functional currencies, particularly at our U.K. subsidiary, which operates in Pound Sterling. As a result, our cash and cash equivalents balances are subject to the effects of the fluctuations in these functional currencies against the U.S. 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 $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. Dollar. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements as defined by Item 303(a)(4)(ii) of Regulation S-K. Commercial Commitments 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 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 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 . The amounts for inventory purchased under termination commitments have been immaterial. In addition to the commitments to purchase products from contract manufacturers described above, we may also enter into commitments with other manufacturers to purchase finished goods and components to support innovation initiatives and/or supply chain initiatives. As of 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 . ‎ 37 Dividends 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 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. The following areas all require the use of judgments and estimates: revenue recognition, accounting for income taxes and impairment of definite-lived intangible assets. Estimates in each of these areas are based on historical experience and various judgments and assumptions that we believe are appropriate. 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, 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 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 . Item 3. Quantitative and Qualitative Disclosures About Market Risk The information required by this item is incorporated by reference to Part II ― Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” 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.