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 nine months ended May 31, 2022:  Consolidated net sales increased $15.5 million, or 4%, for the nine months ended May 31, 2022 compared to the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates had an unfavorable impact of $1.6 million on consolidated net sales for the nine months ended May 31, 2022 compared to the corresponding period of the prior fiscal year. Thus, on a constant currency basis, net sales would have increased by $17.1 million, or 5%, from period to period. This unfavorable impact from changes in foreign currency exchange rates mainly came from our EMEA segment, which accounted for 42% of our consolidated sales for the nine months ended May 31, 2022.  Gross profit as a percentage of net sales decreased to 49.7% for the nine months ended May 31, 2022 compared to 54.9% for the corresponding period of the prior fiscal year primarily due to ongoing 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, including actions the Company is taking in response to these challenges.  Consolidated net income decreased $9.3 million, or 15%, for the nine months ended May 31, 2022 compared to 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 nine months ended May 31, 2022 compared to the corresponding period of the prior fiscal year.  Diluted earnings per common share for the nine months ended May 31, 2022 were $3.82 versus $4.48 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, 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 and such restrictions most recently impacted our Asia-Pacific segment when COVID-19 lockdowns were in place in China during most of our third quarter. These negative sales impacts since the start of the pandemic had often been offset by increased demand for our products as a result of the shift in consumer spending patterns due to increased renovation and maintenance activities compared to periods before the pandemic. However, global supply chain issues have resulted in increased raw material costs and other input costs, higher competition for freight resources, and labor constraints within manufacturing and distribution networks. These increased costs started to negatively impact our gross margin and financial results in fiscal year 2021. This inflationary environment has worsened during the first nine months of fiscal year 2022 resulting in lower gross margins compared to the corresponding periods 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 periodically outpaced the available production capacity in the region. We are continuing to actively manage supply chain constraints and transportation disruptions that have arisen periodically. 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, particularly in the Americas and EMEA segments. In addition, we have taken actions to increase inventory levels of certain raw materials and finished goods, given the current challenges within supply chain and increased lead times required by suppliers. As a result of these initiatives, we have begun to see increases in the capacity and flexibility of our supply chain, particularly in the second and third quarters of this fiscal year for our Americas segment. 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 costs or impacts associated with potential future supply chain disruptions, 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 , including costs resulting from higher inventory levels being maintained, 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, significant price increases continue to be implemented across all of our markets and geographies. Although we are beginning to see the favorable impacts of these price increases, it will take additional time before the full impact of these price increases is reflected in our reported results, especially those in some of our largest markets which we implemented late in the third quarter or are scheduled to implement in the fourth quarter. However, 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 the COVID-19 pandemic, as well as the current inflationary environment, remain uncertain and it is difficult for us to estimate the extent to which these conditions will impact our financial results and operations in future periods. It is also uncertain how changes in the pandemic or inflationary conditions will impact the increased levels of renovation and maintenance activities that we have seen by end-users in various periods since the start of the pandemic. 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 during the pandemic, support the communities in which we operate and ensure the availability and functioning of our critical infrastructure. 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 in the 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. These geopolitical tensions continued during our third quarter and it is uncertain when conditions will improve or whether additional governmental sanctions will be enacted in future periods. The direct and indirect impacts of this evolving situation and its effect on global economies in future periods are difficult to predict. We suspended selling our products to markets in Russia and Belarus beginning in March 2022, which has and will continue to have an unfavorable impact on our sales as long as that suspension continues. 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, prior to the suspension of sales in these regions. We do not have facilities, third-party manufacturing partners, employees or inventory in these affected regions. Additionally, the only activities we conduct in these regions are sales through local marketing distributors. Write-offs of previously existing accounts receivable from those marketing distributors affected by the crisis have not been significant to date and are not expected to become significant in future periods. 23 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, as well as the cost of the transportation and distribution 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. Results of Operations Three and Nine Months Ended May 31, 2022 Compared to Three and Nine Months Ended May 31, 2021 Operating Items The following table summarizes operating data for our consolidated operations ( in thousands, except percentages and per share amounts): Three Months Ended May 31, Nine Months Ended May 31, Change from ‎ Prior Year Change from ‎ Prior Year 2022 2021 Dollars Percent 2022 2021 Dollars Percent Net sales: Maintenance products $ 115,494 $ 127,374 $ (11,880) (9)% $ 363,425 $ 344,446 $ 18,979 6% HCCP (1) 8,173 9,031 (858) (10)% 24,974 28,423 (3,449) (12)% Total net sales 123,667 136,405 (12,738) (9)% 388,399 372,869 15,530 4% Cost of products sold 64,682 63,947 735 1% 195,426 168,158 27,268 16% Gross profit 58,985 72,458 (13,473) (19)% 192,973 204,711 (11,738) (6)% Operating expenses 40,001 45,137 (5,136) (11)% 125,186 128,343 (3,157) (2)% Income from operations $ 18,984 $ 27,321 $ (8,337) (31)% $ 67,787 $ 76,368 $ (8,581) (11)% Net income $ 14,480 $ 21,006 $ (6,526) (31)% $ 52,543 $ 61,820 $ (9,277) (15)% EPS - diluted $ 1.07 $ 1.52 $ (0.45) (30)% $ 3.82 $ 4.48 $ (0.66) (15)% Shares used in diluted EPS 13,680 13,746 (66) - 13,712 13,727 (15) - (1) Homecare and cleaning products (“HCCP”) Net Sales by Segment The following table summarizes net sales by segment (in thousands, except percentages): Three Months Ended May 31, Nine Months Ended May 31, Change from ‎ Prior Year Change from ‎ Prior Year 2022 2021 Dollars Percent 2022 2021 Dollars Percent Americas $ 61,453 $ 60,046 $ 1,407 2% $ 172,238 $ 160,390 $ 11,848 7% EMEA 49,450 58,587 (9,137) (16)% 161,068 163,150 (2,082) (1)% Asia-Pacific 12,764 17,772 (5,008) (28)% 55,093 49,329 5,764 12% Total $ 123,667 $ 136,405 $ (12,738) (9)% $ 388,399 $ 372,869 $ 15,530 4% ‎ 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 May 31, Nine Months Ended May 31, Change from ‎ Prior Year Change from ‎ Prior Year 2022 2021 Dollars Percent 2022 2021 Dollars Percent Maintenance products $ 57,778 $ 55,917 $ 1,861 3% $ 160,171 $ 145,729 $ 14,442 10% HCCP 3,675 4,129 (454) (11)% 12,067 14,661 (2,594) (18)% Total $ 61,453 $ 60,046 $ 1,407 2% $ 172,238 $ 160,390 $ 11,848 7% % of consolidated net sales 50% 44% 44% 43% CC Net sales - non-GAAP (1) $ 61,496 $ 60,046 $ 1,450 2% $ 171,967 $ 160,390 $ 11,577 7% (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 – May 31, 2022 Compared to May 31, 2021 Net sales of maintenance products in the Americas segment increased due to the following:  United States (“U.S.”) sales remained relatively constant at $42.9 million, primarily due to increased sales of WD-40 Specialist, which was almost completely offset by decreased sales of WD-40 Multi-Use Product. WD-40 Specialist products are sourced at certain third-party manufacturers that were significantly impacted by global supply chain constraints in the comparative period. However, adjustments we have made in our supply chain to increase the production capacity of our most significant products, including WD-40 Specialist, improved the availability of these products from period to period. WD-40 Specialist sales increased by $2.8 million, or 78%, primarily due to these improvements, as well as price increases implemented during the last twelve months. Although WD-40 Multi-Use Product sales also benefited from price increases and improved supply chain capacity from period to period, sales decreased by $3.0 million, or 8%, primarily due to the timing of customer orders and a temporarily lower level of promotional programs after certain sales price increases that occurred in the third quarter of fiscal year 2022.  Latin America sales increased $0.9 million, or 10%, primarily due to 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. This shift favorably impacted sales period over period as a result of new distribution and the continued growth of the base business. In addition, sales were favorably impacted by sales price increases that went into effect in November 2021. These increases were partially offset by decreased sales of 3-IN-ONE products due to supply chain constraints.  Canada sales increased $0.9 million, or 23%, primarily due to increased promotional activities and a higher level of demand in the industrial channel in Western Canada as a result of increased activity levels of end-users in the oil industry. Sales were also positively impacted by sales price increases that went into effect in April 2022. 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. For the three months ended May 31, 2022, 75% of sales came from the U.S., and 25% of sales came from Canada and Latin America combined compared to the distribution for the three months ended May 31, 2021 when 77% of sales came from the U.S., and 23% of sales came from Canada and Latin America. 25 Americas Sales – Nine Months Ended – May 31, 2022 Compared to May 31, 2021 Net sales of maintenance products in the Americas segment increased due primarily to the following:  U.S. sales increased $7.2 million, or 7%, due to increased sales of WD-40 Specialist and WD-40 Multi-Use Product of $4.7 million, or 43%, and $3.2 million, or 4%, respectively. These increases for both products were primarily due to price increases that went into effect in during the last twelve months and supply chain improvements which resulted in increased product availability, particularly for WD-40 Specialist, as discussed above in the section for the three months ended May 31, 2022 . These increases were slightly offset by lower 3-IN-ONE sales of $0.7 million, or 13%, 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 $6.4 million, or 24% , primarily due to higher sales throughout many markets in the region, including in our direct market in Mexico. In addition, sales were favorably impacted by price increases, increased product availability, successful promotional programs and the continued momentum in our direct market in Mexico, as discussed above in the section for the three months ended May 31, 2022.  Canada sales increased $0.8 million, or 8%, primarily due to demand in the industrial channel in Western Canada as a result of increased activity levels of end-users in the oil industry. In addition, price increases we implemented over the last twelve months also had a favorable impact on sales. 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 May 31, 2022. For the nine months ended May 31, 2022, 73% of sales came from the U.S., and 27% of sales came from Canada and Latin America combined, compared to the distribution for the nine months ended May 31, 2021 when 76% of sales came from the U.S., and 24% 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 May 31, Nine Months Ended May 31, Change from ‎ Prior Year Change from ‎ Prior Year 2022 2021 Dollars Percent 2022 2021 Dollars Percent Maintenance products $ 47,289 $ 56,074 $ (8,785) (16)% $ 154,825 $ 156,188 $ (1,363) (1)% HCCP 2,161 2,513 (352) (14)% 6,243 6,962 (719) (10)% Total (1) $ 49,450 $ 58,587 $ (9,137) (16)% $ 161,068 $ 163,150 $ (2,082) (1)% % of consolidated net sales 40% 43% 42% 44% CC Net sales - non-GAAP (2) $ 53,124 $ 58,587 $ (5,463) (9)% $ 162,819 $ 163,150 $ (331) - (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 . 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. 26 EMEA Sales – Three Months Ended – May 31, 2022 Compared to May 31, 2021 Net sales decreased in the EMEA segment primarily due to the following: Direct Markets – EMEA (71% of net sales QTD FY2022 vs 69% QTD FY2021)  Direct market sales decreased $5.3 million, or 13%, primarily due to decreased sales of maintenance products in the United Kingdom, France and Iberia of $2.2 million, $2.0 million and $0.5 million, respectively.  These decreases were primarily due to reduced demand compared to the prior period, as renovation and maintenance activities exhibited by our end-users during the COVID-19 pandemic resulted in particularly strong demand in the third quarter of fiscal year 2021 in certain regions of EMEA .  Although price increases implemented over the last 12 months positively impacted sales from period to period, timing of customer orders and promotional programs as customers adjust to price increases had an unfavorable impact on sales from period to period.  Sales in our direct markets were unfavorably impacted by $1.8 million due to the weakening of the Pound Sterling, the functional currency of our U.K. subsidiary, against the U.S. Dollar. Distributor Markets – EMEA (29% of net sales QTD FY2022 vs 31% QTD FY2021)  Distributor market sales decreased $3.8 million, or 21%, primarily due to decreased sales of maintenance products in Russia, Poland, and Turkey, which were down $3.6 million, $0.9 million and $0.7 million, respectively. The sales decrease in Russia was primarily due to the ongoing effects of the Russian military action in Ukraine. 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 decreases were partially offset by sales increases in Saudi Arabia of $1.4 million, primarily due to strong demand and increased distribution in the region. In addition, sales were favorably impacted in various other distributor markets due to price increases we have implemented over the last twelve months. However, some of the positive impacts of these price increases were offset due to changes in the timing of customer orders from our distributors as customers adjust to price increases . EMEA Sales – Nine Months Ended – May 31, 2022 Compared to May 31, 2021 Net sales decreased in the EMEA segment due to the following drivers: Direct Markets – EMEA (66% of net sales YTD FY2022 vs 67% YTD FY2021)  Direct markets decreased $2.2 million, or 2%, primarily due to decreased sales in the U.K of $5.0 million, or 17%, offset by increases in our other EMEA direct markets, when combined, of $2.8 million, or 4%.  Decreased sales in the U.K. direct market were primarily due to a lower level of demand in the U.K. during the third quarter of fiscal year 2022, as discussed above in the section for the three months ended May 31, 2022. The decreased sales from period to period were also due to the lower level of promotional programs that were conducted during the first half of fiscal year 2022. These decreases were partially offset by price increases we have implemented over the last twelve months.  Sales in EMEA direct markets, excluding the U.K., increased from period to period primarily due to new distribution and sales price increases, as well as successful promotional programs that occurred during the first half of fiscal year 2022. These favorable impacts were partially offset by unfavorable impacts during the third quarter, as discussed above in the section for the three months ended May 31, 2022 .  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. ‎ 27 Distributor Markets – EMEA (34% of net sales YTD FY2022 vs 33% YTD FY2021)  Distributor market sales were relatively constant, primarily due to increased sales of the WD-40 Multi-Use Product in Northern Europe, India, and the Middle East of $1.4 million, $0.9 million and $0.4 million, respectively, which were almost completely offset by decreased sales to Russia of $2.2 million.  Sales were positively impacted in the distributor markets due to new distribution, price increases, and distributors purchasing product in advance such price increases during the first half of fiscal year 2022. These favorable impacts were partially offset by unfavorable impacts as discussed above in the section for the three months ended May 31, 2022 , particularly those related to decreased sales in Russia due to the ongoing impacts of the Russian military action in Ukraine . 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 May 31, Nine Months Ended May 31, Change from ‎ Prior Year Change from ‎ Prior Year 2022 2021 Dollars Percent 2022 2021 Dollars Percent Maintenance products $ 10,427 $ 15,383 $ (4,956) (32)% $ 48,429 $ 42,529 $ 5,900 14% HCCP 2,337 2,389 (52) (2)% 6,664 6,800 (136) (2)% Total $ 12,764 $ 17,772 $ (5,008) (28)% $ 55,093 $ 49,329 $ 5,764 12% % of consolidated net sales 10% 13% 14% 13% CC Net sales - non-GAAP (1) $ 13,211 $ 17,772 $ (4,561) (26)% $ 55,246 $ 49,329 $ 5,917 12% (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 – May 31, 2022 Compared to May 31, 2021 Net sales in the Asia-Pacific segment decreased primarily due to the following:  Asia distributor markets sales decreased $4.1 million, or 56%, primarily due to lower sales of WD-40 Multi-Use Product as a result of supply chain disruptions caused by the COVID-19 pandemic. Products for our Asia distributor markets are sourced from a third-party manufacturer located in Shanghai, China. In late March 2022, Shanghai instituted severe lockdown measures as a result of a surge in COVID-19 cases in the country. This lockdown remained in effect for the remainder of the third quarter and resulted in our third-party packager and logistics partners in Shanghai being unable to manufacture or distribute products for our Asia distributor market in April and May.  China sales decreased $1.1 million, or 25%, also due to the lockdown in Shanghai during the quarter that severely limited the production of our products by our third-party manufacturer located in the region from late March 2022 through the end of the third quarter. In addition, this lockdown and the severe restrictions placed on various regions in China during the third quarter of fiscal year 2022 negatively impacted logistics networks in the country.  Australia sales increased $0.2 million, or 4%, primarily due to the ongoing growth of the base business, increased promotional activities and price increases that went into effect in February 2022. Changes in foreign currency exchange rates had an unfavorable impact on sales in Australia. On a constant currency basis, sales in Australia would have increased $0.7 million, or 12%. ‎ 28 Asia-Pacific Sales – Nine Months Ended – May 31, 2022 Compared to May 31, 2021 Net sales in the Asia-Pacific segment increased due to the following drivers:  Sales in China increased $3.3 million, or 26%, primarily due to a higher level of promotional activities during the first half of fiscal year 2022, as well as customers purchasing product in advance of anticipated price increases. These increases in sales were partially offset by the various unfavorable impacts discussed above in the section for the three months ended May 31, 2022.  Sales in the Asia distributor markets increased $2.1 million, or 11%, primarily due to the success of promotional programs and the easing of COVID-19 lockdown measures during the first half of the fiscal year, which resulted in increased demand and higher sales in most countries. These increases were partially offset by the various unfavorable impacts discussed above in the section for the three months ended May 31, 2022.  Australia sales increased $0.3 million, or 2%, primarily due to the items discussed above in the section for the three months ended May 31, 2022. Changes in foreign currency exchange rates had an unfavorable impact on sales in Australia. On a constant currency basis, sales in Australia would have increased $0.9 million, or 6%. 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 $4.9 million for the three months ended May 31, 2022 and 2021, respectively, and $14.2 million and $12.5 million for the nine months ended May 31, 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 May 31, Nine Months Ended May 31, 2022 2021 Change from ‎ Prior Year 2022 2021 Change from ‎ Prior Year Gross profit $ 58,985 $ 72,458 $ (13,473) $ 192,973 $ 204,711 $ (11,738) Gross margin 47.7% 53.1% (540) bps (1) 49.7% 54.9% (520) bps (1) (1) Basis points (“bps”) change in gross margin. ‎ 29 Gross Margin - Three Months Ended – May 31, 2022 Compared to May 31, 2021 Gross margin decreased 540 bps primarily due to the following unfavorable impacts, partially offset by favorable impacts: 1010 (Unfavorable)/Favorable Explanations (400) bps Higher costs of specialty chemicals used in the formulation of our products. (220) bps Higher costs of aerosol cans. (150) 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. (130) bps Higher filling fees paid to our third-party contract manufacturers, primarily in the Americas segment. (90) bps Higher miscellaneous costs associated with inventory, unfavorable sales market mix, and higher other miscellaneous input costs. 490 bps Sales price increases implemented in all three segments at varying times during the last 12 months. Gross Margin - Nine Months Ended – May 31, 2022 Compared to May 31, 2021 Gross margin decreased 520 bps primarily due to the following unfavorable impacts, partially offset by favorable impacts: 1010 (Unfavorable)/Favorable Explanations (390) 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. (90) bps Higher filling fees paid to our third-party contract manufacturers, primarily in the Americas segment. (80) bps Higher costs of aerosol cans. (50) bps Changes in foreign currency exchange rates in the EMEA segment.. 260 bps Sales price increases implemented in all three segments at varying times during the last 12 months. Selling, General and Administrative (“SG&A”) Expenses Three Months Ended May 31, Nine Months Ended May 31, Change from ‎ Prior Year Change from ‎ Prior Year (in thousands) 2022 2021 Dollars Percent 2022 2021 Dollars Percent SG&A expenses $ 33,621 $ 38,131 $ (4,510) (12)% $ 106,863 $ 109,586 $ (2,723) (2)% % of net sales 27.2% 28.0% 27.5% 29.4% SG&A Expenses – Three Months Ended – May 31, 2022 Compared to May 31, 2021 The decrease in SG&A expenses was primarily due to lower employee-related costs, which decreased by $5.5 million due to lower incentive compensation accruals of $6.7 million, which were slightly offset by higher salary and other employee costs of $1.2 million primarily due to 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. Changes in foreign currency exchange rates from period to period also resulted in a decrease of $0.9 million in SG&A expenses. These decreases were partially offset by increases in travel and meeting expense of $1.6 million due to the reduction in travel restrictions related to COVID-19, resulting in a higher level of travel and meetings by employees, as well as higher miscellaneous costs of $0.3 million. ‎ 30 SG&A Expenses – Nine Months Ended – May 31, 2022 Compared to May 31, 2021 The decrease in SG&A expenses from period to period was primarily due lower employee-related costs, which decreased $7.0 million due to lower incentive compensation accruals of $10.7 million, which were partially offset by higher salary and other employee costs of $3.7 million primarily due to increased headcount and annual compensation increases. Changes in foreign currency exchange rates from period to period also resulted in a decrease of $0.4 million in SG&A expenses. These decreases to SG&A expense were partially offset by to higher travel and meeting expense, which increased $2.6 million due to the reduction in travel restrictions related to COVID-19, resulting in a higher level of travel and meetings by employees. Additionally, 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. Miscellaneous costs also increased $0.3 million from period to period. 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 $1.4 million and $1.3 million for the three months ended May 31, 2022 and 2021, respectively, and $4.0 million and $4.2 million for the nine months ended May 31, 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. Advertising and Sales Promotion (“A&P”) Expenses Three Months Ended May 31, Nine Months Ended May 31, Change from ‎ Prior Year Change from ‎ Prior Year (in thousands) 2022 2021 Dollars Percent 2022 2021 Dollars Percent A&P expenses $ 6,022 $ 6,642 $ (620) (9)% $ 17,242 $ 17,673 $ (431) (2)% % of net sales 4.9% 4.9% 4.4% 4.7% A&P Expenses – Three Months Ended – May 31, 2022 Compared to May 31, 2021 Although A&P expenses decreased from period to period, A&P expenses as a percentage of net sales remained relatively constant. The decrease in A&P expenses was primarily due to a lower level of promotional programs and marketing support as a result of lower sales from period to period. 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 $7.5 million and $6.7 million for three months ended May 31, 2022 and 2021, respectively. Therefore, our total investment in A&P activities totaled $13.5 million and $13.4 million for the three months ended May 31, 2022 and 2021, respectively. A&P Expenses – Nine Months Ended – May 31, 2022 Compared to May 31, 2021 A&P expenses decreased primarily due to a lower level of promotional programs and marketing support in the Americas segment which were partially offset by a higher level of such activities in the EMEA 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 $20.8 million and $18.4 million for nine months ended May 31, 2022 and 2021, respectively. Therefore, our total investment in A&P activities totaled $38.0 million and $36.1 million for the nine months ended May 31, 2022 and 2021, respectively. ‎ 31 Income from Operations by Segment The following table summarizes income from operations by segment (in thousands, except percentages): Three Months Ended May 31, Nine Months Ended May 31, Change from ‎ Prior Year Change from ‎ Prior Year 2022 2021 Dollars Percent 2022 2021 Dollars Percent Americas $ 13,360 $ 15,582 $ (2,222) (14)% $ 36,594 $ 40,564 $ (3,970) (10)% EMEA 10,146 15,288 (5,142) (34)% 38,074 47,207 (9,133) (19)% Asia-Pacific 3,101 5,241 (2,140) (41)% 18,328 15,488 2,840 18% Unallocated corporate (7,623) (8,790) 1,167 13% (25,209) (26,891) 1,682 6% Total $ 18,984 $ 27,321 $ (8,337) (31)% $ 67,787 $ 76,368 $ (8,581) (11)% Americas Americas Operating Income – Three Months Ended – May 31, 2022 Compared to May 31, 2021 Income from operations for the Americas decreased to $13.4 million, down $2.2 million, or 14%, due to a lower gross margin, partially offset by a $1.4 million increase in sales and lower operating expenses. Gross margin for the Americas segment decreased from 51.2% to 45.8% primarily due to increases in the costs of petroleum-based specialty chemicals and higher warehousing, distribution and freight costs. In addition, gross margin was unfavorably impacted by higher costs at our third-party manufacturers due to supply chain constraints and inflationary impacts, as well as unfavorable changes in our sales mix and increased costs of aerosol cans . These unfavorable impacts to gross margin were partially offset by the favorable impacts of price increases that were implemented during the first nine months of fiscal year 2022. Operating expenses decreased period over period primarily due to lower accrued incentive compensation, partially offset by increased headcount and salaries, as well as higher travel and meeting expenses. Operating income as a percentage of net sales decreased from 26.0% to 21.7% period over period . Americas Operating Income – Nine Months Ended – May 31, 2022 Compared to May 31, 2021 Income from operations for the Americas decreased to $36.6 million, down $4.0 million, or 10%, primarily due to a lower gross margin, partially offset by a $11.9 million increase in sales. Gross margin for the Americas segment decreased from 52.9% to 47.0% 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. Gross margin was also unfavorably impacted by unfavorable changes in sales mix and increases in the discounts that we provide to our customers . These unfavorable impacts to gross margin were partially offset by the favorable impacts of price increases that were implemented during the first nine months of fiscal year 2022. Operating expenses remained relatively constant period over period. Although operating expenses increased 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, these increases were almost entirely offset by lower accrued incentive compensation and lower A&P expenses. Operating income as a percentage of net sales decreased from 25.3% to 21.2% period over period . ‎ 32 EMEA EMEA Operating Income – Three Months Ended – May 31, 2022 Compared to May 31, 2021 Income from operations for the EMEA segment decreased to $10.1 million, down $5.1 million, or 34%, primarily due to a $9.1 million decrease in sales and lower gross margin, partially offset by a decrease in operating expenses. Gross margin for the EMEA segment decreased from 54.4% to 49.0% primarily due to the combined unfavorable impacts of increased costs of petroleum-based specialty chemicals and aerosol cans. In addition, gross margin was also unfavorably impacted by increased warehousing, distribution and freight costs, due to supply chain constraints and inflationary impacts. These unfavorable impacts to gross margin were partially offset by price increases that were implemented over the last twelve months . Operating expenses decreased $2.5 million primarily due to lower accrued incentive compensation, partially offset by higher travel and meeting expenses during the period. Operating income as a percentage of net sales decreased from 26.1% to 20.5% period over period . EMEA Operating Income – Nine Months Ended – May 31, 2022 Compared to May 31, 2021 Income from operations for the EMEA segment decreased to $38.1 million, down $9.1 million, or 19%, primarily due to a lower gross margin and a $2.1 million decrease in sales, partially offset by a decrease in operating expenses. Gross margin for the EMEA segment decreased from 56.5% to 50.9% primarily due to the combined unfavorable impacts of increased costs of petroleum-based specialty chemicals and aerosol cans. In addition, gross margin was also unfavorably impacted by increased warehousing, distribution and freight costs due to supply chain constraints and inflationary impacts. 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 decreased $1.0 million primarily due to lower accrued incentive compensation, partially offset by increased headcount and salaries, higher travel and meeting expenses, higher A&P expenses and higher outbound freight costs . Operating income as a percentage of net sales decreased from 28.9% to 23.6% period over period . Asia-Pacific Asia-Pacific Operating Income – Three Months Ended – May 31, 2022 Compared to May 31, 2021 Income from operations for the Asia-Pacific segment decreased to $3.1 million, down $2.1 million, or 41%, primarily due to a $5.0 million decrease in sales and a lower gross margin, partially offset by a decrease in operating expenses. Gross margin for the Asia-Pacific segment decreased from 55.3% to 51.8% primarily due to the combined unfavorable impacts of increases to the cost of petroleum-based specialty chemicals and aerosol cans as well as increases in advertising, promotional and other discounts given to our customers . These unfavorable impacts to gross margin were partially offset by price increases that were implemented during the first nine months of fiscal year 2022 . Operating expenses decreased $1.1 million from period to period primarily due lower A&P expenses and lower miscellaneous expenses. Operating income as a percentage of net sales decreased from 29.5% to 24.3% period over period. Asia-Pacific Operating Income – Nine Months Ended – May 31, 2022 Compared to May 31, 2021 Income from operations for the Asia-Pacific segment increased to $18.3 million, up $2.8 million, or 18%, primarily due to a $5.8 million increase in sales and decreased operating expenses, partially offset by a lower gross margin. Gross margin for the Asia-Pacific segment decreased from 56.3% to 54.4% primarily due to combined unfavorable impacts of increases to the cost of petroleum-based specialty chemicals and aerosol cans, as well as increases in advertising, promotional and other discounts given to our customers . These unfavorable impacts to gross margin were partially offset by price increases that were implemented during the first nine months of fiscal year 2022 . Operating expenses decreased $0.6 million from period to period primarily due to lower accrued incentive compensation and lower miscellaneous expenses from period to period . Operating income as a percentage of net sales increased from 31.4% to 33.3% period over period . ‎ 33 Non-Operating Items The following table summarizes non-operating income and expenses for our consolidated operations (in thousands): Three Months Ended May 31, Nine Months Ended May 31, 2022 2021 Change 2022 2021 Change Interest income $ 27 $ 21 $ 6 $ 73 $ 59 $ 14 Interest expense $ 669 $ 615 $ 54 $ 1,902 $ 1,795 $ 107 Other income (expense), net $ (42) $ 183 $ (225) $ (119) $ 513 $ (632) Provision for income taxes $ 3,820 $ 5,904 $ (2,084) $ 13,296 $ 13,325 $ (29) Interest Income Interest income was not significant during the three and nine months ended May 31, 2022 and 2021. Interest Expense Interest expense was relatively constant during the three and nine months ended May 31, 2022 and 2021 . Other Income (Expense), Net Other income (expense), net was not significant during the three and nine months ended May 31, 2022 and 2021 . Other income (expense), net changed by $0.6 million for the nine months ended May 31, 2022 compared to the corresponding period of the prior fiscal year primarily due to fluctuations in the foreign currency exchange rates for both the U.S. Dollar and the Euro against the Pound Sterling. Provision for Income Taxes The provision for income taxes was 20.9% and 21.9% of income before income taxes for the three months ended May 31, 2022 and 2021, respectively. The decrease in the effective income tax rate from period to period was primarily due changes in the expected timing and amounts of executive compensation in future periods which impacts deductible expenses. The provision for income taxes was 20.2% and 17.7% of income before income taxes for the nine months ended May 31, 2022 and 2021, respectively. The increase in the effective income tax rate from period to period was primarily due to an increase in nondeductible performance-based compensation expense. Net Income Net income was $14.5 million, or $1.07 per common share on a fully diluted basis, for the three months ended May 31, 2022 compared to $21.0 million, or $1.52 per common share on a fully diluted basis, for the corresponding period of the prior fiscal year. Changes in foreign currency exchange rates had an unfavorable impact of $0.6 million on consolidated net income for the three months ended May 31, 2022 compared to the corresponding period of the prior fiscal year. Thus, on a constant currency basis, net income would have decreased $5.9 million, or 28%, from period to period. Net income was $52.5 million, or $3.82 per common share on a fully diluted basis, for the nine months ended May 31, 2022 compared to $61.8 million, or $4.48 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 nine months ended May 31, 2022 compared to the corresponding period of the prior fiscal year. ‎ 34 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. Our financial results and operations continue to be impacted by increased global supply chain constraints and an inflationary environment, both of which have significantly lowered our gross margin percentage over the last twelve months and moved us well below our target of 55%. Although we have been implementing strategic sales price increases across all segments at varying times in response to increased costs, it will take time before the full impact of these sales price increases are reflected in our reported results. In addition, it is difficult to determine how long these supply chain and inflationary conditions will exist and if they will worsen or improve over time. However, the targets for gross margin and these other performance measures are long-term in nature and we expect to make progress towards achieving them over time. For more detailed information pertaining to recent trends and economic conditions and the actions we are taking to respond to them, please see the section titled “Significant Developments”. The following table summarizes the results of these performance measures for the periods presented: Three Months Ended May 31, Nine Months Ended May 31, 2022 2021 2022 2021 Gross margin - GAAP 48% 53% 50% 55% Cost of doing business as a percentage of net sales - non-GAAP 31% 32% 31% 33% EBITDA as a percentage of net sales - non-GAAP (1) 17% 21% 19% 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: ‎ 35 Cost of Doing Business (in thousands, except percentages) Three Months Ended May 31, Nine Months Ended May 31, 2022 2021 2022 2021 Total operating expenses - GAAP $ 40,001 $ 45,137 $ 125,186 $ 128,343 Amortization of definite-lived intangible assets (358) (364) (1,081) (1,084) Depreciation (in operating departments) (1,108) (1,098) (3,318) (3,217) Cost of doing business $ 38,535 $ 43,675 $ 120,787 $ 124,042 Net sales $ 123,667 $ 136,405 $ 388,399 $ 372,869 Cost of doing business as a percentage of net sales - non-GAAP 31% 32% 31% 33% EBITDA (in thousands, except percentages) Three Months Ended May 31, Nine Months Ended May 31, 2022 2021 2022 2021 Net income - GAAP $ 14,480 $ 21,006 $ 52,543 $ 61,820 Provision for income taxes 3,820 5,904 13,296 13,325 Interest income (27) (21) (73) (59) Interest expense 669 615 1,902 1,795 Amortization of definite-lived intangible assets 358 364 1,081 1,084 Depreciation 1,700 1,444 5,059 4,182 EBITDA $ 21,000 $ 29,312 $ 73,808 $ 82,147 Net sales $ 123,667 $ 136,405 $ 388,399 $ 372,869 EBITDA as a percentage of net sales - non-GAAP 17% 21% 19% 22% Liquidity and Capital Resources Overview Our financial condition and liquidity remain strong. Although there continues to be uncertainty related to the ongoing and 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 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 May 31, 2022, $42.6 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 $15.6 million is denominated in U.S. Dollar and classified as short-term. In the United States, we held 36 $68.4 million in fixed rate long-term borrowings as of May 31, 2022, consisting of senior notes under our Note Agreement. We paid $0.8 million in principal payments on our Series A Notes during the first nine months of fiscal year 2022. There were no other letters of credit outstanding or restrictions on the amount available on our line of credit or notes. 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 May 31, 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 May 31, 2022, we had a total of $40.8 million in cash and cash equivalents. We do not foresee any ongoing issues with repaying our borrowings and we closely monitor the use of this credit facility. 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 $52.6 million remains available for the repurchase of common shares at May 31, 2022. Cash Flows The following table summarizes our cash flows by category for the periods presented (in thousands): Nine Months Ended May 31, 2022 2021 Change Net cash provided by operating activities $ 7,656 $ 63,975 $ (56,319) Net cash used in investing activities (6,738) (10,371) 3,633 Net cash used in financing activities (43,259) (30,615) (12,644) Effect of exchange rate changes on cash and cash equivalents (2,821) 911 (3,732) Net (decrease) increase in cash and cash equivalents $ (45,162) $ 23,900 $ (69,062) Operating Activities Net cash provided by operating activities decreased $56.3 million to $7.7 million for the nine months ended May 31, 2022. Cash flows from operating activities depend heavily on operating performance and changes in working capital. Our primary source of operating cash flows for the nine months ended May 31, 2022 was net income of $52.5 million, which decreased approximately $9.3 million from period to period. Although the changes in adjustments to reconcile net income to cash did not have a significant impact on net cash provided by operating activities in total, decreases in stock-based compensation due to a lower level of expense associated with performance-based awards were almost completely offset by various other adjustments, primarily an increase in depreciation expense. Change in our working capital, which decreased net cash provided by operating activities was primarily attributable to increases in inventory, most significantly in the Americas segment but also in the EMEA segment. This increase in inventory was due to actions we took to stock certain raw materials and finished goods to increase the flexibility and capacity within our 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. These changes in working capital that decreased net cash provided by operating activities were partially offset by lower increases in trade accounts receivable balances during the first nine months of fiscal year 2022 compared to the corresponding period of the prior fiscal year primarily due to lower sales during the third quarter of fiscal year 2022. Investing Activities Net cash used in investing activities decreased $3.6 million to $6.7 million for the nine months ended May 31, 2022, 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, 37 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 $12.6 million to $43.3 million for the nine months ended May 31, 2022. This change was primarily due to the resumption of treasury stock purchases in November 2021, resulting in increased treasury stock purchases of $22.4 million. In addition, increases in dividends paid to our shareholders of $3.0 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. Offsetting these increases in cash outflows from period to period were proceeds provided by the Company’s autoborrow agreement of $15.6 million during the first nine months of the fiscal year, whereas no draws were made on our autoborrow agreement in the corresponding period of the prior fiscal year. In the first nine months 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 nine months of fiscal year 2021 compared to the $15.6 million in net proceeds from our revolving credit facility during the first nine months 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 $2.8 million for the nine months ended May 31, 2022 as compared to an increase in cash of $0.9 million for the nine months ended May 31, 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 May 31, 2022, no such commitments were outstanding . ‎ 38 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 . Dividends On June 21, 2022, the Company’s Board of Directors declared a cash dividend of $0.78 per share payable on July 29, 2022 to shareholders of record on July 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 There have been no recently issued accounting standards that will have a material impact on our consolidated financial statements and related disclosures. 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.