What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-07-10 compared with 2023-04-06 · 300 added, 251 removed, 281 unchanged (66% of the section changed)

22 unchanged sentences

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

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

changes in the political conditions or relations between the United States and other nations;

the impacts from inflationary trends and supply chain constraints;

changes in interest rates;

and forecasted foreign currency exchange rates and commodity prices.

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

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

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®, X-14®, 2000 Flushes®, Carpet Fresh®, no vac®, Spot Shot®, 1001®, Lava® and Solvol®.

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

The following summarizes the financial and operational highlights for our business during the six months ended February 28, 2023:

 Consolidated net sales decreased $9.6 million, or 4%, compared to the corresponding period of the prior fiscal year.

The following summarizes the financial and operational highlights for our business during the nine months ended May 31, 2023:

• Consolidated net sales increased $8.4 million, or 2%, compared to the corresponding period of the prior fiscal year.

Increases in the average selling price of our products positively impacted net sales by approximately $71.5 million from period to period, primarily due to sales price increases implemented across all segments over the last twelve months.

These favorable impacts were significantly offset by decreases in sales volume, which unfavorably impacted net sales by approximately $44.7 million from period to period.

These favorable impacts were partially offset by decreases in sales volume, which unfavorably impacted net sales by approximately $44.2 million from period to period.

Changes to net sales attributable to volumes and average selling price of our products are impacted by differences in sales mix related to products, markets and distribution channels from period to period.

In addition, changes in foreign currency exchange rates from period to period had an unfavorable impact of $15.1 million on consolidated net sales for the first half of fiscal year 2023.

In addition, changes in foreign currency exchange rates from period to period had an unfavorable impact of $18.9 million on consolidated net sales for the first nine months of fiscal year 2023.

On a constant currency basis, net sales would have increased by $27.3 million, or 7%, from period to period.

This unfavorable impact from changes in foreign currency exchange rates mainly came from our EMEA segment, which accounted for 34% of our consolidated sales for the six months ended February 28, 2023.

 Gross profit as a percentage of net sales increased to 51.1% compared to 50.6% for the corresponding period of the prior fiscal year primarily due to the positive impacts of price increases implemented over the last twelve months, offset by ongoing global supply chain challenges, including the increased cost of raw materials and constraints that began during the COVID-19 pandemic.

This unfavorable impact from changes in foreign currency exchange rates mainly came from our EMEA segment, which accounted for 36% of our consolidated sales for the nine months ended May 31, 2023.

• Gross profit as a percentage of net sales increased to 50.9% compared to 49.7% for the corresponding period of the prior fiscal year primarily due to the positive impacts of price increases implemented over the last twelve months, offset by ongoing global supply chain challenges, including the increased cost of raw materials, and changes in consumer behavior as a result of inflation.

These ongoing challenges have resulted in increased inflation rates globally.

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Impact of Global Supply Chain Constraints and Inflation on Our Business

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

The pandemic 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.

Such restrictions have sporadically impacted various regions, particularly in certain countries within our Asia-Pacific segment.

Fluctuations in global economic conditions continue to impact end-user demand for our products in certain regions at varying times and are difficult to predict.

These changes in demand, including those resulting from shifts in consumer spending patterns as a result of inflation, may significantly impact our financial results from period to period .

In addition, 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.

Our financial results and operations continue to be impacted by certain ongoing macroeconomic factors that have been affecting global economies, the rate of inflation, supply chains, distribution networks and consumer behavior around the world.

For example, 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.

This inflationary environment started to negatively impact our gross margin and financial results in fiscal year 2021 and these trends have continued to increase our cost of goods sold since that time.

Some of the supply chain challenges that we have experienced in recent fiscal years include general aerosol production capacity constraints and competition for such capacity by other companies who also utilize third-party manufacturers for their aerosol production.

These challenges have periodically resulted in us not being able to meet demand for our products by customers and end-users in certain markets at various times.

We have continued to actively manage periodic supply chain constraints and transportation disruptions and implement various initiatives with our existing third-party manufacturers as well as 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, components and finished goods, given the current challenges within supply chain and increased lead times required by suppliers.

As a result of these initiatives, we experienced increases in the capacity and flexibility of our supply chain throughout fiscal year 2022 and this has improved further during the first half of fiscal year 2023, particularly in the Americas segment.

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 maintenance of higher inventory levels, 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 the unfavorable impact of increased costs to our gross margin, price increases have been implemented across all of our markets and geographies in fiscal year 2022 and in the first half of fiscal year 2023 and we intend to implement further price increases in certain regions for the remainder of fiscal year 2023.

In response to these global supply chain issues, we implemented various initiatives.

These initiatives included improvements within our existing third-party manufacturer network, as well as identifying and onboarding new third-party manufacturers, particularly in the Americas and EMEA segments.

As a result of these initiatives, we experienced increases in the capacity and flexibility of our supply chain and have also been able to reduce our inventory levels since they peaked during the first quarter of fiscal year 2023.

Although it is not possible to estimate the costs or impacts associated with potential future supply chain disruptions or the inflationary environment that continues to impact our raw material costs, we believe that the changes we continue to implement will have a positive impact on our ability to better manage any future disruptions.

Although we are seeing the favorable impacts of these price increases, sales volumes are often impacted unfavorably in the short term as customers and end users adjust to increased sales prices.

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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 throughout the first half of fiscal year 2023 and this event has continued to impact global economies, particularly in Europe.

and other countries imposed various economic sanctions against Russia and this event has continued to impact global economies, particularly in Europe.

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 had an unfavorable impact on our sales.

It is not possible to predict the direct and indirect impacts of this evolving situation and its effect on global economies in future periods.

We suspended selling our products to markets in Russia and Belarus beginning in March 2022, which had and continues to have an unfavorable impact on our business.

In addition, we were temporarily unable to sell our products in Ukraine due to the disruption in the country, but sales to Ukraine resumed in the first quarter of fiscal year 2023.

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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.

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 exis t.

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

Results of Operations

Three and Six Months Ended February 28, 2023 Compared to Three and Six Months Ended February 28, 2022

Three and Nine Months Ended May 31, 2023 Compared to Three and Nine Months Ended May 31, 2022

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,

Three Months Ended May 31, Nine Months Ended May 31,

2023 2022 Change from

Prior Year 2023 2022 Change from

Dollars Percent Dollars Percent

Maintenance products $ 133,325 $ 115,494 $ 17,831 15 % $ 371,741 $ 363,425 $ 8,316 2 %

8,392 8,173 219 3 % 25,062 24,974 88 — %

Total net sales 141,717 123,667 18,050 15 % 396,803 388,399 8,404 2 %

Cost of products sold 69,955 64,682 5,273 8 % 194,708 195,426 (718) — %

Gross profit 71,762 58,985 12,777 22 % 202,095 192,973 9,122 5 %

Operating expenses 46,105 40,001 6,104 15 % 135,606 125,186 10,420 8 %

Income from operations $ 25,657 $ 18,984 $ 6,673 35 % $ 66,489 $ 67,787 $ (1,298) (2) %

Net income $ 18,895 $ 14,480 $ 4,415 30 % $ 49,418 $ 52,543 $ (3,125) (6) %

EPS – diluted $ 1.38 $ 1.07 $ 0.31 29 % $ 3.62 $ 3.82 $ (0.20) (5) %

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

Three Months Ended February 28,

Six Months Ended February 28,

Three Months Ended May 31, Nine Months Ended May 31,

2023 2022 Change from

Prior Year 2023 2022 Change from

Dollars Percent Dollars Percent

Americas $ 71,130 $ 61,453 $ 9,677 16 % $ 192,034 $ 172,238 $ 19,796 11 %

EMEA 52,524 49,450 3,074 6 % 140,105 161,068 (20,963) (13) %

Asia-Pacific 18,063 12,764 5,299 42 % 64,664 55,093 9,571 17 %

Total $ 141,717 $ 123,667 $ 18,050 15 % $ 396,803 $ 388,399 $ 8,404 2 %

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,

Three Months Ended May 31, Nine Months Ended May 31,

2023 2022 Change from

Prior Year 2023 2022 Change from

Dollars Percent Dollars Percent

Maintenance products $ 67,435 $ 57,778 $ 9,657 17 % $ 180,132 $ 160,171 $ 19,961 12 %

HCCP 3,695 3,675 20 1 % 11,902 12,067 (165) (1) %

Total $ 71,130 $ 61,453 $ 9,677 16 % $ 192,034 $ 172,238 $ 19,796 11 %

% of consolidated net sales 50 % 50 % 48 % 44 %

CC Net sales – non-GAAP (1)

$ 70,956 $ 61,453 $ 9,503 15 % $ 191,842 $ 172,238 $ 19,604 11 %

Currency impact on current period – non-GAAP $ 174 $ 192

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Change from Prior Year

First Quarter

Second Quarter

Quarter Second Quarter Third Quarter Year to Date

Increase in average selling price (1)

$ 13.6 $ 12.0 $ 11.0 $ 36.6

Decrease in sales volume (1)

(11.7) (3.8) (1.5) (17.0)

Currency impact on current period – non-GAAP (0.2) 0.2 0.2 0.2

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(1) Management’s estimates of changes in net sales attributable to volumes and the average selling price of our products are impacted by differences in sales mix related to products, markets and distribution channels from period to period.

Americas Sales – Three Months Ended – February 28, 2023 Compared to February 28, 2022

Americas Sales – Three Months Ended – May 31, 2023 Compared to May 31, 2022

Net sales of maintenance products in the Americas segment increased due to the following (by region):

• United States (“U.S.”) sales increased $9.0 million, or 21%.

WD-40 Multi-Use Product sales increased by $6.3 million, or 21%, primarily due to price increases and improved supply chain capacity from period to period, which was partially offset by lower demand which resulted in decreased sales volume.

WD-40 Multi-Use Product sales increased by $6.8 million, or 20%, primarily due to price increases, which was partially offset by slightly lower demand which resulted in decreased sales volume.

3-IN-ONE products are sourced at certain third-party manufacturers that were impacted significantly by global supply chain constraints in the prior period.

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3-IN-ONE product sales increased by $1.4 million, or 77%, primarily due to these improvements that resulted in increased sales volume, as well as price increases from period to period.

WD-40 Specialist sales increased by $0.7 million, or 12%, primarily due to price increases implemented during the last twelve months, partially offset by lower demand which resulted in decreased sales volumes.

 Canada sales increased $0.5 million, or 12%, due to the favorable impact of price increases which was partially offset by unfavorable changes in foreign currency exchange rates and weaker economic conditions that resulted in lower levels of demand and decreased sales volume.

 Latin America sales increased $0.3 million, or 3%, primarily due to higher sales in our direct market in Mexico as a result of increased distribution, successful promotional programs and price increases, as well as the favorable impact of changes in foreign currency exchange rates.

These favorable impacts were significantly offset by decreased sales

volumes to marketing distributors due to weaker economic conditions in certain regions that resulted in lower levels of demand.

Net sales of homecare and cleaning products in the Americas decreased primarily due to the following:

 The unfavorable impact of lower demand for certain brands was partially offset by price increases and the improvement in the capacity and flexibility of our supply chain from period to period.

WD-40 Specialist sales increased by $0.8 million, or 13%, primarily due to price increases implemented during the last twelve months.

Sales volumes for WD-40 Specialist were relatively constant from period to period.

• Latin America sales increased $1.7 million, or 18%, primarily due to marketing distributors purchasing a higher level of our product in advance of a price increase that went into effect in June 2023, which increased purchases from these customers from period to period.

Sales in our direct market in Mexico also increased as a result of price increases, as well as the favorable impact of changes in foreign currency exchange rates.

These favorable impacts in our direct market in Mexico were partially offset by decreased sales volumes due to significant

purchase activity by customers in February 2023 in anticipation of the price increases implemented in March 2023, which lowered sales volumes in the third quarter of fiscal year 2023.

• Canada sales decreased $1.1 million, or 23%, primarily due to lower sales volume.

In the third quarter of the prior fiscal year, we experienced a higher level of demand in the industrial channel of Western Canada as a result of increased activity levels of end-users in the oil industry due to market conditions within the industry at that time.

Demand in the industrial channel of Western Canada was significantly lower in the third quarter of fiscal year 2023.

These unfavorable impacts were partially offset by price increases implemented during the last twelve months.

Net sales of homecare and cleaning products in the Americas remained relatively constant primarily due to the following:

• The unfavorable impact of lower demand for certain brands was more than offset by price increases and the improvement in the capacity and flexibility of our supply chain from period to period.

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

For the three months ended February 28, 2023, 76% of sales came from the U.S., and 24% of sales came from Canada and Latin America combined compared to the distribution for the three months ended February 28, 2022 when 74% of sales came from the U.S., and 26% of sales came from Canada and Latin America.

Americas Sales – Six Months Ended – February 28, 2023 Compared to February 28, 2022

For the three months ended May 31, 2023, 77% of sales came from the U.S., and 23% of sales came from Canada and Latin America combined compared to the distribution for the three months ended May 31, 2022 when 75% of sales came from the U.S., and 25% of sales came from Canada and Latin America.

Americas Sales – Nine Months Ended – May 31, 2023 Compared to May 31, 2022

Net sales of maintenance products in the Americas segment increased due to the following (by region):

sales increased $22.6 million, or 20%.

WD-40 Multi-Use Product sales increased by $7.9 million, or 13%, primarily due to price increases from period to period, as well as our improved supply chain capacity.

These positive effects were partially offset by a lower level of customer orders and promotional programs as customers adjust to the price increases, which resulted in decreased sales volume.

WD-40 Specialist and 3-IN-ONE products are sourced at certain third-party manufacturers that were impacted significantly by global supply chain constraints in the prior period.

WD-40 Multi-Use Product sales increased by $14.7 million, or 15%, primarily due to price increases, as well as our improved supply chain capacity.

WD-40 Specialist and 3-IN-ONE products are sourced at certain third-party manufacturers that were impacted significantly by global supply chain constraints in the prior period, particularly in the first half of fiscal year 2022.

However, adjustments we have made in our supply chain to increase the production capacity of our most significant products, including WD-40 Specialist and 3-IN-ONE, improved the availability of these products from period to period.

WD-40 Specialist and 3-IN-ONE sales increased by $4.4 million, or 28%, and $3.5 million, or 73%, respectively, primarily due to these improvements that resulted in increased sales volume, as well as price increases implemented during the last twelve months.

 Latin America sales decreased $3.8 million, or 16%, primarily due to the timing of marketing distributor orders from period to period.

Sales were unfavorably impacted due to marketing distributors purchasing a higher level of our product in advance of a price increase that went into effect in late fiscal year 2022, which lowered purchases from these customers during the first half of fiscal year 2023.

Conversely, sales in the first half of fiscal year 2022 were favorably impacted due to significant purchase activity in advance of an earlier price increase that went into effect in November 2021.

In addition, sales were unfavorably impacted due to weaker economic conditions in certain marketing distributor regions, partially offset by sales increases in our direct market in Mexico, as discussed above in the section for the three months ended February 28, 2023.

 Canada sales increased $0.6 million, or 10%, due to the same factors discussed above in the section for the three months ended February 28, 2023.

Net sales of homecare and cleaning products in the Americas decreased primarily as discussed above in the section for the three months ended February 28, 2023.

For the six months ended February 28, 2023, 77% of sales came from the U.S., and 23% of sales came from Canada and Latin America combined compared to the distribution for the six months ended February 28, 2022 when 72% of sales came from the U.S., and 28% of sales came from Canada and Latin America.

• Latin America sales decreased $2.1 million, or 6%, primarily due to weaker economic conditions in many countries within this region, as well as the timing of marketing distributor orders from period to period.

Conversely, marketing distributor sales in the first half of the prior fiscal year 2022 were favorably impacted due to significant purchase activity in advance of an earlier price increase that went into effect in November 2021.

These unfavorable impacts were partially offset by higher sales in our direct market in Mexico, primarily due to favorable impacts of changes in foreign currency exchange rates and price increases from period to period, partially offset by lower sales volumes as a result of lower demand.

• Canada sales decreased $0.5 million, or 4%, due to unfavorable changes in foreign currency exchange rates and weaker economic conditions that resulted in lower levels of demand and decreased sales volume, particularly during the third quarter of fiscal year 2023, as a result of factors discussed above in the section for the three months ended May 31, 2023.

These unfavorable impacts were partially offset by price increases from period to period.

Net sales of homecare and cleaning products in the Americas remained relatively constant as a result of lower demand that resulted in decreased sales volumes, which was almost entirely offset by price increases implemented over the last twelve months.

For the nine months ended May 31, 2023, 77% of sales came from the U.S., and 23% of sales came from Canada and Latin America combined compared to the distribution for the nine months ended May 31, 2022 when 73% of sales came from the U.S., and 27% of sales came from Canada and Latin America.

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

Three Months Ended February 28,

Six Months Ended February 28,

Three Months Ended May 31, Nine Months Ended May 31,

2023 2022 Change from

Prior Year 2023 2022 Change from

Dollars Percent Dollars Percent

Maintenance products $ 49,721 $ 47,289 $ 2,432 5 % $ 132,801 $ 154,825 $ (22,024) (14) %

HCCP 2,803 2,161 642 30 % 7,304 6,243 1,061 17 %

Total $ 52,524 $ 49,450 $ 3,074 6 % $ 140,105 $ 161,068 $ (20,963) (13) %

% of consolidated net sales 37 % 40 % 36 % 42 %

CC Net sales – non-GAAP (1)

$ 55,794 $ 49,450 $ 6,344 13 % $ 156,244 $ 161,068 $ (4,824) (3) %

Currency impact on current period – non-GAAP $ (3,270) $ (16,139)

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Change from Prior Year

First Quarter

Second Quarter

Quarter Second Quarter Third Quarter Year to Date

Increase in average selling price (1)

$ 9.5 $ 11.1 $ 9.7 $ 30.3

Decrease in sales volume (1) – Russian markets

(5.0) (3.3) - (8.3)

Decrease in sales volume (1) – All other markets

(13.2) (10.2) (3.5) (26.9)

Currency impact on current period – non-GAAP (8.0) (4.9) (3.2) (16.1)

Decrease in net sales

(Decrease) increase in net sales $ (16.7) $ (7.3) $ 3.0 $ (21.0)

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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, 2023 Compared to February 28, 2022

Net sales decreased in the EMEA segment primarily due to the following (by market and region):

EMEA Sales – Three Months Ended – May 31, 2023 Compared to May 31, 2022

Net sales increased in the EMEA segment primarily due to the following (by market and region):

Direct Markets – EMEA (68% of net sales QTD FY2023 vs 71% QTD FY2022)

 Sales in our direct markets decreased $0.7 million, or 2%, primarily due to sales volume decreases and unfavorable changes in foreign currency exchange rates of $3.6 million as a result of the weakening of the Pound Sterling, the functional currency of our U.K.

• Sales in our direct markets increased $0.8 million, or 2%, primarily due to price increases across all direct markets implemented over the last twelve months.

The favorable impacts were significantly offset by unfavorable changes in foreign currency exchange rates of $2.3 million as a result of the weakening of the Pound Sterling, the functional currency of our U.K.

subsidiary, against the U.S.

The unfavorable impacts were significantly offset by price increases across all direct markets and a sales volume increase in the United Kingdom direct market, partially due to a higher level of promotional programs.

 Most direct markets experienced sales volume decreases due to reduced demand compared to the prior period, driven by weaker market and economic conditions as well as a lower level of customer orders and promotional programs as customers adjust to these price increases implemented in late fiscal year 2022 and the first half of fiscal year 2023.

• In addition, most direct markets experienced sales volume decreases due to reduced demand compared to the prior period, driven by weaker market and economic conditions as well as a lower level of customer orders and

promotional programs as customers adjust to the price increases implemented in late fiscal year 2022 and the first half of fiscal year 2023.

Marketing Distributors – EMEA (32% of net sales QTD FY2023 vs 29% QTD FY2022)

 Distributor market sales decreased $6.6 million, or 35%, in EMEA markets wherein we utilize a marketing distributor model (“distributor markets”), in which products are sold to marketing distributors who in turn sell to wholesalers and retailers.

 Sales in Russia decreased $3.3 million from period to period 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.

 In addition, sales in our distributor markets were unfavorably impacted by $1.2 million due to the weakening of the Pound Sterling, the functional currency of our U.K.

• Sales increased $2.3 million, or 16%, in EMEA markets wherein we utilize a marketing distributor model (“distributor markets”), in which products are sold to marketing distributors who in turn sell to wholesalers and retailers.

• Sales in distributor markets increased primarily due to the timing of customer orders as well as price increases implemented over the last twelve months, particularly in India and Turkey, which were up $1.5 million and $0.8 million, respectively.

• Sales in our distributor markets were unfavorably impacted by $1.0 million due to the weakening of the Pound Sterling, the functional currency of our U.K.

subsidiary, against the U.S.

However, this unfavorable impact to sales in distributor markets was partially offset by the favorable impacts of certain sales denominated in currencies other than the Pound Sterling, which strengthened against the Pound Sterling from period to period.

 Sales in distributor markets also decreased due to lower sales volumes of maintenance products in most distributor markets, particularly India and Turkey, which were down $1.3 million and $1.0 million, respectively.

 The decreases in distributor market sales were partially offset by price increases implemented over the last twelve months.

EMEA Sales – Six Months Ended – February 28, 2023 Compared to February 28, 2022

However, this unfavorable impact to sales in distributor markets was partially offset by the favorable impact of certain sales denominated other than in Pound Sterling, which strengthened against the Pound Sterling from period to period.

• The increases in distributor market sales were partially offset by lower sales volumes of maintenance products in most distributor markets and unfavorable changes in sales mix.

EMEA Sales – Nine Months Ended – May 31, 2023 Compared to May 31, 2022

Net sales decreased in the EMEA segment primarily due to the following (by market and region):

Direct Markets – EMEA (71% of net sales YTD FY2023 vs 66% YTD FY2022)

 Sales in our direct markets decreased $8.4 million, or 12%, primarily due to unfavorable changes in foreign currency exchange rates of $9.3 million as a result of the weakening of the Pound Sterling, the functional currency of our U.K.

• Sales in our direct markets decreased $7.6 million, or 7%.

Changes in foreign currency exchange rates unfavorably impacted net sales by $11.5 million as a result of the weakening of the Pound Sterling, the functional currency of our U.K.

subsidiary, against the U.S.

 In addition, decreases in sales volume unfavorably impacted sales period to period.

In most direct markets, these volume decreases were due to reduced demand compared to the prior period, due to the same factors discussed above in the section for the three months ended February 28, 2023.

 The unfavorable impacts were significantly offset by price increases across all direct markets.

• In addition, decreases in sales volume in most direct markets and unfavorable changes in sales mix in the U.K.

unfavorably impacted sales period to period.

In most direct markets, these volume decreases were due to reduced demand compared to the prior period, due to the same factors discussed above in the section for the three months ended May 31, 2023.

• The unfavorable impacts were partially offset by price increases across all direct markets.

Marketing Distributors – EMEA (29% of net sales YTD FY2023 vs 34% YTD FY2022)

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subsidiary, against the U.S.

 Sales in distributor markets also decreased due to lower sales volumes of maintenance products in most distributor markets, particularly India, Poland and the Czech Republic, which were down $2.3 million, $1.5 million and $1.3 million, respectively.

 The decreases in distributor market sales were partially offset by price increases implemented over the last twelve months.

• Sales in distributor markets also decreased due to lower sales volumes of maintenance products in most distributor markets, particularly Poland, Kuwait and India, which were down $1.4 million, $0.9 million and $0.8 million, respectively.

• The decreases in distributor market sales were partially offset by price increases implemented over the last twelve months and favorable changes in sales mix.

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,

Three Months Ended May 31, Nine Months Ended May 31,

Prior Year Change from

2023 2022 Dollars Percent 2023 2022 Dollars Percent

Maintenance products $ 16,169 $ 10,427 $ 5,742 55 % $ 58,808 $ 48,429 $ 10,379 21 %

HCCP 1,894 2,337 (443) (19) % 5,856 6,664 (808) (12) %

Total $ 18,063 $ 12,764 $ 5,299 42 % $ 64,664 $ 55,093 $ 9,571 17 %

% of consolidated net sales 13 % 10 % 16 % 14 %

CC Net sales – non-GAAP (1)

$ 18,880 $ 12,764 $ 6,116 48 % $ 67,630 $ 55,093 $ 12,537 23 %

Currency impact on current period – non-GAAP $ (817) $ (2,966)

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Change from Prior Year

First Quarter

Second Quarter

Quarter Second Quarter Third Quarter Year to Date

Increase in average selling price (1)

$ 3.1 $ 0.9 $ 0.6 $ 4.6

Increase (decrease) in sales volume (1)

3.5 (1.0) 5.5 8.0

Currency impact on current period – non-GAAP (1.4) (0.8) (0.8) (3.0)

1 unchanged sentence

Asia-Pacific Sales – Three Months Ended – February 28, 2023 Compared to February 28, 2022

Net sales in the Asia-Pacific segment decreased primarily due to the following (by market and region):

 Asia distributor markets sales decreased $1.1 million, or 11%, primarily due to lower sales of WD-40 Multi-Use Product driven by weaker market and economic conditions and distributors that had purchased product in advance of price increases implemented in December 2022, both of which lowered sales volumes in the second quarter of fiscal year 2023, particularly in Taiwan, Korea, Thailand and Malaysia.

These unfavorable impacts were partially offset by the favorable impacts of price increases.

 China sales were relatively constant from period to period, as the favorable impact of price increases was almost completely offset by the unfavorable impact of changes in foreign currency exchange rates.

Asia-Pacific Sales – Three Months Ended – May 31, 2023 Compared to May 31, 2022

Net sales in the Asia-Pacific segment increased primarily due to the following (by market and region):

• Asia distributor markets sales increased $4.8 million, or 151%, as a result of supply chain disruptions caused by the COVID-19 pandemic during the third quarter of the prior fiscal year.

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 severely restricted from manufacturing or distributing products for our Asia distributor market in April and May of 2022.

All regions in these markets registered higher net sales from period to period, as no such disruptions were in place during the third quarter of fiscal year 2023.

In addition, sales were positively impacted by sales price increases from period to period.

• China sales increased $1.3 million, or 39%, also due to the lockdown in Shanghai during the comparative period 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 of fiscal year 2022.

In addition, sales were favorably impacted by sales price increases from period to period.

These favorable impacts were partially offset by unfavorable changes

in foreign currency exchange rates.

On a constant currency basis, sales in China would have increased $1.7 million, or 50%.

 Australia sales increased 0.3 million, or 6%, primarily due to the favorable impact of price increases and successful promotional programs, which were partially offset by the unfavorable impact of changes in foreign currency exchange rates and decreased sales levels of homecare and cleaning products due to lower demand and decreased sales volume.

On a constant currency basis, sales in Australia would have increased $0.5 million, or 10%.

Asia-Pacific Sales – Six Months Ended – February 28, 2023 Compared to February 28, 2022

• Australia sales decreased $0.9 million, or 14%, primarily due to a decrease in sales volume of homecare and cleaning products and WD-40 Multi-Use Product driven by weaker market and economic conditions, as well as unfavorable changes in foreign currency exchange rates.

On a constant currency basis, sales in Australia would have decreased $0.4 million, or 6%.

These unfavorable impacts were partially offset by the favorable impact of price increases implemented over the last twelve months.

Asia-Pacific Sales – Nine Months Ended – May 31, 2023 Compared to May 31, 2022

Net sales in the Asia-Pacific segment increased primarily due to the following (by market and region):

 Asia distributor markets sales increased $2.7 million, or 14%, primarily due to higher sales of WD-40 Multi-Use Product as a result of successful promotional programs, the easing of COVID-19 lockdown measures, price increases implemented over the last twelve months and customers that purchased product in advance of additional price implemented in December 2022, all of which resulted in increased demand and higher sales volumes in most countries in the region early in fiscal year 2023.

These favorable impacts experienced in early fiscal year 2023 were partially offset by declines in sales during the second quarter of fiscal year 2023, as discussed above in the section for the three months ended February 28, 2023.

• Asia distributor markets sales increased $7.6 million, or 34%, primarily due to higher sales in the third quarter of 2023 due to the absence of COVID-19 lockdown measures as discussed above in the section for the three months ended May 31, 2023.

In addition, sales increased as a result of successful promotional programs and customers that purchased product in advance of price increases implemented in the first half of fiscal year 2023, all of which resulted in increased demand and higher sales volumes in most countries in the region early in fiscal year 2023.

Sales were also favorably impacted by price increases implemented over the last twelve months.

• China sales increased $2.5 million, or 16%, due to the success of promotional programs in the first half of fiscal year 2023 and price increases over the last twelve months.

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certain products related to these orders were not shipped until early fiscal year 2023.

In addition, sales were favorably impacted by the easing of COVID-19 lockdown measures as discussed above in the section for the three months ended May 31, 2023.

These favorable impacts were partially offset by unfavorable changes in foreign currency exchange rates.

On a constant currency basis, sales in China would have increased $4.2 million, or 26%.

 Australia sales increased $0.3 million, or 3% primarily due to higher sales of WD-40 Multi-Use Product as a result of price increases and successful promotional programs.

This favorable result was significantly offset by the unfavorable impact of changes in foreign currency exchange rates and decreased sales levels of homecare and cleaning products due to lower demand and decreased sales volume.

On a constant currency basis, sales in Australia would have increased $1.2 million, or 11%.

• Australia sales decreased $0.5 million, or 3% primarily due to the unfavorable impact of changes in foreign currency exchange rates and lower sales volumes, primarily due to lower demand of homecare and cleaning products in the region.

On a constant currency basis, sales in Australia would have increased $0.8 million, or 5% due to the favorable impact of price increases.

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

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

 O ur gross profit and gross margin may not be comparable to those of other consumer product companies, since some of these companies include all costs related to distribution of their products in cost of products sold, whereas we exclude the portion associated with amounts paid to third parties for shipment to our customers from our distribution centers and contract manufacturers and include these costs in selling, general and administrative expenses.

These costs totaled $4.2 million and $4.7 million for the three months ended February 28, 2023 and 2022, respectively, and $8.4 million and $9.5 million for the six months ended February 28, 2023 and 2022, respectively.

• Our gross profit and gross margin may not be comparable to those of other consumer product companies, since some of these companies include all costs related to distribution of their products in cost of products sold, whereas we exclude the portion associated with amounts paid to third parties for shipment to our customers from our distribution centers and contract manufacturers and include these costs in selling, general and administrative expenses.

These costs totaled $4.7 million for each of the three months ended May 31, 2023 and 2022, and $13.1 million and $14.2 million for the nine months ended May 31, 2023 and 2022, 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,

Three Months Ended May 31, Nine Months Ended May 31,

2023 2022 Change from

Prior Year 2023 2022 Change from

Gross profit $ 71,762 $ 58,985 $ 12,777 $ 202,095 $ 192,973 $ 9,122

Gross margin 50.6 % 47.7 % 290 bps (1)

50.9 % 49.7 % 120 bps (1)

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

Gross Margin – Three Months Ended – February 28, 2023 Compared to February 28, 2022

Gross Margin – Three Months Ended – May 31, 2023 Compared to May 31, 2022

Gross margin increased 290 bps primarily due to the following favorable impacts, significantly offset by unfavorable impacts:

Favorable/(Unfavorable)

Sales price increases implemented in all three segments at varying times during the last twelve months.

Changes in foreign currency exchange rates in the EMEA segment.

Higher costs of specialty chemicals used in the formulation of our products.

Higher costs of aerosol cans.

Higher filling fees paid to our third-party contract manufacturers, primarily in the Americas segment.

Gross Margin – Six Months Ended – February 28, 2023 Compared to February 28, 2022

Favorable/(Unfavorable) Explanations

740 bps Sales price increases implemented in all three segments at varying times during the last twelve months.

210 bps Decreases in miscellaneous other input costs.

60 bps Changes in foreign currency exchange rates in the EMEA segment.

(300) bps Higher costs of aerosol cans.

(300) bps Higher costs of specialty chemicals used in the formulation of our products.

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

Gross Margin – Nine Months Ended – May 31, 2023 Compared to May 31, 2022

Gross margin increased 120 bps primarily due to the following favorable impacts, significantly offset by unfavorable impacts:

Favorable/(Unfavorable)

Sales price increases implemented in all three segments at varying times during the last twelve months.

Changes in foreign currency exchange rates in the EMEA segment.

Higher costs of aerosol cans.

Higher costs of specialty chemicals used in the formulation of our products.

Higher filling fees paid to our third-party contract manufacturers, primarily in the Americas segment.

Increases in miscellaneous other input costs.

Favorable/(Unfavorable) Explanations

830 bps Sales price increases implemented in all three segments at varying times during the last twelve months.

80 bps Changes in foreign currency exchange rates in the EMEA segment.

(360) bps Higher costs of aerosol cans.

(360) bps Higher costs of specialty chemicals used in the formulation of our products.

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

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

Three Months Ended February 28,

Six Months Ended February 28,

(in thousands)

Three Months Ended February 28, Nine Months Ended May 31,

2023 2022 Change from

Prior Year 2023 2022 Change from

(in thousands) Dollars Percent Dollars Percent

SG&A expenses $ 38,195 $ 33,621 $ 4,574 14 % $ 115,869 $ 106,863 $ 9,006 8 %

% of net sales 27.0 % 27.2 % 29.2 % 27.5 %

SG&A Expenses – Three Months Ended – February 28, 2023 Compared to February 28, 2022

The increase in SG&A expenses was primarily due to increases in employee-related costs of $2.6 million due to increased headcount and annual compensation increases, slightly offset by lower incentive compensation accruals.

In addition, travel and meeting expense increased SG&A expense by $0.9 million due to the reduction in travel restrictions related to COVID-

19 from period to period, resulting in a higher level of travel and meetings by employees.

In addition, professional services fees increased $0.9 million in support of our strategic initiatives in the Americas and EMEA segments, including the ongoing implementation of our new information system and increased cloud-based software usage and license fees.

Other miscellaneous expenses also increased $0.4 million from period to period.

These increases to SG&A expenses were partially offset by changes in foreign currency exchange rates from period to period resulting in a decrease of $1.5 million in SG&A expenses.

SG&A Expenses – Six Months Ended – February 28, 2023 Compared to February 28, 2022

The increase in SG&A expenses was partially due to increases in employee-related costs of $3.5 million due to increased headcount and annual compensation increases, partially offset by lower incentive compensation accruals.

Travel and meeting expense also increased SG&A by $3.0 million due to the reduction in travel restrictions, as discussed above in the section for the three months ended February 28, 2023.

In addition, professional services fees increased $1.7 million in support of our strategic initiatives in the Americas and EMEA segments, also discussed above in the section for the three months ended February 28, 2023 .

Sales commissions increased $0.5 million primarily due to higher sales in the Americas segment.

Other miscellaneous expenses also increased $0.5 million from period to period.

These increases to SG&A expenses were partially offset by changes in foreign currency exchange rates from period to period resulting in a decrease of $4.2 million in SG&A expenses.

SG&A Expenses – Three Months Ended – May 31, 2023 Compared to May 31, 2022

The increase in SG&A expenses was primarily due to increases in employee-related costs of $3.4 million due to higher incentive compensation accruals, increased headcount and annual compensation increases.

In addition, professional

services fees increased $1.4 million in support of our strategic initiatives in the Americas and EMEA segments, including the ongoing implementation of our new information system and increased cloud-based software usage and license fees.

In addition, travel and meeting expense increased SG&A expense by $0.7 million due to the reduction in travel restrictions related to COVID-19 from period to period, resulting in a higher level of travel and meetings by employees.

These increases to SG&A expenses were partially offset by changes in foreign currency exchange rates, which reduced SG&A expenses by $1.0 million from period to period.

SG&A Expenses – Nine Months Ended – May 31, 2023 Compared to May 31, 2022

The increase in SG&A expenses was primarily due to increases in employee-related costs of $6.9 million due to increased headcount and annual compensation increases, as well as higher incentive compensation accruals.

Travel and meeting expense also increased SG&A by $3.7 million due to the reduction in travel restrictions, as discussed above in the section for the three months ended May 31, 2023.

In addition, professional services fees increased $3.1 million in support of our strategic initiatives in the Americas and EMEA segments, also discussed above in the section for the three months ended May 31, 2023.

Other miscellaneous expenses increased $0.6 million.

In addition, sales commissions increased $0.4 million primarily due to higher sales in the Americas segment.

These increases to SG&A expenses were partially offset by changes in foreign currency exchange rates, which reduced SG&A expenses by $5.2 million from period to period.

In addition, freight expense decreased $0.5 million from period to period.

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 $1.2 million and $1.3 million for the three months ended February 28, 2023 and 2022, respectively, and $2.5 million and $2.6 million for the six months ended February 28, 2023 and 2022, respectively.

Research and development costs were $1.6 million and $1.4 million for the three months ended May 31, 2023 and 2022, respectively, and $4.1 million and $4.0 million for the nine months ended May 31, 2023 and 2022, respectively.

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

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

Three Months Ended February 28,

Six Months Ended February 28,

(in thousands)

Three Months Ended May 31, Nine Months Ended May 31,

Prior Year Change from

(in thousands) 2023 2022 Dollars Percent 2023 2022 Dollars Percent

A&P expenses $ 7,660 $ 6,022 $ 1,638 27 % $ 18,984 $ 17,242 $ 1,742 10 %

% of net sales 5.4 % 4.9 % 4.8 % 4.4 %

A&P Expenses – Three Months Ended – February 28, 2023 Compared to February 28, 2022

The increase in A&P expenses was primarily due to a higher level of promotional programs and marketing support in the Americas segment, partially offset by favorable changes in foreign currency exchange currency from period to period of $0.3 million primarily in the EMEA segment.

A&P Expenses – Three M onths Ended – May 31, 2023 Compared to May 31, 2022

The increase in A&P expenses was primarily due to a higher level of promotional programs and marketing support in the Americas and Asia-Pacific segments.

Changes in foreign currency exchange rates did not have a significant impact on A&P expenses from period to 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 $7.1 million and $6.4 million for the three months ended February 28, 2023 and 2022, respectively.

Therefore, our total investment in A&P activities totaled $13.1 million and $12.0 million for the three months ended February 28, 2023 and 2022, respectively.

A&P Expenses – Six Months Ended – February 28, 2023 Compared to February 28, 2022

A&P expenses remained relatively constant from period to period.

Increases in A&P expenses, primarily due to a higher level of promotional programs and marketing support in the Americas segment, were mostly offset by favorable changes in foreign currency exchange currency from period to period of $0.8 million primarily in the EMEA segment.

Total promotional costs recorded as a reduction to sales was $13.6 million and $13.3 million for the six months ended February 28, 2023 and 2022, respectively.

Therefore, our total investment in A&P activities totaled $24.9 million and $24.5 million for the six months ended February 28, 2023 and 2022, respectively.

Total promotional costs recorded as a reduction to sales were $7.9 million and $7.5 million for the three months ended May 31, 2023 and 2022, respectively.

Therefore, our total investment in A&P activities was $15.6 million and $13.5 million for the three months ended May 31, 2023 and 2022, respectively.

A&P Expenses – Nine Months Ended – May 31, 2023 Compared to May 31, 2022

The increase in A&P expenses was primarily due to a higher level of promotional programs and marketing support in the Americas segment.

This increase was partially offset by favorable changes in foreign currency exchange rates of $1.0 million, primarily in the EMEA segment.

Total promotional costs recorded as a reduction to sales were $21.5 million and $20.8 million for the nine months ended May 31, 2023 and 2022, respectively.

Therefore, our total investment in A&P activities was $40.5 million and $38.0 million for the nine months ended May 31, 2023 and 2022, 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,

Three Months Ended May 31, Nine Months Ended May 31,

2023 2022 Change from

Prior Year 2023 2022 Change from

Dollars Percent Dollars Percent

Americas $ 16,906 $ 13,360 $ 3,546 27 % $ 43,390 $ 36,594 $ 6,796 19 %

EMEA 11,966 10,146 1,820 18 % 28,632 38,074 (9,442) (25) %

Asia-Pacific 5,312 3,101 2,211 71 % 21,952 18,328 3,624 20 %

Unallocated corporate (8,527) (7,623) (904) (12) % (27,485) (25,209) (2,276) (9) %

Americas Operating Income – Three Months Ended – February 28, 2023 Compared to February 28, 2022

Income from operations for the Americas increased to $13.7 million, up $2.5 million, or 22%, due to an $8.4 million increase in sales and a higher gross margin, partially offset by higher operating expenses.

Gross margin for the Americas segment increased from 46.7% to 48.1% primarily due to the favorable impact of price increases over the last twelve months, offset by increases in the costs of petroleum-based specialty chemicals, aerosol cans and filling fees at our third-party manufacturers due to inflationary impacts.

The increase in operating expenses from period to period was primarily due to higher employee-related costs due to increased headcount, as well as higher A&P expenses.

Operating income as a percentage of net sales increased from 20.6% to 21.8% period over perio d .

Americas Operating Income – Six Months Ended – February 28, 2023 Compared to February 28, 2022

Total $ 25,657 $ 18,984 $ 6,673 35 % $ 66,489 $ 67,787 $ (1,298) (2) %

Americas Operating Income – Three Months Ended – May 31, 2023 Compared to May 31, 2022

Income from operations for the Americas increased to $16.9 million, up $3.5 million, or 27%, due to a $9.7 million increase in sales and a higher gross margin, partially offset by higher operating expenses.

Gross margin for the Americas segment increased from 47.7% to 49.4% primarily due to the favorable impact of price increases over the last twelve months, offset by increases in the costs of petroleum-based specialty chemicals, aerosol cans and filling fees at our third-party manufacturers due to inflationary impacts.

The increase in operating expenses from period to period was primarily due to higher employee-related costs as a result of increased headcount, as well as increases to travel and meeting expense and A&P expenses.

Operating income as a percentage of net sales increased from 21.0% to 21.9% period over perio d .

EMEA Operating Income – Three Months Ended – February 28, 2023 Compared to February 28, 2022

Income from operations for the EMEA segment decreased to $10.4 million, down $3.3 million, or 24%, primarily due to a $7.3 million decrease in sales, partially offset by a higher gross margin and a slight decrease in operating expenses.

Gross margin for the EMEA segment increased from 52.0% to 52.3% primarily due to the favorable impact of price increases over the last twelve months, partially offset by the increased costs of aerosol cans and petroleum-based specialty chemicals .

Operating expenses decreased $0.3 million primarily due to lower A&P expenses, lower accrued incentive compensation and lower freight costs as a result of lower sales volumes.

These favorable impacts to operating expenses were significantly offset by increased headcount and salaries, as well as higher travel and meeting expense.

Operating income as a percentage of net sales decreased from 25.4% to 22.2% period over period .

EMEA Operating Income – Six Months Ended – February 28, 2023 Compared to February 28, 2022

Income from operations for the EMEA segment decreased to $16.7 million, down $11.3 million, or 40%, primarily due to a $24.0 million decrease in sales and lower gross margin, which were slightly offset by a decrease in operating expenses.

Gross margin for the EMEA segment decreased from 51.8% to 51.5% primarily due to the combined unfavorable impacts of increased costs of aerosol cans and petroleum-based specialty chemicals.

Gross margin for the Americas segment increased from 45.8% to 48.2% primarily due to the favorable impact of price increases over the last twelve months and decreases to miscellaneous other input costs, offset by increases in the costs of petroleum-based specialty chemicals, aerosol cans and filling fees at our third-party manufacturers due to inflationary impacts.

Operating expenses increased $2.6 million primarily due to higher accrued incentive compensation and higher A&P expenses, as well as higher employee-related costs primarily due to increased headcount.

Operating income as a percentage of net sales increased from 21.7% to 23.8% period over period.

Americas Operating Income – Nine Months Ended – May 31, 2023 Compared to May 31, 2022

Income from operations for the Americas increased to $43.4 million, up $6.8 million, or 19%, due to a $19.8 million increase in sales and a higher gross margin, partially offset by higher operating expenses.

Gross margin for the Americas segment increased from 47.0% to 48.9% primarily due to the favorable impact of price increases implemented during the last twelve months, offset by increases in the costs of petroleum-based specialty chemicals, aerosol cans and filling fees at our third-party manufacturers due to inflationary impacts.

Operating expenses increased $6.1 million due to higher employee-related costs as a result of increased headcount and higher accrued incentive compensation.

In addition, operating expenses increased due to a higher level of travel and meeting expense and A&P expenses.

Operating income as a percentage of net sales increased from 21.2% to 22.6% period over period.

EMEA Operating Income – Three Months Ended – May 31, 2023 Compared to May 31, 2022

Income from operations for the EMEA segment increased to $12.0 million, up $1.8 million, or 18%, primarily due to a $3.1 million increase in sales and a higher gross margin, partially offset by higher operating expenses.

Gross margin for the EMEA segment increased from 49.0% to 52.0% primarily due to the favorable impact of price increases over the last twelve months and decreases to miscellaneous other input costs, partially offset by the increased costs of aerosol cans and petroleum-based specialty chemicals.

Operating expenses increased $1.3 million primarily due higher employee-related costs as a result of higher accrued incentive compensation and increased headcount, as well as increased travel and meeting expense.

Operating income as a percentage of net sales increased from 20.5% to 22.8% period over period.

EMEA Operating Income – Nine Months Ended – May 31, 2023 Compared to May 31, 2022

Income from operations for the EMEA segment decreased to $28.6 million, down $9.4 million, or 25%, primarily due to a $21.0 million decrease in sales, which was slightly offset by a higher gross margin.

Gross margin for the EMEA segment increased from 50.9% to 51.7% primarily due to price increases that were implemented over the last twelve months, significantly offset by the increased costs of aerosol cans and petroleum-based specialty chemicals.

In addition, gross margin was also unfavorably impacted by increases in discounts provided to our customers.

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

Operating expenses decreased $1.4 million primarily due to lower A&P expenses and lower accrued incentive compensation, as well as lower freight costs as a result of lower sales volumes.

These favorable impacts to operating expenses were partially offset by higher travel and meeting expense, as well as increased headcount and salaries.

Operating income as a percentage of net sales decreased from 25.0% to 19.0% period over period .

Asia-Pacific Operating Income – Three Months Ended – February 28, 2023 Compared to February 28, 2022

Income from operations for the Asia-Pacific segment decreased to $7.0 million, down $0.9 million, or 11%, primarily due to a $0.9 million decrease in sales and a lower gross margin.

Gross margin for the Asia-Pacific segment decreased from 55.9% to 55.3% primarily due to the unfavorable impacts of increases to the cost of petroleum-based specialty chemicals and aerosol cans.

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

Operating income as a percentage of net sales decreased from 37.0% to 34.3% period over period.

Asia-Pacific Operating Income – Six Months Ended – February 28, 2023 Compared to February 28, 2022

Income from operations for the Asia-Pacific segment increased to $16.6 million, up $1.4 million, or 9%, primarily due to a $4.3 million increase in sales, partially offset by a lower gross margin and an increase in operating expenses.

Gross margin for the Asia-Pacific segment decreased from 55.2% to 54.8% primarily due to the unfavorable impacts of increases to the cost of petroleum-based specialty chemicals and aerosol cans .

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

Operating expenses increased $0.8 million from period to period primarily due to higher A&P expenses, higher freight costs due to an increase in sales volumes and increased travel and meeting expenses.

Operating expenses remained relatively constant as higher travel and meeting expense and higher employee-related costs were almost completely offset

by lower level of A&P freight expenses.

Operating income as a percentage of net sales decreased from 23.6% to 20.4% period over period.

Asia-Pacific Operating Income – Three Months Ended – May 31, 2023 Compared to May 31, 2022

Income from operations for the Asia-Pacific segment increased to $5.3 million, up $2.2 million, or 71%, primarily due to a $5.3 million increase in sales and a higher gross margin, partially offset by an increase in operating expenses.

Gross margin for the Asia-Pacific segment increased from 51.8% to 56.3% primarily due to the favorable impact of price increases that were implemented during the last twelve months.

Operating expenses increased $1.4 million primarily due to higher A&P expenses and higher other miscellaneous expenses.

Operating income as a percentage of net sales increased from 24.3% to 29.4% period over period.

Asia-Pacific Operating Income – Nine Months Ended – May 31, 2023 Compared to May 31, 2022

Income from operations for the Asia-Pacific segment increased to $22.0 million, up $3.6 million, or 20%, primarily due to a $9.6 million increase in sales and a higher gross margin, partially offset by an increase in operating expenses.

Gross margin for the Asia-Pacific segment increased from 54.4% to 55.2% primarily due to the favorable impact of price increases that were implemented during the last twelve months, partially offset by the increased cost of petroleum-based specialty chemicals.

Operating expenses increased $2.1 million from period to period primarily due to higher A&P expenses and higher other miscellaneous expenses, as well as a higher level of travel and meeting expenses.

Operating income as a percentage of net sales increased from 33.3% to 33.9% 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,

Three Months Ended May 31, Nine Months Ended May 31,

2023 2022 Change 2023 2022 Change

Interest income $ 69 $ 27 $ 42 $ 164 $ 73 $ 91

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Interest Income

Interest income was not significant during the three and six months ended February 28, 2023 and 2022.

Interest income was not significant during the three and nine months ended May 31, 2023 and 2022.

Interest Expense

Interest expense increased $0.9 million and $1.4 million for the three and six months ended February 28, 2023, respectively, compared to the corresponding periods of the prior fiscal year primarily due to higher interest rates and higher aggregate outstanding balances on our revolving credit agreement from period over period.

Interest expense increased $0.9 million and $2.4 million for the three and nine months ended May 31, 2023, respectively, compared to the corresponding periods of the prior fiscal year primarily due to higher interest rates and higher aggregate outstanding balances on our revolving credit agreement from period over period.

Other Income (Expense), Net

Other income (expense), net remained relatively constant for the three months ended February 28, 2023 compared to the corresponding period of the prior fiscal year.

Other income (expense), net changed by $0.4 million for the six months ended February 28, 2023 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.

Other income (expense), net was not significant for the three months ended May 31, 2023 and 2022.

Other income (expense), net changed by $0.7 million for the nine months ended May 31, 2023 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 20.8% and 20.1% of income before income taxes for the three months ended February 28, 2023 and 2022, respectively.

The increase in the effective tax rate was primarily due to higher tax rates in certain foreign jurisdictions from period to period, as well as higher interest expense related to existing uncertain tax positions.

The unfavorable impacts to the effective tax rate was partially offset by a decrease in the portion of performance-based compensation that is non-deductible from period to period.

The provision for income taxes was 20.9% and 19.9% of income before income taxes for the six months ended February 28, 2023 and 2022, respectively.

The increase in the effective income tax rate from period to period was primarily due to tax shortfalls from the settlements of stock-based equity awards, partially offset by a one-time tax-deductible charitable donation.

We recorded tax shortfalls related to settlements of stock-based equity awards of $0.7 million during the first six months of fiscal year 2023 compared to $0.2 million in tax benefits related to these types of settlements in the first six months of fiscal year 2022, resulting in a 2.4% unfavorable impact on our effective tax rate from period to period.

Partially offsetting this unfavorable impact was a one-time tax benefit associated with our donation of our former corporate headquarters building to a local San Diego community foundation that occurred in the first quarter of fiscal year 2023, resulting in a 1.9% favorable impact on our effective tax rate.

The building, net of its tax basis, is estimated to result in a charitable donation of $3.5 million and an approximate tax benefit of $0.7 million.

Net income was $16.5 million, or $1.21 per common share on a fully diluted basis, for the three months ended February 28, 2023 compared to $19.5 million, a decrease of 15%, or $1.41 per common share on a fully diluted basis, for the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates from period to period had an unfavorable impact of $0.9 million on consolidated net income for the second quarter of fiscal year 2023.

Thus, on a constant currency basis, net income would have decreased $2.0 million, or 10%, from period to period.

Net income was $30.5 million, or $2.23 per common share on a fully diluted basis, for the six months ended February 28, 2023 compared to $38.1 million, a decrease of 20%, or $2.75 per common share on a fully diluted basis, for the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates from period to period had an unfavorable impact of $2.2 million on consolidated net income for the six months ended February 28, 2023.

The provision for income taxes was 22.5% and 20.9% of income before income taxes for the three months ended May 31, 2023 and 2022, respectively.

The rate increase of 1.6% in the effective tax rate was primarily due to higher tax rates in certain foreign jurisdictions.

The provision for income taxes was 21.5% and 20.2% of income before income taxes for the nine months ended May 31, 2023 and 2022, respectively.

The rate increase of 1.3% in the effective income tax rate from period to period was primarily

due to tax shortfalls from the settlements of stock-based equity awards, resulting in a 1.5% unfavorable impact on our effective tax rate from period to period.

In addition, higher tax rates in certain foreign jurisdictions resulted in a 1.3% unfavorable impact on our effective tax rate.

These unfavorable impacts to the effective tax rate were partially offset by a one-time tax-deductible charitable donation of our former corporate headquarters building to a local San Diego community foundation that occurred in the first quarter of fiscal year 2023, resulting in a 1.2% favorable impact on our effective tax rate.

Net income was $18.9 million, or $1.38 per common share on a fully diluted basis, for the three months ended May 31, 2023 compared to $14.5 million, an increase of 30%, or $1.07 per common share on a fully diluted basis, for the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates from period to period had an unfavorable impact of $0.6 million on consolidated net income for the third quarter of fiscal year 2023.

Thus, on a constant currency basis, net income would have increased $5.0 million, or 35%, from period to period.

Net income was $49.4 million, or $3.62 per common share on a fully diluted basis, for the nine months ended May 31, 2023 compared to $52.5 million, a decrease of 6%, or $3.82 per common share on a fully diluted basis, for the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates from period to period had an unfavorable impact of $2.8 million on consolidated net income for the nine months ended May 31, 2023.

Thus, on a constant currency basis, net income would have decreased $0.3 million, or 1%, from period to period.

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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.

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 is reflected in our reported results.

In addition, it is not possible to determine how long these supply chain and inflationary conditions will exist and if they will worsen or improve over time.

Our 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:

Three Months Ended February 28,

Six Months Ended February 28,

Three Months Ended May 31, Nine Months Ended May 31,

2023 2022 2023 2022

Gross margin – GAAP 51 % 48 % 51 % 50 %

Cost of doing business as a percentage

of net sales – non-GAAP

Cost of doing business as a percentage of net sales – non-GAAP 32 % 31 % 33 % 31 %

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

20 % 17 % 18 % 19 %

(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.

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We believe these measures also provide investors with additional financial information that should be considered when assessing our underlying business performance and trends.

These 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 our performance or operations.

These 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 our performance or operations.

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

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Cost of Doing Business (in thousands, except percentages)

Three Months Ended February 28,

Six Months Ended February 28,

Three Months Ended May 31, Nine Months Ended May 31,

2023 2022 2023 2022

Total operating expenses – GAAP $ 46,105 $ 40,001 $ 135,606 $ 125,186

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Cost of doing business $ 44,803 $ 38,535 $ 131,802 $ 120,787

Cost of doing business as a percentage

of net sales – non-GAAP

Net sales $ 141,717 $ 123,667 $ 396,803 $ 388,399

Cost of doing business as a percentage of net sales – non-GAAP 32 % 31 % 33 % 31 %

EBITDA (in thousands, except percentages)

Three Months Ended February 28,

Six Months Ended February 28,

Three Months Ended May 31, Nine Months Ended May 31,

2023 2022 2023 2022

Net income – GAAP $ 18,895 $ 14,480 $ 49,418 $ 52,543

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Amortization of definite-lived intangible assets 250 358 753 1,081

Depreciation 1,825 1,700 5,186 5,059

EBITDA $ 27,975 $ 21,000 $ 72,986 $ 73,808

Net sales $ 141,717 $ 123,667 $ 396,803 $ 388,399

EBITDA as a percentage of net sales – non-GAAP 20 % 17 % 18 % 19 %

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Our financial condition and liquidity remain strong.

Although there continues to be uncertainty related to the ongoing and anticipated impact of the COVID-19 pandemic and inflationary environment on our future results, we believe our efficient business model and the steps that we have taken position us to manage our business through the situation as it continues to develop.

Although there continues to be uncertainty related to adverse global economic conditions, volatility in financial markets, the current inflationary environment and their impacts on our future results, we believe our efficient business model positions us to manage our business through such situations.

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.

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

As of February 28, 2023, $41.1 million of the outstanding balance under our line of credit resides in the EMEA segment and is denominated in Euros and Pounds Sterling and is classified as long-term, whereas $46.7 million is denominated in U.S.

As of May 31, 2023,

$42.1 million of the outstanding balance under our line of credit resides in the EMEA segment and is denominated in Euros and Pounds Sterling and is classified as long-term, whereas $26.4 million is denominated in U.S.

Dollars and is classified as short-term.

In the United States, we held $68.0 million in fixed rate long-term borrowings as of February 28, 2023, consisting of senior notes under our Note Agreement.

We paid $0.4 million in principal payments on our Series A Notes during the first half of fiscal year 2023.

In the United States, we held $67.6 million in fixed rate long-term borrowings as of May 31, 2023, 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 2023.

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

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

At February 28, 2023, we were in compliance with all material debt covenants.

At May 31, 2023, 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, 2023, we had a total of $38.0 million in cash and cash equivalents.

At May 31, 2023, we had a total of $38.4 million in cash and cash equivalents.

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

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 our outstanding shares through August 31, 2023, of which $40.2 million remains available for the repurchase of shares of common stock as of February 28, 2023.

On October 12, 2021, our Board of Directors (“Board”) approved a share repurchase plan (the “2021 Repurchase Plan”).

Under the 2021 Repurchase Plan, which became effective on November 1, 2021, we are authorized to acquire up to $75.0 million of our outstanding shares through August 31, 2023, of which $38.4 million remains available for the repurchase of shares of common stock as of May 31, 2023.

On June 19, 2023, our Board approved a share repurchase plan (the “2023 Repurchase Plan”).

Under the 2023 Repurchase Plan, which will become effective on September 1, 2023, we are authorized to acquire up to $50.0 million of our outstanding shares through August 31, 2025.

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

Six Months Ended February 28,

Nine Months Ended May 31,

2023 2022 Change

Net cash provided by operating activities $ 55,593 $ 7,656 $ 47,937

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Operating Activities

Net cash provided by operating activities increased $16.9 million to $20.9 million for the six months ended February 28, 2023.

Net cash provided by operating activities increased $47.9 million to $55.6 million for the nine months ended May 31, 2023.

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, 2023 was net income of $30.5 million, which decreased approximately $7.5 million from period to period.

Changes in our working capital, which increased net cash provided by operating activities, were primarily attributable to a lower increase in inventory during the first half of fiscal year 2023 compared to the corresponding period of the prior fiscal year which represents a decrease in the use of cash.

Our primary source of operating cash flows for the nine months ended May 31, 2023 was net income of $49.4 million, which decreased approximately $3.1 million from period to period.

Changes in our working capital, which increased net cash provided by operating activities, were primarily attributable to a decrease in inventory during the first nine months of fiscal year 2023 compared to a significant increase in inventory in the corresponding period of the prior fiscal year, which resulted in a $52.6 million favorable impact period over period to our cash provided by operating activities.

In the prior fiscal year, we took deliberate actions to increase inventory levels of certain raw materials, components and finished goods due to challenges within supply chain and increased lead times required by suppliers.

This building of our inventory continued throughout fiscal year 2022 into the first quarter of fiscal year 2023 and we have experienced increases in the capacity and flexibility of our supply chain as a direct result of these actions.

Although our inventory levels remain at balances that are higher than historical levels, inventory decreased during the three months ended February 28, 2023.

In addition, net cash provided by operating activities increased due to lower earned incentive payouts in the first half of fiscal year 2023 compared to the corresponding period of the prior fiscal year.

These changes were partially offset by decreases in accounts payable and accrued liabilities balances during the first half of the fiscal year compared to the corresponding period of the prior fiscal year.

Although our inventory levels remain at balances that are higher than historical levels, inventory has decreased since the first quarter of 2023 through the period ending May 31, 2023.

These changes were partially offset by increases in accounts payable and accrued liabilities balances during the first nine months of the fiscal year compared to decreases in these balances in the corresponding period of the prior fiscal year.

In addition, net cash provided by operating activities increased due to lower earned incentive payouts in the first nine months of fiscal year 2023 compared to the corresponding period of the prior fiscal year.

Investing Activities

Net cash used in investing activities decreased $0.3 million to $3.3 million for the six months ended February 28, 2023, primarily due to a lower level of manufacturing-related capital expenditures within the United States and the United Kingdom from period to period.

Net cash used in investing activities decreased $2.5 million to $4.2 million for the nine months ended May 31, 2023, primarily due to a lower level of manufacturing-related capital expenditures within the U.S.

from period to period.

Financing Activities

Net cash used in financing activities decreased $22.0 million to $20.3 million for the six months ended February 28, 2023.

This change was primarily due to decreases in treasury stock purchases of $12.5 million from period to period.

Additionally, cash used in financing activities decreased due to higher proceeds provided by our line of credit agreement of $7.1 million.

Decreases in shares withheld to cover taxes on conversion of equity rewards also reduced cash used in financing activities by $3.7 million, as a result of lower settlements of stock-based equity awards from period to period.

Offsetting these decreases in cash outflows from period to period were increases in dividends paid to our stockholders of $1.3 million.

Net cash used in financing activities increased $10.8 million to $54.0 million for the nine months ended May 31, 2023.

This change was primarily due to net repayments on our revolving credit facility of $11.9 million during the first nine months of the fiscal year, compared to net proceeds of $15.6 million in the corresponding period of the prior fiscal year.

Increases in dividends paid to our stockholders also increased cash used in financing activities by $2.0 million.

Offsetting these increases in cash outflows from period to period was a decrease in treasury stock purchases of $15.0 million, as well as a decrease of $3.7 million in shares withheld to cover taxes on conversion of equity rewards.

Effect of Exchange Rate Changes

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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.

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.

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

Dollar terms, was an increase in cash of $2.8 million for the six months ended February 28, 2023 as compared to a decrease in cash of $0.9 million for the six months ended February 28, 2022.

Dollar terms, was an increase in cash of $3.2 million for the nine months ended May 31, 2023 as compared to a decrease in cash of $2.8 million for the nine months ended May 31, 2022.

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

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

As of February 28, 2023, no such commitments were outstanding .

Share Repurchase Plan

The information required by this item is incorporated by reference to Part I—Item 1, “Notes to Condensed Consolidated Financial Statements” Note 8 — Share Repurchase Plan, included in this report .

On March 21, 2023, the Company’s Board declared a cash dividend of $0.83 per share payable on April 28, 2023 to stockholders of record on April 14, 2023 .

As of May 31, 2023, no such commitments were outstanding.

Share Repurchase Plans

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 and Note 14 — Subsequent Events, included in this report.

On June 20, 2023, the Company’s Board declared a cash dividend of $0.83 per share payable on July 31, 2023 to stockholders of record on July 14, 2023.

Critical Accounting Policies and Estimates

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.

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

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis