Oil-Dri of America(ODC) - 2021 Q3 - Quarterly Report

Cover Page & General Information This section provides essential company filing details, cautionary statements regarding forward-looking information, and trademark notices Form 10-Q Filing Details This section details the Form 10-Q filing information, including registrant details, SEC compliance, filer status, and registered securities - The registrant is Oil-Dri Corporation of America, incorporated in Delaware, filing a Quarterly Report on Form 10-Q for the period ended April 30, 2021[1] - The company is an 'Accelerated Filer' and a 'Smaller Reporting Company'[3] Securities Registered | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :-------------------------- | :---------------- | :---------------------------------------- | | Common Stock, par value $0.10 per share | ODC | New York Stock Exchange | - As of April 30, 2021, there were 5,358,760 shares of Common Stock and 2,050,565 shares of Class B Stock outstanding[3] Forward-Looking Statements This section cautions on forward-looking statements, noting actual results may differ due to risks and uncertainties - The report contains forward-looking statements based on current expectations, estimates, forecasts, and projections about future performance and business[7] - Such statements are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially, including those described in Item 1A, Risk Factors, of the Annual Report on Form 10-K and Quarterly Report on Form 10-Q[8] - The company does not intend or have an obligation to publicly update any forward-looking statements after the report's distribution, except as required by law[8] Trademark Notice This section identifies the registered trademarks owned by Oil-Dri Corporation of America - "Oil-Dri" and "Agsorb" are registered trademarks of Oil-Dri Corporation of America[10] PART I – FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements, management's discussion and analysis, and details on internal controls Item 1. Financial Statements This section presents unaudited condensed consolidated financial statements, detailing interim financial position and performance Condensed Consolidated Balance Sheet This section presents the company's condensed consolidated balance sheet, detailing assets, liabilities, and equity Condensed Consolidated Balance Sheet (in thousands) | ASSETS | April 30, 2021 | July 31, 2020 | | :----------------------------------------- | :------------- | :------------ | | Cash and cash equivalents | $30,318 | $40,890 | | Accounts receivable, net | 39,088 | 34,911 |\n| Inventories | 23,584 | 23,893 | | Total Current Assets | 103,870 | 108,420 | | Property, Plant and Equipment, Net | 91,198 | 92,948 | | Total Assets | $229,634 | $235,882 | | LIABILITIES & STOCKHOLDERS' EQUITY | April 30, 2021 | July 31, 2020 | | :----------------------------------------- | :------------- | :------------ | | Current maturities of notes payable | $1,000 | $1,000 | | Accounts payable | 6,912 | 12,529 | | Total Current Liabilities | 35,909 | 46,207 | | Total Noncurrent Liabilities | 40,786 | 41,711 | | Total Liabilities | 76,695 | 87,918 | | Total Stockholders' Equity | 152,939 | 147,964 | | Total Liabilities & Stockhold\ners' Equity | $229,634 | $235,882 | - Total assets decreased by $6.25 million from July 31, 2020, to April 30, 2021, primarily due to a decrease in cash and cash equivalents[12] - Total liabilities decreased by $11.22 million, mainly driven by a reduction in accounts payable and accrued expenses[14] - Total stockholders' equity increased by $4.98 million, reflecting an increase in retained earnings[14] Condensed Consolidated Statements of Income (For the Nine Months Ended April 30) This section presents the condensed consolidated statements of income, outlining revenues, expenses, and net income Condensed Consolidated Statements of Income (in thousands, except per share amounts) | Metric | 2021 | 2020 | | :-------------------------------------- | :---------- | :---------- | | Net Sales | $226,852 | $218,383 | | Cost of Sales | (171,853) | (158,105) | | Gross Profit | 54,999 | 60,278 | | Selling, General and Administrative Expenses | (43,647) | (44,584) | | Income from Operations | 11,352 | 15,694 | | Income Before Income Taxes | 12,074 | 15,432 | | Net Income Attributable to Oil-Dri | 10,510 | 13,014 | | Basic Common Net Income Per Share | $1.52 | $1.85 | | Diluted Common Net Income Per Share | $1.49 | $1.82 | - Net Sales increased by 4% to $226.85 million in 2021 from $218.38 million in 2020[16] - Gross Profit decreased by 8.75% to $54.99 million in 2021 from $60.27 million in 2020[16] - Net Income Attributable to Oil-Dri decreased by 19.24% to $10.51 million in 2021 from $13.01 million in 2020[16] Condensed Consolidated Statements of Comprehensive Income (For the Nine Months Ended April 30) This section presents the condensed consolidated statements of comprehensive income, including net income and other comprehensive income Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | 2021 | 2020 | | :-------------------------------------- | :---------- | :---------- | | Net Income Attributable to Oil-Dri | $10,510 | $13,014 | | Other Comprehensive Income | 1,014 | 5,444 | | Total Comprehensive Income | $11,524 | $18,458 | - Total Comprehensive Income decreased by 37.57% to $11.52 million in 2021 from $18.46 million in 2020[20] - Other Comprehensive Income significantly decreased from $5.44 million in 2020 to $1.01 million in 2021, primarily due to lower pension and postretirement benefits[20] Condensed Consolidated Statements of Income (For the Three Months Ended April 30) This section presents the condensed consolidated statements of income, outlining revenues, expenses, and net income Condensed Consolidated Statements of Income (in thousands, except per share amounts) | Metric | 2021 | 2020 | | :-------------------------------------- | :---------- | :---------- | | Net Sales | $76,255 | $76,256 | | Cost of Sales | (59,732) | (54,871) | | Gross Profit | 16,523 | 21,385 | | Selling, General and Administrative Expenses | (14,592) | (15,685) | | Income from Operations | 1,931 | 5,700 | | Income Before Income Taxes | 2,162 | 5,597 | | Net Income Attributable to Oil-Dri | 2,227 | 4,648 | | Basic Common Net Income Per Share | $0.32 | $0.66 | | Diluted Common Net Income Per Share | $0.32 | $0.65 | - Net Sales remained flat at $76.25 million in the third quarter of fiscal year 2021 compared to the same period in 2020[23] - Gross Profit decreased by 22.73% to $16.52 million in 2021 from $21.38 million in 2020[23] - Net Income Attributable to Oil-Dri decreased by 52.1% to $2.23 million in 2021 from $4.65 million in 2020[23] Condensed Consolidated Statements of Comprehensive Income (For the Three Months Ended April 30) This section presents the condensed consolidated statements of comprehensive income, including net income and other comprehensive income Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | 2021 | 2020 | | :-------------------------------------- | :---------- | :---------- | | Net Income Attributable to Oil-Dri | $2,227 | $4,648 | | Other Comprehensive Income (Loss) | 277 | (6) | | Total Comprehensive Income | $2,504 | $4,642 | - Total Comprehensive Income decreased by 46.06% to $2.50 million in 2021 from $4.64 million in 2020[26] - Other Comprehensive Income improved significantly from a loss of $6,000 in 2020 to an income of $277,000 in 2021[26] Consolidated Statements of Stockholders' Equity This section details changes in stockholders' equity, including retained earnings and treasury stock transactions - Total Stockholders' Equity increased from $147.96 million at July 31, 2020, to $152.94 million at April 30, 2021[31] - Retained earnings increased by $5.12 million during the nine months ended April 30, 2021, primarily due to net income offset by dividends declared[31] - Treasury Stock purchases amounted to $2.93 million for the nine months ended April 30, 2021, compared to $4.62 million in the prior year[31] Condensed Consolidated Statements of Cash Flows This section presents the condensed consolidated statements of cash flows, categorizing cash from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flows From | 2021 | 2020 | | :-------------------------------------------- | :---------- | :---------- | | Operating Activities | $8,340 | $22,269 | | Investing Activities | (10,753) | (10,758) | | Financing Activities | (8,324) | (12,852) | | Effect of exchange rate changes | 165 | 27 | | Net Decrease in Cash and Cash Equivalents | $(10,572) | $(1,314) | | Cash and Cash Equivalents, End of Period | $30,318 | $20,548 | - Net cash provided by operating activities decreased significantly to $8.34 million in 2021 from $22.27 million in 2020[34] - Net cash used in financing activities decreased to $8.32 million in 2021 from $12.85 million in 2020, primarily due to lower treasury stock purchases and no principal payments on notes payable in 2021[34] - The company experienced a net decrease in cash and cash equivalents of $10.57 million in 2021, compared to a $1.31 million decrease in 2020[34] Notes To Condensed Consolidated Financial Statements This section provides explanatory notes to the condensed consolidated financial statements, detailing accounting policies and disclosures 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES This section outlines the basis of financial statement presentation and significant accounting policies applied - The unaudited Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP for interim financial information and comply with Form 10-Q and Regulation S-X[39] - Management's estimates and assumptions, including those related to COVID-19 impacts, are periodically revised, and actual results may differ[43] - Revenue is recognized when performance obligations are satisfied, typically upon shipment or receipt of finished products by customers[53] - The company deferred approximately $2.3 million in payroll taxes in calendar year 2020 under the CARES Act, payable equally in Q4 2021 and Q4 2022[58] 2. NEW ACCOUNTING PRONOUNCEMENTS AND REGULATIONS This section discusses new accounting pronouncements and regulations, and their potential impact on the company - The company is evaluating the impact of ASC 848 (Reference Rate Reform) on debt agreements referencing LIBOR, effective immediately[59] - ASC 740 (Income Taxes) guidance, simplifying income tax accounting, is effective for the first quarter of fiscal year 2022, with early adoption permitted[60] - ASC 326 (Financial Instruments-Credit Losses), requiring an expected loss impairment model, is effective for the first quarter of fiscal year 2023[61] 3. INVENTORIES This section details the composition of inventories and related accounting policies and reserves Composition of Inventories (in thousands) | Category | April 30, 2021 | July 31, 2020 | | :-------------- | :------------- | :------------ | | Finished goods | $14,528 | $14,500 | | Packaging | 4,663 | 4,587 | | Other | 4,393 | 4,806 | | Total Inventories | $23,584 | $23,893 | - Total inventories decreased slightly from $23.89 million to $23.58 million[63] - The inventory obsolescence reserve decreased from $926,000 at July 31, 2020, to $746,000 at April 30, 2021, due to better inventory management[64] - Packaging inventories increased due to anticipated sales demand and higher packaging costs, while other inventories decreased due to increased production[64] 4. FAIR VALUE MEASUREMENTS This section describes the company's fair value measurements for financial instruments - Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction[65] - Cash equivalents, primarily money market mutual funds, are classified as Level 1[65] - The estimated fair value of notes payable was $11.38 million at April 30, 2021, and $11.63 million at July 31, 2020, classified as Level 2[66] 5. GOODWILL AND OTHER INTANGIBLE ASSETS This section provides information on goodwill and other intangible assets, including amortization and impairment analysis Intangible Amortization Expense (in thousands) | Period | 2021 | 2020 | | :------------------------------------ | :--- | :--- | | Third Quarter | $146 | $184 | | First Nine Months | $451 | $600 | - Estimated intangible amortization for the remainder of fiscal year 2021 is $144,000[68] - The company has one acquired trademark recorded at $376,000 with an indefinite life, which is not amortized[69] - No goodwill impairment was identified in the annual analysis for fiscal year 2020, and no triggering events for a new analysis have occurred, though COVID-19 effects could change this[70] 6. ACCRUED EXPENSES This section details the composition of accrued expenses, including salaries, benefits, and trade promotions Accrued Expenses (in thousands) | Category | April 30, 2021 | July 31, 2020 | | :---------------------------------------- | :------------- | :------------ | | Salaries, Wages, Commissions and Employee Benefits | $11,051 | $14,798 | | Trade promotions and advertising | 1,321 | 2,349 | | Freight | 2,961 | 1,313 | | Real Estate Tax | 605 | 1,658 | | Other | 8,012 | 8,582 | | Total | $23,950 | $28,700 | - Total accrued expenses decreased by $4.75 million, primarily due to lower salaries, wages, commissions, employee benefits, and trade promotions[71] - Freight accruals increased due to higher freight rates during the nine months ended April 30, 2021[71] 7. OTHER CONTINGENCIES This section discusses various legal actions and other contingencies that may affect the company - The company is involved in various ordinary legal actions, none of which are expected to have a material adverse effect on its business[72] - A lawsuit alleging breach of contract regarding a contingency fee from a former service provider was filed in July 2020; the company believes the claim is without merit and any loss is unlikely to be material[72] 8. LEASES This section outlines the company's operating lease arrangements, costs, and future payment obligations - The company primarily has operating leases for real estate properties, rail tracks, railcars, and office equipment[73] Operating Lease Costs (in thousands) | Period | 2021 (3 Months) | 2020 (3 Months) | 2021 (9 Months) | 2020 (9 Months) | | :------------------------------------ | :-------------- | :-------------- | :-------------- | :-------------- | | Operating lease cost | $592 | $517 | $1,944 | $1,551 | | Short-term operating lease cost | 173 | 190 | 535 | 590 | - The weighted-average remaining lease term for operating leases was 9.5 years at April 30, 2021, with a weighted-average discount rate of 3.96%[75] Scheduled Minimum Future Lease Payments (in thousands) | Year | Amount | | :-------- | :----- | | 2021 | $641 | | 2022 | 2,323 | | 2023 | 1,321 | | 2024 | 1,170 | | 2025 | 1,089 | | Thereafter| 6,204 | | Total | 12,748 | | Less: imputed interest | (2,169) | | Net lease obligation | $10,579 | 9. PENSION AND OTHER POSTRETIREMENT BENEFITS This section details the company's pension and other postretirement benefit plans, costs, and assumptions - The Pension Plan was amended to freeze participation and future benefit accruals effective March 1, 2020[76] Net Periodic Pension and Postretirement Health Benefit Costs (in thousands) | Benefit Type & Period | 2021 (3 Months) | 2020 (3 Months) | 2021 (9 Months) | 2020 (9 Months) | | :-------------------------------- | :-------------- | :-------------- | :-------------- | :-------------- | | Pension Benefits Net Cost | $(212) | $45 | $(638) | $1,164 | | Postretirement Health Benefits Net Cost | $47 | $47 | $140 | $143 | - The Supplemental Executive Retirement Plan (SERP) was terminated effective June 30, 2020, with benefits payable as a lump sum between June 30, 2021, and June 8, 2022[81] Assumptions for Net Periodic Benefit Cost | Assumption | Pension Benefits (2021) | Pension Benefits (2020) | Postretirement Health Benefits (2021) | Postretirement Health Benefits (2020) | | :---------------------------------------- | :---------------------- | :---------------------- | :------------------------------------ | :------------------------------------ | | Discount rate | 2.14 % | 3.35 % | 1.63 % | 2.93 % | | Rate of increase in compensation levels | — % | 3.50 % | — | — | | Long-term expected rate of return on assets | 6.50 % | 7.00 % | — | — | 10. OPERATING SEGMENTS This section provides financial information by operating segment, including net sales and income from operations - The company operates in two reportable segments: Business to Business Products Group and Retail and Wholesale Products Group[82] Net Sales by Segment (in thousands) - Nine Months Ended April 30 | Segment | 2021 | 2020 | | :-------------------------------- | :---------- | :---------- | | Business to Business Products Group | $80,098 | $77,632 | | Retail and Wholesale Products Group | $146,754 | $140,751 | | Total Net Sales | $226,852 | $218,383 | Income from Operations by Segment (in thousands) - Nine Months Ended April 30 | Segment | 2021 | 2020 | | :-------------------------------- | :---------- | :---------- | | Business to Business Products Group | $23,005 | $24,046 | | Retail and Wholesale Products Group | $11,487 | $15,380 | | Corporate Expenses | $(23,140) | $(23,732) | | Total Income from Operations | $11,352 | $15,694 | Net Sales by Segment (in thousands) - Three Months Ended April 30 | Segment | 2021 | 2020 | | :-------------------------------- | :---------- | :---------- | | Business to Business Products Group | $26,293 | $26,683 | | Retail and Wholesale Products Group | $49,962 | $49,573 | | Total Net Sales | $76,255 | $76,256 | Income from Operations by Segment (in thousands) - Three Months Ended April 30 | Segment | 2021 | 2020 | | :-------------------------------- | :---------- | :---------- | | Business to Business Products Group | $7,146 | $8,198 | | Retail and Wholesale Products Group | $2,898 | $6,412 | | Corporate Expenses | $(8,113) | $(8,910) | | Total Income from Operations | $1,931 | $5,700 | 11. STOCK-BASED COMPENSATION This section describes the company's stock-based compensation plans and related expenses - The 2006 Long Term Incentive Plan permits grants of stock options, restricted stock, and other awards, with 356,446 shares available for future grants as of April 30, 2021[87] Stock-Based Compensation Expense (in thousands) | Period | 2021 | 2020 | | :---------------- | :---------- | :---------- | | Third Quarter | $559 | $770 | | First Nine Months | $1,849 | $2,549 | Restricted Stock Transactions (in thousands, except fair value) | Metric | Restricted Shares | Weighted Average Grant Date Fair Value | | :-------------------------------------- | :---------------- | :------------------------------------- | | Non-vested restricted stock at July 31, 2020 | 390 | $33.19 | | Granted | 56 | $35.97 | | Vested | (67) | $33.10 | | Forfeitures | (25) | $29.58 | | Non-vested restricted stock at April 30, 2021 | 354 | $33.91 | 12. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME This section details changes in accumulated other comprehensive income (loss), including pension and translation adjustments Changes in Accumulated Other Comprehensive (Loss) Income (in thousands) | Component | Balance as of July 31, 2020 | Net current-period other comprehensive income, net of tax | Balance as of April 30, 2021 | | :-------------------------------------- | :-------------------------- | :-------------------------------------------------------- | :--------------------------- | | Pension and Postretirement Health Benefits | $(11,994) | $494 | $(11,500) | | Cumulative Translation Adjustment | $(260) | $520 | $260 | | Total Accumulated Other Comprehensive (Loss) Income | $(12,254) | $1,014 | $(11,240) | - Accumulated Other Comprehensive Loss improved from $(12.25) million at July 31, 2020, to $(11.24) million at April 30, 2021[91] - The improvement was driven by a $494,000 increase in pension and postretirement benefits and a $520,000 positive cumulative translation adjustment[91] 13. RELATED PARTY TRANSACTIONS This section discloses transactions with related parties, including sales to customers and payments to vendors Related Party Transactions (in thousands) | Transaction Type & Period | 2021 (3 Months) | 2020 (3 Months) | 2021 (9 Months) | 2020 (9 Months) | | :------------------------------------ | :-------------- | :-------------- | :-------------- | :-------------- | | Net sales to customer with Board member | $72 | $103 | $253 | $263 | | Payments to vendor with Board member | $72 | $119 | $273 | $182 | - Outstanding accounts receivable from the related customer were $10,000 at April 30, 2021, with no outstanding accounts payable to the related vendor[92][93] 14. SUBSEQUENT EVENTS This section reports significant events that occurred after the balance sheet date - On May 4, 2021, the company purchased a pension annuity, settling $8.5 million of projected benefit obligations and recognizing a settlement loss of approximately $0.6 million[94] Item 2. Management's Discussion and Analysis of Financial Condition and Results Of Operations This section analyzes financial condition and operations, covering COVID-19 impact, segment performance, and liquidity OVERVIEW This section provides an overview of the company's business, products, and the impact of external factors like COVID-19 - The company develops, mines, manufactures, and markets sorbent products primarily from clay minerals, serving two main customer groups: Retail and Wholesale, and Business to Business[97] - COVID-19 has not significantly impacted the business as a whole, with facilities operating as essential businesses, but has caused changes in consumer purchasing patterns and increased costs[98] - Industrial and sports product sales declined in fiscal year 2020 but are showing positive trends with re-openings; fluids purification product sales were negatively impacted by reduced travel and plant test delays[99] - The company experienced increased transportation costs due to a national driver shortage and tight trucking capacity, and higher packaging and materials costs due to commodity price increases[105][121] NINE MONTHS ENDED APRIL 30, 2021 COMPARED TO NINE MONTHS ENDED APRIL 30, 2020 This section analyzes financial performance for the nine months ended April 30, 2021, compared to the prior year CONSOLIDATED RESULTS This section presents a consolidated analysis of the company's financial results, including sales, gross profit, and net income - Consolidated net sales increased by 4% to $226.85 million, driven by both Retail and Wholesale and Business to Business segments[104] - Consolidated gross profit decreased to 24% of net sales from 28%, primarily due to higher freight (up 15%), packaging (up 13%), materials (up 5%), natural gas (up 3%), and non-fuel costs per manufactured ton[105] - Total SG&A expenses decreased by 2% to $43.65 million, attributed to lower estimated annual incentive bonus accrual and pension costs, partially offset by increased 401(k) employer match[106][107] - Consolidated net income before taxes decreased by 22% to $12.07 million[109] - Income tax expense decreased to $1.65 million (14% effective tax rate) from $2.57 million (17% effective tax rate), due to lower expected annual taxable income and certain tax credits/deductions[110] BUSINESS TO BUSINESS PRODUCTS GROUP This section details the financial performance of the Business to Business Products Group segment - Net sales increased by 3% to $80.10 million, driven by a 13% increase in agricultural and horticultural chemical carrier products and a 1% increase in fluids purification products[111] - Agricultural sales benefited from a shift in timing of sales to a major customer, a new business application for Agsorb, and new smaller customers[111] - Fluids purification sales improved in Latin America and Europe but decreased in North America and Asia due to COVID-19 impacts, good oil quality, and price competition[111] - SG&A expenses increased by 6% due to investment in the animal health business (increased sales personnel, leadership, marketing), partially offset by lower travel and bad debt expenses[112] - Operating income decreased by 4% to $23.01 million, primarily due to higher freight, packaging, materials, natural gas, and non-fuel costs, as well as increased SG&A[113] RETAIL AND WHOLESALE PRODUCTS GROUP This section details the financial performance of the Retail and Wholesale Products Group segment - Net sales increased by 4% to $146.75 million, primarily driven by a 5% increase in cat litter sales (private label and branded scoopable) and a 2% increase in industrial and sports products[114] - Increased pet adoption and overall macro spending on pets contributed to higher cat litter sales[114] - Industrial and sports product sales increased due to the re-opening of businesses and sports fields[114] - SG&A expenses decreased by 1% due to lower travel and bad debt expenses, partially offset by higher advertising costs[115] - Operating income decreased by 25% to $11.49 million, driven by lower sales and higher freight, packaging, materials, natural gas, and non-fuel costs[116] FOREIGN OPERATIONS This section analyzes the financial performance and sales trends of the company's foreign subsidiaries - Foreign subsidiaries' net sales increased by 18% to $13.01 million, representing 6% of consolidated net sales[117] - Canada subsidiary's cat litter sales increased by 24% and industrial absorbent granules by 31% due to new products, existing customer sales, promotions, and re-openings[117] - Animal health product sales grew in China (up 49% due to new contracts, increased sales, and marketing efforts) and Mexico[117] - Net sales in the United Kingdom decreased due to COVID-19 lockdowns impacting demand for industrial floor granules and jet fuel purification products, and a customer discontinuing a product[117] - Foreign subsidiaries reported a net loss of $177,000, primarily due to continued investment in Indonesia and higher SG&A in Mexico, partially offset by higher net income from China[118] THREE MONTHS ENDED APRIL 30, 2021 COMPARED TO THREE MONTHS ENDED APRIL 30, 2020 This section analyzes financial performance for the three months ended April 30, 2021, compared to the prior year CONSOLIDATED RESULTS This section presents a consolidated analysis of the company's financial results, including sales, gross profit, and net income - Consolidated net sales were essentially flat at $76.25 million[120] - Consolidated gross profit decreased to 22% of net sales from 28%, driven by higher freight (up 28%), packaging (up 19%), materials (up 9%), natural gas (up 11%), and non-fuel costs per manufactured ton[121] - Total SG&A expenses decreased by 7% to $14.59 million, mainly due to a lower estimated annual incentive bonus accrual[122] - Consolidated net income before taxes decreased to $2.16 million from $5.60 million[123] - The company reported a tax benefit of $24,000 (effective tax rate of -1%) compared to a tax expense of $947,000 (17% effective tax rate) in the prior year, due to lower expected annual taxable income, employment-related credits, and a foreign-derived income tax deduction[124] BUSINESS TO BUSINESS PRODUCTS GROUP This section details the financial performance of the Business to Business Products Group segment - Net sales decreased slightly by 1% to $26.29 million[125] - Agricultural and horticultural chemical carrier products sales increased by 7%, and animal health and nutrition products sales increased by 3%, particularly in Asia and Latin America[125] - Fluids purification products sales decreased by 3% due to timing, COVID-19 impacts, and good oil quality in North America, but saw improvement in Latin America[125] - Co-packaged coarse cat litter sales decreased by 15% due to normalized purchasing patterns after pantry loading in the prior year[125] - Operating income decreased by 13% to $7.15 million, driven by increased manufacturing costs[127] RETAIL AND WHOLESALE PRODUCTS GROUP This section details the financial performance of the Retail and Wholesale Products Group segment - Net sales increased by 1% to $49.96 million[128] - Industrial and sports products sales increased by 20% due to the re-opening of businesses and sports fields[128] - Cat litter sales decreased by 3% due to the timing of sales and a return to normalized purchasing after pantry loading in the prior year, despite continued positive impact from increased pet adoption[128] - SG&A expenses decreased by 5% due to lower travel and bad debt expenses[129] - Operating income decreased by $3.51 million to $2.90 million, driven by lower sales and higher manufacturing costs[130] FOREIGN OPERATIONS This section analyzes the financial performance and sales trends of the company's foreign subsidiaries - Foreign subsidiaries' net sales increased by 9% to $4.17 million, representing approximately 5% of consolidated net sales[131] - Canada subsidiary's cat litter sales increased by 13% and industrial absorbent granules by 64% due to new products, existing customer sales, and re-openings[131] - Animal health product sales were slightly lower due to the timing of Chinese New Year[131] - Net sales in the United Kingdom decreased due to COVID-19 lockdowns and a customer discontinuing a product[131] - Foreign subsidiaries reported a net loss of $134,000, compared to a net loss of $31,000 in the prior year, due to higher SG&A expenses supporting foreign sales growth[132] LIQUIDITY AND CAPITAL RESOURCES This section discusses the company's liquidity, capital requirements, cash flows, and financing arrangements - Principal capital requirements include working capital, equipment upgrades, new product development, infrastructure investment, stock repurchases, dividends, pension contributions, and potential acquisitions[133] - Cash flows from operations and available liquidity are anticipated to be sufficient for cash requirements, despite COVID-19 not having a significant impact on operations to date[134] Condensed Consolidated Statements of Cash Flows Summary (in thousands) | Cash Flows From | 2021 | 2020 | | :-------------------------------------------- | :---------- | :---------- | | Operating Activities | $8,340 | $22,269 | | Investing Activities | (10,753) | (10,758) | | Financing Activities | (8,324) | (12,852) | | Net Decrease in Cash and Cash Equivalents | $(10,572) | $(1,314) | - Net cash provided by operating activities decreased significantly due to increases in accounts receivable and prepaid expenses, and decreases in accounts payable and accrued expenses[137][139][141][142] - Net cash used in financing activities decreased due to lower treasury stock repurchases and no principal payments on notes payable in the current period[147] - The company has a $45 million unsecured revolving credit agreement with BMO Harris Bank N.A., expiring January 31, 2024, and was in compliance with all covenants as of April 30, 2021[149] - A new debt instrument was entered into on May 15, 2020, issuing $10 million in 3.95% Series B Senior Notes due May 15, 2030, with an ability to request up to $75 million in additional notes[150] - As of April 30, 2021, the company had authority to repurchase 816,863 shares of Common Stock[151] CRITICAL ACCOUNTING POLICIES AND ESTIMATES This section highlights critical accounting policies and estimates that require significant management judgment - The preparation of financial statements requires estimates and assumptions, which are periodically revised, and actual results may differ[154] - This section refers to the critical accounting policies detailed in the Annual Report on Form 10-K for the fiscal year ended July 31, 2020[154] Item 4. Controls and Procedures This section details management's evaluation of disclosure controls and internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section evaluates the effectiveness of the company's disclosure controls and procedures - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of April 30, 2021[155] - These controls provide reasonable assurance that information required for Exchange Act reports is recorded, processed, summarized, and reported timely[155] Changes in Internal Control over Financial Reporting This section reports on any changes in internal control over financial reporting during the period - No material impact to internal controls over financial reporting has been experienced despite employees working remotely due to COVID-19[156] - No changes in internal control over financial reporting occurred during the fiscal quarter ended April 30, 2021, that materially affected or are reasonably likely to materially affect it[157] Inherent Limitations on Effectiveness of Controls This section acknowledges the inherent limitations of internal control systems - Management acknowledges that control systems provide only reasonable, not absolute, assurance and cannot prevent or detect all errors and fraud[158] - Limitations include resource constraints, faulty judgments, simple errors, circumvention by individual acts or collusion, and management override[158] PART II – OTHER INFORMATION This part covers risk factors, equity security sales, mine safety disclosures, a list of exhibits, and official signatures Item 1A. Risk Factors This section refers to existing risk factors, noting no material changes since the last Annual Report on Form 10-K - No material changes to the company's risk factors have occurred since the Annual Report on Form 10-K for the year ended July 31, 2020, except as set forth in the Quarterly Report on Form 10-Q for the quarter ended January 31, 2021[161] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchase activities during the three months ended April 30, 2021 - No unregistered securities were sold during the three months ended April 30, 2021[162] Issuer Purchases of Equity Securities (Common Stock) - Three Months Ended April 30, 2021 | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that may yet be Purchased Under Plans or Programs | | :---------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :------------------------------------------------------------------------- | | February 1, 2021 to February 28, 2021 | 14,689 | $34.83 | 14,689 | 823,333 | | March 1, 2021 to March 31, 2021 | 198 | $34.98 | 198 | 823,135 | | April 1, 2021 to April 30, 2021 | 6,272 | $34.71 | 6,272 | 816,863 | - The Board of Directors authorized the repurchase of 250,000 shares of Common Stock on June 14, 2012, and an additional 750,000 shares on March 11, 2019, with no stated expiration date[163] Item 4. Mine Safety Disclosures This section indicates mine safety violations and regulatory matters are provided in Exhibit 95 - Information concerning mine safety violations or other regulatory matters is included in Exhibit 95 to this Quarterly Report on Form 10-Q[164] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL taxonomy documents List of Exhibits | Exhibit No. | Description | | :---------- | :---------------------------------------------- | | 11 | Statement re: Computation of Earnings Per Share | | 31 | Certifications pursuant to Rule 13a–14(a) | | 32 | Certifications pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 | | 95 | Mine Safety Disclosures | | 101.SCH | XBRL Taxonomy Extension Schema Document | | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | | 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | | 101.LAB | XBRL Taxonomy Extension Labels Linkbase Document | | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase | | 104 | Cover Page Interactive Data File | - Stockholders can request copies of the listed exhibits without fee from Investor Relations[165] Signatures This section contains the official signatures of the registrant's authorized officers, confirming report submission - The report is signed by Daniel S. Jaffee, Chairman, President and Chief Executive Officer, and Susan M. Kreh, Chief Financial Officer, on behalf of Oil-Dri Corporation of America[168] - The report was dated June 8, 2021[168]