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Item 7. Management’s Discussion and Analysis

2020-10-13 compared with 2019-10-10 · 214 added, 143 removed, 161 unchanged (69% of the section changed)

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We have two reportable operating segments based on the different characteristics of our two primary customer groups:

Retail and Wholesale Products Group and Business to Business Products Group.

the Retail and Wholesale Products Group and the Business to Business Products Group.

Each operating segment is discussed individually below.

Additional detailed descriptions of the operating segments are included in Item 1 “Business” above.

Consolidated net income was $12,611,000 , or $1.67 per diluted share, for the fiscal year ended July 31, 2019 , a 53% increase from net income of $8,240,000 , or $1.11 per diluted share, for the fiscal year ended July 31, 2018 .

Net income in fiscal year 2019 included net proceeds received upon resolution of legal proceedings.

Net income in fiscal year 2018 was significantly impacted by a $3,996,000 increase in tax expense to record the impact of the 2017 Tax Cuts and Jobs Act (the “2017 Act”) on deferred income tax assets, which effectively reduced diluted net income per share by $0.54 per share.

Consolidated net sales were up about 4% in fiscal year 2019 compared to fiscal year 2018 ;

however, income from operations declined 34% due to higher cost of sales.

Lower selling, general and administrative expenses partially offset the higher cost of sales.

Our Consolidated Balance Sheets as of July 31, 2019 and our Consolidated Statements of Cash Flows for fiscal year 2019 show an increase in total cash, cash equivalents and short-term investments from fiscal year-end 2018 , even while we continue to invest in capital, repay debt and pay dividends.

RESULTS OF OPERATIONS

Consolidated net sales increased approximately $6,202,000 or 2% in fiscal year 2020 compared to fiscal year 2019 along with an increase in income from operations of $14,415,000 or 138% .

The increase in income from operations relates to a decrease in cost of sales and a one-time receipt of $13,000,000 relating to licensing of certain of our patents as further described in Note 1 of the Notes to the Consolidated Financial Statements partially offset by higher selling, general and administrative expenses.

Consolidated net income was $18,900,000 , or $2.65 per diluted common share, for the fiscal year ended July 31, 2020 , a 50% increase from net income of $12,611,000 , or $1.80 per diluted common share, for the fiscal year ended July 31, 2019 .

Higher income from operations as noted above contributed to the increase in net income in fiscal year 2020 offset in part by pension settlement expense as further described in Note 9 of the Notes to the Consolidated Financial Statements as well as by higher income tax expense.

Our Consolidated Balance Sheets as of July 31, 2020 and our Consolidated Statements of Cash Flows for fiscal year 2020 show an increase in total cash and cash equivalents from fiscal year-end 2019 , even while we continue to invest in our facilities, repay debt, pay dividends and make contributions to our pension plan.

The increase in cash is further described in Liquidity and Capital Resources.

In December 2019, COVID-19 was reported in China and has subsequently spread worldwide.

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.

While we saw changes to consumer purchasing patterns for certain products in response to the pandemic and certain increases in our costs arising out of the pandemic, COVID-19 has not, to date, had a significant impact on our business as a whole.

All of our facilities, with the exception of our subsidiary in China, (which as noted below, has resumed operations), have continued to operate as essential businesses as permitted under exceptions in the applicable shelter-in-place mandates due to our inclusion in the Critical Manufacturing Sector as defined by the U.S.

Department of Homeland Security and other functions defined as essential by government authorities.

Our subsidiary in China returned to operations in the third quarter of fiscal year 2020.

Our top priority has been, and continues to be, the safety and health of our employees, contractors, and customers.

We have adhered to and continue to adhere to guidance from the U.S.

Centers for Disease Control and Prevention and local health and governmental authorities with respect to social distancing and physical separation.

Additionally, we have increased cleaning and sanitation programs at each of our facilities.

As a result, we have not experienced any shutdowns due to workforce absences or illnesses.

As further discussed below, our sales increased in fiscal year 2020 primarily due to volume.

One of the primary drivers of the increase is that in the third quarter of fiscal year 2020 consumers purchased more cat litter and related products in anticipation of potential future shortages and store closures due to COVID-19.

We experienced increases in cat litter sales for both our U.S.

business and our subsidiary in Canada as consumers bought more cat litter and related products in response to the shelter-in-place

orders instituted by many states and localities in response to the COVID-19 outbreak.

Sales normalized by fiscal year-end 2020.

Despite the increase in sales, we have not experienced any increased issues collecting amounts due from customers to date.

However, other areas of our business have been negatively impacted.

Sales from our industrial and sports products declined in fiscal year 2020 as businesses and sports fields shut down.

In the long-term, we foresee that our sports product sales will improve back to pre-pandemic volumes with the re-opening of baseball and softball at all levels.

There has been some lower demand from customers in our agricultural business as well a shift in demand from fiscal year 2020 into fiscal year 2021 for one of our customers.

In addition, our fluids purification sales decreased in part due to the closures of restaurants and schools, which have not fully re-opened.

To a lesser extent, our inability due to COVID-19 to participate in our customers' plant tests of our fluids purification products has also impeded our sales in recent months.

Further, during the second quarter of fiscal year 2020 our operations in China temporarily closed, which disrupted our business in China.

Our operations in China subsequently re-opened in the third quarter of fiscal year 2020.

Consolidated gross profit has not been significantly impacted by COVID-19.

Our suppliers have either remained open or we have found new suppliers to meet the increase in consumer demand without an impact to pricing.

While we have incurred some additional costs from truck loading delays due to the large volume of sales, these costs have not been significant.

Further, we have been able to successfully navigate delays in overseas vessel deliveries of our products by increasing our safety stock early in the COVID-19 outbreak as well as finding other providers.

We have incurred additional employee compensation costs as a result of increased production to meet increased customer demand as well as additional cleaning and sanitation costs in recent months, but these costs did not have a significant impact on our consolidated gross profit.

In addition, we have experienced a decrease in travel costs as our employees have not been traveling during the outbreak.

We are closely monitoring the continued spread and effects of the outbreak of COVID-19 on all aspects of our business, including how it has and may impact our suppliers and customers.

We have not experienced any significant negative impacts or interruptions and we will continue to closely monitor our inventory levels to mitigate the risk of any potential supply interruptions or changes in customer demands.

The impacts of COVID-19 and related economic conditions on our future results are uncertain at this time.

The scope, duration and magnitude of the direct and indirect effects of COVID-19 continue to evolve (and in many cases, rapidly) and in ways that are difficult or impossible to anticipate.

In addition, because COVID-19 did not materially impact our financial results to date and it remains uncertain whether and how consumers will modify their purchasing habits in response to COVID-19 and continued or reduced government restrictions, these results may not be indicative of the impact that COVID-19 may have on our future results.

See “Part I - Item 1A - Risk Factors” for additional discussion regarding the risks COVID-19 presents our business.

The impacts of COVID-19 to our specific operating segments are discussed below.

R ESULTS O F O PERATIONS

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CONSOLIDATED RESULTS

Consolidated net sales in fiscal year 2019 were $277,025,000 , an increase of $11,025,000 from net sales of $266,000,000 in fiscal year 2018 .

Consolidated net sales in fiscal year 2020 reached an all-time high of $283,227,000 , an increase of $6,202,000 from net sales of $277,025,000 in fiscal year 2019 .

Net sales in our Retail and Wholesale Products Group increased for our cat litter products, as well as for our subsidiaries in Canada and the United Kingdom.

Net sales in our Business to Business Products Group also increased, particularly for products used in agricultural and fluids purification applications.

Net sales in our Business to Business Products Group decreased slightly.

Sales fluctuations by operating segment are further discussed below.

Consolidated gross profit in fiscal year 2019 was $65,660,000 , a decrease of $6,262,000 from gross profit of $71,922,000 in the prior year.

Our gross margin (defined as gross profit as a percentage of net sales) in fiscal year 2019 decreased to 24% from 27% in fiscal year 2018 .

Gross profit decreased due primarily to higher freight, packaging and manufacturing costs.

Freight costs per ton increased approximately 10% compared to the prior fiscal year.

A shortage of truck drivers that reduced truck availability and further phase-in of government regulations in the trucking industry continued to result in higher freight costs in the first three quarters of fiscal year 2019.

Truck availability significantly improved in the fourth quarter of fiscal year 2019 and resulted in lower costs that partially offset the increases earlier in the fiscal year.

In addition, freight costs for the year were negatively impacted by a greater number of product transfers between our plants and warehouses to support customer service during the implementation of our new ERP system on August 1, 2018, and by disruptions due to Hurricane Michael in the first quarter of fiscal year 2019.

Our overall freight costs also vary depending on the mix of products sold and the geographic distribution of our customers.

Packaging costs per ton were approximately 10% higher compared to the prior fiscal year.

Consolidated gross profit in fiscal year 2020 was $75,823,000 , an increase of $10,163,000 from gross profit of $65,660,000 in the prior fiscal year.

Our gross margin (defined as gross profit as a percentage of net sales) in fiscal year 2020 increased to 27% from 24% in fiscal year 2019 .

Gross profit increased primarily due to lower freight, natural gas and warehouse costs.

Freight costs per manufactured ton decreased approximately 18% compared to the prior fiscal year due in part to lower transportation rates from improved truck availability.

Costs were higher in the first half of the prior fiscal year due to one-time events, including a greater number of product transfers between our plants and warehouses to support customer service during the implementation of our new ERP system on August 1, 2018 and disruptions due to Hurricane Michael.

Our overall freight costs also vary between periods depending on the mix of products sold and the geographic distribution of our customers.

We do expect that freight costs will increase in fiscal 2021 as there is an anticipated industry freight need as imports are surging back to pre-COVID-19 levels.

The cost per manufactured ton of natural gas used to operate kilns that dry our clay was approximately 29% lower in fiscal year 2020 compared to fiscal year 2019.

Warehouse costs were lower in fiscal year 2020 compared to fiscal year 2019 due to better management of inventory.

Our suppliers have remained open during COVID-19 and have been able to meet our increased demand.

In contrast, non-fuel manufacturing costs per ton were up approximately 3% and purchased material per ton also increased 3%.

In addition, we incurred additional employee compensation costs as a result of increased production to meet increased customer demand as well as cleaning and sanitation costs in recent months due to COVID-19.

These costs related to COVID-19 did not

have a significant impact on our consolidated gross profit.

In addition, an increase in the number of tons produced contributed to higher costs for labor and mining-related costs.

Our repairs expense also increased for routine and preventative equipment maintenance.

Packaging costs per ton were approximately 1.3% higher compared to the prior fiscal year due in part to the mix of products produced.

Many of our contracts for packaging purchases are subject to periodic price adjustments, which trail changes in underlying commodity prices.

Costs in fiscal year 2019

for both our resin and paper-based packaging reflected higher prices in their respective commodity prices compared to the prior year.

In addition, during this period of higher costs in fiscal year 2019, we purchased more packaging in anticipation of increased sales and for safety stock during the ERP implementation.

Recent declines in commodity prices positively impacted packaging costs for the fourth quarter of fiscal year 2019.

In addition, non-fuel manufacturing costs per ton were up approximately 7%.

An increase in the number of tons produced contributed to higher costs for labor and mining-related costs.

Repairs expense also increased for routine and preventative equipment maintenance.

Early in fiscal 2019, our plants incurred additional costs due to processing interruptions during the ERP implementation and the hurricane mentioned above.

Finally, the cost per manufactured ton of natural gas used to operate kilns that dry our clay was approximately 5% higher;

however, lower prices in the fourth quarter moderated the year over year increase.

Total selling, general and administrative expenses were 1% lower in fiscal year 2019 compared to fiscal year 2018 .

The discussions of each segment's operating income below describe the changes in selling, general and administrative expenses that were allocated to that segment, particularly lower advertising expense in the Retail and Wholesale Products Group.

The remaining unallocated corporate expenses in fiscal year 2019 included a lower estimated annual incentive bonus accrual for fiscal year-end 2019 compared to fiscal year-end 2018 .

Total selling, general and administrative expenses were 16% higher in fiscal year 2020 compared to fiscal year 2019 .

The discussions of each segment's operating income below describe the changes in selling, general and administrative expenses that were allocated to that segment, particularly the higher advertising costs in the Retail and Wholesale Products Group.

The remaining unallocated corporate expenses in fiscal year 2020 included a higher estimated annual incentive bonus accrual for fiscal year 2020 compared to fiscal year 2019 .

The incentive bonus accrual was based on actual financial results achieved for the fiscal year and discretion by our Chief Executive Officer, in accordance with the incentive plan's provisions.

The lower bonus expense was partially offset by higher costs related to the new ERP system implementation and costs associated with executive personnel changes.

Other income of $4,723,000 in fiscal year 2019 included net proceeds upon resolution of legal proceedings.

Also included in unallocated corporate expenses was additional expense related to the increase in employer match for our 401(k) plan.

A legal contingency is also included in unallocated corporate expenses in fiscal 2020 as further discussed in Note 10 of the Notes to the Consolidated Financial Statements.

These higher expenses were partially offset by lower legal and deferred compensation costs and the curtailment gain related to our Supplemental Executive Retirement Plan as further described in Note 9 of the Notes to the Consolidated Financial Statements.

Other expense of $1,387,000 in fiscal year 2020 included expense of approximately $2,000,000 of settlement expense under our pension plan as further described in Note 8 to the Notes to the Consolidated Financial Statements.

In fiscal year 2019 Other income of $4,723,000 included net proceeds upon resolution of legal proceedings.

The amount received under a confidential agreement resolving these legal proceedings was material to our financial results for the period.

Tax expense for fiscal year 2019 was $1,933,000 compared to $6,644,000 in fiscal year 2018 .

Excluding the $3,996,000 tax adjustment discussed in the “Overview” above, the effective tax rate for fiscal year 2018 would have been 17.8%.

The effective tax rate for fiscal 2019 was lower at 13.3% , due primarily to the lower U.S.

federal corporate tax rate under the 2017 Tax Act.

See Note 2 of the Notes to the Consolidated Financial Statements.

Tax expense for fiscal year 2020 was $4,280,000 compared to $1,933,000 in fiscal year 2019 driven by our increase in net income.

See Note 5 of the Notes to the Consolidated Financial Statements for additional information about our income taxes.

BUSINESS TO BUSINESS PRODUCTS GROUP

Net sales of the Business to Business Products Group for fiscal year 2019 were $105,877,000 , an increase of $834,000 , or 1% , from net sales of $105,043,000 in fiscal year 2018 .

Net sales increased for our products used in fluids purification and agricultural applications, as well as for our co-packaged cat litter;

however, sales declined for our animal health products.

Sales of our fluids purification products increased approximately 4% .

Sales to domestic edible oil processors increased due to the characteristics of recent crops that required higher usage of our purification products.

In contrast, the strength of the U.S.

Dollar created price competition in some foreign markets, which resulted in a loss of sales to local suppliers.

Sales of our agricultural and horticultural products were approximately 2% higher compared to the prior year, due primarily to improved sales for our engineered granules.

Sales of our co-packaged cat litter also increased approximately 3% due primarily to higher volume.

Net sales of animal health and nutrition products decreased approximately 12% .

A swine virus outbreak that started in China in August 2018 has spread to other countries in Asia.

The virus resulted in a significant reduction in the number of swine raised in these markets and has hurt sales of our animal health products targeted to pig producers, including sales by our subsidiary in China discussed in “Foreign Operations” below.

A delay in product registration further negatively impacted sales of animal health and nutrition products to customers in Africa.

The Business to Business Products Group’s selling, general and administrative expenses in fiscal year 2019 were approximately 4% lower compared to fiscal year 2018 , including lower net compensation-related costs associated with employee turnover and lower marketing costs.

The Business to Business Products Group’s operating income in fiscal year 2019 was $31,388,000 , a decrease of $3,732,000 from operating income of $35,120,000 in fiscal year 2018 .

Higher freight, packaging and manufacturing costs, as discussed in “Consolidated Results” above, outweighed the higher sales and lower selling general and administrative expenses.

Net sales of the Business to Business Products Group for fiscal year 2020 were $104,260,000 , a decrease of $1,617,000 , or 2% , from net sales of $105,877,000 in fiscal year 2019 .

Net sales increased for our cat litter and animal health products;

however, sales declined for our agricultural and horticultural products and fluids purification products.

Net sales of our agricultural and horticultural chemical carrier products decreased approximately 10% or $2,425,000 in fiscal year 2020 compared to fiscal year 2019.

Sales of traditional granules declined primarily due to the previously reported loss of a large customer, which was partially offset by increased sales to an existing customer.

Lower demand from our customers in the agricultural, home and garden industries due to the impact of COVID-19 have also contributed to the decrease in net sales.

Net sales of our fluids purification products in fiscal year 2020 decreased approximately 3% or $1,788,000 compared to the prior fiscal year.

The lower sales are attributable to a plant closing of a biodiesel processing customer and local pricing competition in foreign markets due to unfavorable exchange rates.

More recently, the closures of restaurants and schools due to the outbreak of COVID-19 have caused sales to edible oil producers to decrease.

There has also been a decrease in our fluids purification sales for jet fuel processing due to reductions in travel as a result of COVID-19.

In addition, our inability to participate in our customers' plant tests of our products due to COVID-19 has also impeded our sales in recent months.

However, sales from our UK subsidiary increased in fiscal year 2020 compared to fiscal year 2019 due to a new customer;

this increase offset a portion of the decrease in sales from our overall fluids purification products.

The lower sales for our agricultural and horticultural chemical carrier products and fluids purification products were partially offset by higher sales of other products in the Business to Business Group, including an increase of approximately 6% or $764,000 compared to the prior fiscal year for sales of our co-packaged coarse cat litter primarily due to volume.

Net sales of our animal health and nutrition products also increased approximately 12% or $1,832,000 compared to the prior fiscal year.

Sales growth occurred for our animal feed additives primarily in Latin America, Mexico, Africa, and Asia, excluding China.

See “Foreign Operations” below for a discussion of sales in China, which were negatively impacted by the spread of the African swine fever in the prior year and COVID-19 in late 2019 and in 2020.

The increase in sales growth in Latin America, Mexico, Africa and Asia (excluding China) was slightly offset by a decrease in sales in North America and a delay in the product registration of one of our products as well as a delay in testing and trials of our product at our customers due to COVID-19.

The Business to Business Products Group’s selling, general and administrative expenses in fiscal year 2020 were approximately 9% or $841,000 higher compared to fiscal year 2019 , but remained relatively consistent as a percentage of sales.

The increase in SG&A is attributable to higher costs for product development and support, increased compensation-related

expenses, an increase in bad debt allowance for certain uninsured foreign receivables, and additional costs to establish our subsidiary in Indonesia.

The Business to Business Products Group’s operating income in fiscal year 2020 was flat compared to fiscal year 2019.

While net sales decreased, this decrease was offset by lower freight, natural gas, and warehouse costs in fiscal year 2020 as discussed in Consolidated Results above.

RETAIL AND WHOLESALE PRODUCTS GROUP

Net sales of the Retail and Wholesale Products Group for fiscal year 2020 were $178,967,000 , an increase of $7,819,000 , or 5% , from net sales of $171,148,000 in fiscal year 2019 .

Net sales improved for our cat litter products and for our subsidiaries in Canada and the United Kingdom.

Our foreign subsidiaries' results are discussed further in “Foreign Operations” below.

Partially offsetting these increased sales were moderately lower sales of our industrial absorbent and sweeping compound products.

Total cat litter net sales were approximately 9% higher compared to the prior year due primarily to increased volume and higher prices.

Private label cat litter drove the sales growth, which included higher sales to customers who expanded their selection of our private label scoopable products and ran store-sponsored promotions.

Private label coarse litter sales to our largest customer increased and new customers were added during fiscal year 2019.

Branded litter sales, including our branded scoopable litter, were up also up slightly.

Selling, general and administrative expenses for the Retail and Wholesale Products Group were approximately 19% lower compared to fiscal year 2018 .

The decrease was driven by approximately $3,600,000 lower advertising expense due primarily to a focus on targeted regional markets and increased use of digital media.

Sales of cat litter drove the increase in sales.

Total cat litter net sales were $12,014,000 or 9% higher compared to the prior fiscal year with increased sales of both private label and branded litters.

Sales of private label scoopable litter increased to existing customers, some of whom had expanded their selection of our products during the prior fiscal year.

Similarly, higher sales of private label coarse litter included incremental sales to customers who added these products in the prior fiscal year.

Branded coarse litter and litter box liners sales were also higher in fiscal year 2020 compared to the prior fiscal year.

Cat litter sales by our subsidiary in Canada further contributed to the sales increase, as discussed in “Foreign Operations” below.

Contributing to higher cat litter sales in fiscal year 2020 was higher consumer demand as consumers purchased more cat litter and related products in anticipation of potential future shortages and store closures due to COVID-19.

The increase in these sales due to COVID-19 leveled out to a more normalized volume towards the end of fiscal 2020.

Also included in the Retail and Wholesale Products Group's results were lower sales of our industrial and sports products compared to fiscal year 2019.

Sales of our industrial floor absorbents and sports products decreased 13% or $4,306,000 compared to fiscal year 2019, primarily driven by the impact of businesses and sports fields shutting down due to COVID-19.

Selling, general and administrative expenses for the Retail and Wholesale Products Group were approximately $2,535,000 or 15% higher compared to fiscal year 2019 .

The increase was driven by higher advertising expense due primarily to a focus on targeted programs and digital media.

The Retail and Wholesale Products Group’s segment operating income for fiscal year 2020 was $15,859,000 , an increase of $7,176,000 , from operating income of $8,683,000 in fiscal year 2019 .

The higher sales and reduction in advertising costs were offset to a great extent by higher freight, packaging and manufacturing costs, as discussed in “Consolidated Results” above.

The higher sales plus lower freight, fuel and warehouse costs, were partially offset by an increase in advertising expenses and to some extent higher packaging and non-fuel costs, as discussed in “Consolidated Results” above.

FOREIGN SUBSIDIARIES

Foreign operations include our subsidiaries in Canada and the United Kingdom, which are included in the Retail and Wholesale Products Group, and our subsidiaries in China, Mexico and Indonesia, which are included in the Business to Business Products Group.

Foreign operations include our subsidiaries in Canada and the UK, which are included in the Retail and Wholesale Products Group, and our subsidiaries in China, Mexico and Indonesia, which are included in the Business to Business Products Group.

Net sales by our foreign subsidiaries during fiscal year 2020 were $15,220,000 , an increase of $1,664,000 , or 12% , from net sales of $13,556,000 during fiscal year 2019 .

Sales for our Canada subsidiary increased due to a new private label cat litter customer.

In addition, sales by our subsidiary in the United Kingdom increased for fluids purification products sold to new and existing customers.

Our subsidiary in Mexico was acquired by the Company in the fourth quarter of fiscal year 2018 and provided incremental sales for the full year of fiscal 2019.

These sales increases were partially offset by approximately a 24% decrease in sales by our subsidiary in China.

The swine virus outbreak that started in China in August 2018 reduced the number of swine raised in this market and hurt sales of our animal health products targeted to pig producers.

Net sales by our foreign subsidiaries represented 5% and 4% of our consolidated net sales during fiscal years 2019 and 2018 , respectively.

For fiscal year 2019 , our foreign subsidiaries reported net income of $155,000 , compared to a net loss of $9,000 in fiscal year 2018 .

Net income increased due to the higher sales discussed above, which was partially offset by the currency exchange rate impact of the British Pound to the U.S.

The increase relates primarily to higher sales by our Canadian subsidiary in fiscal year 2020.

One of the drivers of this increase was higher consumer demand in the third quarter as customers purchased more cat litter and related products in anticipation of potential future shortages and store closures due to COVID-19.

In addition, our Canadian subsidiary had higher sales in fiscal year 2020 due to new products and customers.

Sales of our animal health products by our foreign operations grew to a lesser extent, as higher sales for our subsidiaries in Mexico and Indonesia were mostly offset by lower sales for our subsidiary in China.

Sales of animal health products to pork producers in China have not fully recovered since the spread of African swine fever in fiscal year 2019.

In addition, our Chinese subsidiary's business operations have been impacted in the second and third quarters of fiscal year 2020 by the recent outbreak of COVID-19.

Chinese government restrictions to control the spread of COVID-19 disrupted our sales office, limited travel by our salesforce and delayed product shipments.

In addition, our subsidiary in China had a delay in product registration for one of our products as discussed above.

Net sales by our foreign subsidiaries represented 5% of our consolidated net sales for both the fiscal years 2020 and 2019 .

For fiscal year 2020 , our foreign subsidiaries reported a net loss of $1,308,000 , compared to net income of $155,000 in fiscal year 2019 .

Our subsidiaries in Canada and the UK experienced an increase in sales and net income in fiscal year 2020.

While our subsidiaries in Mexico and Indonesia experienced an increase in sales in fiscal year 2020 they also had net losses, primarily due to sales commissions to brokers for our Mexico subsidiary and additional costs to establish operations in Indonesia.

Our Chinese subsidiary experienced a loss in fiscal year 2020 due to a decrease in sales as noted above as well as changes in product mix.

Identifiable assets of our foreign subsidiaries as of July 31, 2020 were $12,586,000 compared to $10,195,000 as of July 31, 2019 .

The increase was due primarily to higher cash and inventory balances.

The increase was due primarily to higher cash, inventory and receivables balances.

L IQUIDITY AND C APITAL R ESOURCES

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investing in infrastructure;

repurchasing stock;

paying dividends;

making pension contributions and business acquisitions.

making pension contributions;

and, from time to time, business acquisitions.

During fiscal year 2020 , we primarily used cash generated from operations to fund these requirements.

During fiscal year 2018, we borrowed under our revolving credit agreement with BMO Harris to make a voluntary contribution to our pension plan.

This borrowing is described under “Other” below and the pension plan is discussed in Note 8 of the Notes to the Consolidated Financial Statements.

Cash and cash equivalents totaled $40,890,000 and $21,862,000 as of July 31, 2020 and 2019 , respectively.

We had no short term investments as of July 31, 2019 and held $7,124,000 as of July 31, 2018 .

Contributing to the increase in cash in fiscal year 2020 is $10,000,000 of borrowings in the fourth quarter of fiscal year 2020 as well as a one-time receipt of $13,000,000 related to licensing of certain of our patents.

See Notes 1 of the Notes to the Consolidated Financial Statements for information about the one-time receipt and Note 3 for the borrowings.

To date, COVID-19 has not had a significant impact on our operations as a whole, and we anticipate cash flows from operations and our available sources of liquidity will be sufficient to meet our cash requirements.

In addition, we are actively monitoring the timing and collection of our accounts receivable.

Given the dynamic nature of COVID-19, we will continue to assess our liquidity needs and to actively manage our spending.

The following table sets forth certain elements of our Consolidated Statements of Cash Flows for the fiscal year (in thousands):

Net cash provided by operating activities

Net cash (used in) provided by investing activities

Net cash used in investing activities

Net cash used in financing activities

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In addition to net income, as adjusted for depreciation and amortization and other non-cash operating activities, the primary sources and uses of operating cash flows for fiscal years 2020 and 2019 were as follows:

Non-cash stock compensation expense was $807,000 higher for fiscal 2019 compared to fiscal 2018 due to additional grants of restricted stock.

Non-cash stock compensation was $961,000 higher for fiscal 2020 compared to fiscal 2019 due to additional grants of restricted stock in fiscal year 2020.

In addition, in fiscal year 2019, the amount of stock awarded was significantly higher than in the previous year and a full year of expense related to these awards was recorded in fiscal year 2020.

See Note 7 of the Notes to the Consolidated Financial Statements for further information about stock-based compensation.

Deferred income taxes were $406,000 higher at fiscal year-end 2019 compared to fiscal year-end 2018 , and were $7,270,000 lower at fiscal year-end 2018 compared to fiscal year-end 2017 .

During fiscal year 2018, an adjustment to reflect the lower U.S.

federal corporate tax rate under the 2017 Tax Act reduced deferred taxes, particularly related to depreciation, deferred compensation and postretirement benefits.

Deferred income taxes were $453,000 lower at fiscal year-end 2020 compared to fiscal year-end 2019 , and were $406,000 higher at fiscal year-end 2019 compared to fiscal year-end 2018 .

Deferred income taxes were lower at fiscal year-end 2020 due to postretirement benefits and accrued expenses.

Deferred income taxes were higher at fiscal year-end 2019 because during fiscal year 2018, an adjustment to reflect the lower U.S.

federal corporate tax rate under the 2017 Tax Cuts and Jobs Act reduced deferred taxes, particularly related to depreciation, deferred compensation and postretirement benefits.

See Note 5 of the Notes to the Consolidated Financial Statements for further information about income taxes.

Accounts receivable, less allowance for doubtful accounts and cash discounts, were $1,908,000 higher at fiscal year-end 2019 compared to fiscal year-end 2018 due primarily to higher sales in the fourth quarter of fiscal year 2019 compared to the same period in fiscal year 2018.

The same measure of accounts receivable was $270,000 higher at fiscal year-end 2018 compared to fiscal year-end 2017 .

Fluctuations in accounts receivable balances were impacted in all periods by the timing of both sales and collections, as well as the payment terms provided to various customers.

Inventories were $1,693,000 higher at fiscal year-end 2019 compared to fiscal year-end 2018 due primarily to more on-hand quantities of packaging and other materials purchased at higher costs.

A lower reserve for discontinued, slow moving and unsaleable inventory also contributed to the higher inventory value at fiscal year-end 2019.

A higher reserve for unsalable inventory drove a $225,000 decrease in inventory at fiscal year-end 2018 compared to fiscal year-end 2017 .

We recognized a curtailment gain on our Supplemental Executive Retirement Plan (“SERP”) plan in fiscal year 2020 of $1,296,000, which is further discussed in Note 9 of the Notes to the Consolidated Financial Statements.

Accounts receivable, less allowance for doubtful accounts and cash discounts, were $411,000 lower at fiscal year-end 2020 compared to fiscal year-end 2019 due primarily to lower sales in the fourth quarter of fiscal 2020 and an increase in our bad debt reserve for certain uninsured foreign receivables which had been previously insured, and for two customers that are slow-paying.

The same measure of accounts receivable was $1,908,000 higher at fiscal year-end 2019 compared to fiscal year-end 2018 due to higher sales in the fourth quarter of fiscal year 2019 compared to the same fiscal year end 2018.

Fluctuations in

accounts receivable balances were impacted in all periods by the timing of both sales and collections, as well as the payment terms provided to various customers in the ordinary course of business.

Inventories were $213,000 lower at fiscal year-end 2020 compared to fiscal year-end 2019 due primarily to a higher obsolescence reserve and lower inventory packaging levels.

The higher obsolescence reserve and lower packaging inventories are attributed to our focus on inventory management and enhanced data available from our ERP system.

Inventories were $1,693,000 higher at fiscal year-end 2019 compared to fiscal year-end 2018 for the exact opposite reason than in fiscal year 2020.

A larger amount of on-hand quantities of packaging and other materials purchased at higher costs as well as a lower reserve for discontinued, slow moving and unsaleable inventory contributed to the higher inventory value at fiscal year-end 2019.

Furthermore, finished goods and purchased materials inventories vary from year to year due to anticipated sales requirements and the mix of products expected to be produced.

See Note 1 of the Notes of the Notes to the Consolidated Financial Statements.

Other assets were $1,242,000 higher at fiscal year-end 2020 compared to fiscal year-end 2019 due to pre-production development costs at our Georgia mine.

Other assets were $617,000 higher at fiscal year-end 2019 than fiscal year-end 2018 related to intangibles.

Accounts payable, including income taxes payable, were $4,238,000 higher at fiscal year-end 2020 compared to fiscal year-end 2019 .

Accounts payable were $2,436,000 lower at fiscal year-end 2018 compared to fiscal year-end 2017 .

Higher accrued income taxes due to higher net income and a higher effective tax rate drove the increase in fiscal year 2020 as well as higher freight payables due to the increase in sales.

In addition, accounts payable were higher at fiscal year-end 2020 due to the additional capital expenditures made in the fourth quarter.

Accounts payable were $590,000 higher at fiscal year-end 2019 compared to fiscal year-end 2018 due to normal fluctuations.

Changes in trade accounts payable in all periods are subject to normal fluctuations in the timing of payments, the cost of goods and services we purchased, production volume levels and vendor payment terms.

Accrued expenses were $589,000 lower at fiscal year-end 2019 compared to fiscal year-end 2018 due primarily to a lower accrued annual discretionary bonus, which was partially offset by higher accruals for trade promotions, advertising and freight.

Accrued expenses were $771,000 higher at fiscal year-end 2018 compared to fiscal year-end 2017 due primarily to a higher accrual for the annual bonus, which was partially offset by lower accruals for trade promotions and advertising.

Accrued expenses were $8,632,000 higher at fiscal year-end 2020 compared to fiscal year-end 2019 due primarily to a higher accrued annual discretionary bonus, 401(k) employer match, advertising costs and an accrual for a legal contingency which is further described in Note 10 of the Notes to the Consolidated Financial Statements.

These increases were partially offset by lower accruals for unvouchered freight.

Accrued expenses were $589,000 lower at fiscal year-end 2019 compared to fiscal year-end 2018 due primarily to a lower annual discretionary bonus, which was partially offset by higher accruals for trade promotions, advertising and freight.

Changes in other accrued expenses in all periods are subject to normal fluctuations in the timing of payments.

Deferred compensation balances at fiscal year-end 2019 were slightly lower compared to fiscal year-end 2018 .

Deferred compensation balances at fiscal year-end 2020 were $421,000 higher compared to fiscal year-end 2019 and fiscal year-end 2019 was slightly lower compared to fiscal year-end 2018.

Deferred compensation has increased in fiscal 2020 because of higher deferrals by participants in our deferred compensation plan.

A significant payout under the terms of the deferred compensation plan in fiscal year 2018 contributed to $86,000 lower balances at fiscal year-end 2019 compared to fiscal year-end 2018 .

Pension and other postretirement liabilities, net of the adjustment recorded in stockholders' equity, were $3,307,000 higher at fiscal year-end 2019 compared to fiscal year-end 2018 due primarily to continued accumulation of employee benefits and a lower discount rate applied to the actuarial liability calculation.

These liabilities were $11,048,000 lower at fiscal year-end 2018 compared to fiscal year-end 2017 due primarily to an $11,500,000 voluntary contribution to our pension plan in excess of the minimum amount required.

Pension and other postretirement liabilities, net of the adjustment recorded in stockholders' equity, were $5,684,000 lower at fiscal year-end 2020 compared to fiscal year-end 2019 due primarily to the curtailment of our pension plan and a $8,000,000 voluntary contribution to our pension plan in excess of the minimum amount required.

These liabilities were $3,307,000 higher at fiscal year-end 2019 compared to fiscal year-end 2018 due primarily to continued accumulation of employee benefits and a lower discount rate applied to the actuarial liability calculation.

See Note 8 of the Notes to the Consolidated Financial Statements for more information regarding our postretirement benefit plans.

Net cash (used in) provided by investing activities

Cash used in investing activities was $7,888,000 in fiscal year 2019 and cash provided by investing activities was $2,572,000 in fiscal year 2018 .

During fiscal years 2019 , dispositions of short-term investments provided cash in excess of purchases by $7,134,000 .

No short-term investments were held at fiscal year-end 2019.

Other liabilities were $1,120,000 higher at fiscal year-end 2020 compared to fiscal year-end 2019.

Other liabilities were $583,000 higher at fiscal year-end 2019 compared to fiscal year-end 2018.

The increase in fiscal year 2020 is due to a reclassification of the deferred lease liability to operating lease liabilities upon adoption of ASC 842, Leases .

The increase in fiscal year 2019 was due to a new deferred lease liability.

Net cash used in investing activities

Cash used in investing activities was $14,677,000 in fiscal year 2020 and cash used in investing activities was $7,888,000 in fiscal year 2019 .

Cash used in fiscal year 2020 related primarily to the purchases of capital expenditures at levels comparable to fiscal year 2019.

In fiscal year 2019 , dispositions of short-term investments exceeded purchases by $7,134,000 .

The excess cash was used in part to fund the voluntary contribution to our pension plan.

Capital expenditures of $15,029,000 in fiscal year 2019 were comparable to $15,074,000 in fiscal year 2018 .

Expenditures in both periods included equipment additions and replacement at our manufacturing facilities.

Expenditures in fiscal year 2018 also included significant spending for the ERP system implementation and related infrastructure improvements.

In addition, cash proceeds of $1,747,000 were received in fiscal year 2018 from the closing of a life insurance policy on a former key employee.

Net dispositions of investment securities provided cash in the first nine months of fiscal year 2019;

however, no short-term investments were held in fiscal year 2020 due to the low returns available on these investments.

Net cash used in financing activities

Cash used in financing activities was $8,750,000 in fiscal year 2020 and $9,886,000 in fiscal year 2019 .

The primary uses of cash in all periods were for long-term debt and dividend payments.

Total cash and investment balances held by our foreign subsidiaries as of July 31, 2019 and 2018 were $2,136,000, $1,849,000, respectively.

The primary uses of cash in all periods were for long-term debt and dividend payments offset by borrowings as further described in Note 3 of the Notes to the Consolidated Financial Statements.

In fiscal year 2020, stock purchases were another primary use of cash.

Total cash and investment balances held by our foreign subsidiaries as of July 31, 2020 and 2019 were $3,042,000 and $2,136,000, respectively.

See further discussion in the “Foreign Operations” section above.

On January 31, 2019, we signed a fifth amendment to our credit agreement with BMO Harris , which expires on January 31, 2024 .

The new agreement provides for a $45,000,000 unsecured revolving credit agreement, including a maximum of $10,000,000 for foreign letters of credit.

The new agreement provides for a $45,000,000 unsecured revolving credit agreement, including a maximum of $10,000,000 for letters of credit.

The remaining terms are substantially unchanged from our previous agreement with BMO Harris, including the provision that we may select a variable rate based on either BMO Harris’ prime rate or a LIBOR-based rate, plus a margin which varies depending on our debt to earnings ratio, or a fixed rate as agreed between us and BMO Harris.

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As of July 31, 2020 and 2019 , there were no outstanding borrowings under this credit agreement.

however, there was a total of $5,973,000 allocated for guarantees required by one of our insurance policies and state environmental regulations.

During the third quarter of fiscal year 2018 we borrowed $6,000,000 at a weighted average interest rate of 2.96% under the credit agreement to fund a voluntary contribution to our pension plan.

The amount borrowed was repaid in the fourth quarter of fiscal year 2018.

There were no other borrowings during either fiscal year 2019 or 2018 .

See Note 3 of the Notes to the Consolidated Financial Statements for information about our outstanding notes payable.

We believe that cash flow from operations, availability under our revolving credit facility, current cash balances and our ability to obtain other financing, if necessary, will provide adequate cash funds for foreseeable working capital needs, capital expenditures at existing facilities, dividend payments and debt service obligations for at least the next 12 months.

We spent approximately $3,600,000 less for advertising in fiscal year 2019 compared to fiscal year 2018 to promote our cat litter.

We expect advertising expense in fiscal year 2020 to be higher than in fiscal year 2019.

We also anticipate that our capital expenditures in fiscal year 2020 will be higher than in fiscal year 2019 due primarily to planned spending at our manufacturing facilities.

We do not anticipate that these increased expenditures will dramatically impact our cash position;

however, our cash requirements are subject to change as business conditions warrant and opportunities arise.

See Note 3 of the Notes to the Consolidated Financial Statements for information about our outstanding notes payable and a discussion of the debt instrument that we entered into on May 15, 2020 pursuant to which, among other things, we issued $10,000,000 in aggregate principal amount of our 3.95% Series B Senior Notes due May 15, 2030 and entered into an amended note agreement that provides the Company with the ability to request, from time to time until May 15, 2023 (or such earlier date as provided for in the agreement), additional senior unsecured notes of the Company in an aggregate principal amount of up to $75,000,000 minus the aggregate principal amount of the notes then outstanding and the additional notes that have been accepted for purchase.

The issuance of such additional notes is at the discretion of the noteholders and purchasers and on an uncommitted basis.

As of July 31, 2020, we had remaining authority to repurchase 887,934 shares of Common Stock and 288,925 shares of Class B Stock under a repurchase plan approved by our Board of Directors (the “Board”).

Repurchases may be made on the open market (pursuant to Rule 10b5-1 plans or otherwise) or in negotiated transactions.

The timing and number of shares repurchased will be determined by our management pursuant to the repurchase plan approved by our Board.

In fiscal 2020 we made repurchases of stock as further discussed in Item 5, Market for Registrant' Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities.

We believe that cash flow from operations, availability under our revolving credit facility, current cash balances and our ability to obtain other financing, if necessary, will provide adequate cash funds for foreseeable working capital needs, capital expenditures at existing facilities, deferred compensation payouts, dividend payments and debt service obligations for at least the next 12 months.

Our expenditures for capital were comparable to fiscal year 2019.

We made $8,000,0000 of discretionary contributions to our pension plan in fiscal year 2020.

See Note 8 of the Notes to the Consolidated Financial Statements for discussion of our Pension Plan.

We continually evaluate our liquidity position and anticipated cash needs, as well as the financing options available to obtain additional cash reserves.

Our ability to fund operations, to make planned capital expenditures, to make scheduled debt payments and to remain in compliance with all of the financial covenants under debt agreements, including, but not limited to, the current credit agreement, depends on our future operating performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors.

Our ability to fund operations, to make planned capital expenditures, to make scheduled debt payments, to contribute to our pension plan and to remain in compliance with all financial covenants under debt agreements, including, but not limited to, the current credit agreement, depends on our future operating performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors.

The timing and size of any new business ventures or acquisitions that we complete may also impact our cash requirements.

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The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have:

(i) any obligation arising under a guarantee contract, derivative instrument or variable interest;

(i) any obligation arising under a guarantee contract,

derivative instrument or variable interest;

or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

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Income Taxes.

Our effective tax rate on earnings was based on expected income, statutory tax rates and tax planning opportunities available to us in various jurisdictions in which we operate.

Our effective tax rate on earnings was based on income, statutory tax rates and tax planning opportunities available to us in various jurisdictions in which we operate.

Significant judgment was required in determining our effective tax rate and in evaluating our tax positions.

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The discount rate is subject to change each year.

We refer to an applicable index and the expected duration of the benefit payments to select a

discount rate at which we believe the benefits could be effectively settled.

We refer to an applicable index and the expected duration of the benefit payments to select a discount rate at which we believe the benefits could be effectively settled.

The discount rate was the single equivalent rate that would yield the same present value as the plan’s expected cash flows discounted with spot rates on a yield curve of investment-grade corporate bonds.

The yield curve used in both fiscal years 2019 and 2018 was the FTSE Pension Discount Curve (formally called the Citi Pension Discount Curve.) Our determination of pension expense or income is based on a market-related valuation of plan assets, which is the fair market value.

The yield curve used in both fiscal years 2020 and 2019 was the FTSE Pension Discount Curve (formally called the Citi Pension Discount Curve).

Our determination of pension expense or income is based on a market-related valuation of plan assets, which is the fair market value.

Our expected rate of return on plan assets is determined based on asset allocations and historical experience.

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See Note 8 of the Notes to the Consolidated Financial Statements for additional information.

As further described in Note 8 of the Notes to the Consolidated Financial Statements, we amended and froze participation in our pension plan and supplemental executive retirement plan in the second quarter of fiscal year 2020.

The amendment of these plans triggered a curtailment, which required a remeasurement of the plans’ obligations.

Both of these remeasurements were based on actuarially determined amounts.

In addition, we offered terminated participants with vested benefits who have not yet begun receipt of benefits under the pension plan the opportunity to receive their pension benefits in a single payment (the “Lump Sum Option”).

We made payments to those participants who elected the Lump Sum Option by the May 15, 2020 election deadline.

This settlement of a portion of the pension plan was recorded as settlement expense based on actuarially determined amounts in the fourth quarter of fiscal year 2020.

Trade Receivables.

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We continue to monitor events, circumstances or changes in the business that might imply a reduction in value which could lead to an impairment.

In addition, although we have not identified any triggering events relating to goodwill or our intangibles, the ultimate effects of COVID-19 could change this assessment in the future, as outlined under Item 1A, Risk Factors, discussed above.

N EW A CCOUNTING P RONOUNCEMENTS

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance under ASC 606, Revenue from Contracts with Customers , and subsequently issued several amendments to further clarify the principles for recognizing revenue.

This guidance establishes a single comprehensive revenue recognition model for all contracts with customers and will supersede most existing revenue guidance.

The core principle of ASC 606 is that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange.

Oil-Dri adopted the new guidance on a modified retrospective basis effective August 1, 2018.

We applied the practical expedient available under ASC 606 to disregard determining significant financing components if the good is transferred and payment is received within one year.

We also adopted the policy election to exclude from the transaction price all amounts collected from customers for sales and other taxes.

There was no material impact on our Consolidated Financial Statements from the adoption of this guidance.

Results for periods beginning on or after August 1, 2018 are recognized and presented in accordance with ASC 606, while prior period amounts have not been adjusted and continue to be reported in accordance with the prior account guidance under ASC 605, Revenue Recognition .

In March 2017, the FASB issued guidance under ASC 715, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires presenting the service cost component of net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period.

This standard also requires that other components of the net periodic benefit cost be presented separately from the line items that includes service costs and outside of any subtotal of operating income, if one is presented, on a retrospective basis.

We adopted this new guidance in the first quarter of fiscal 2019 and accordingly recorded the non-service cost components of net periodic benefit cost in Other Income (Expense) in the line item Other, net on the Consolidated Statements of Operations.

As such, the adoption did not have a material impact on our Consolidated Financial Statements.

On August 1, 2019 we adopted ASC 842, Leases , using the modified retrospective transition approach and, accordingly, we did not restate prior comparative period financial statements.

As of the date of adoption, we elected the package of practical expedients that allowed us to forgo assessment under the ASC 842 guidance whether existing or expired contracts contained leases, the classification of expired or existing leases and the accounting for previously incurred initial direct costs.

We also elected the practical expedient to forgo assessment under ASC 842 whether existing or expired land easements not previously accounted for under legacy leasing GAAP contain leases.

The adoption of ASC 842 on August 1, 2019 resulted in the recognition of additional right-of-use (ROU) assets and lease liabilities related to operating leases of $9,348,000 and $10,910,000, respectively, on our Consolidated Balance Sheet.

There was no material impact to any of our other consolidated financial statements.

Recently Issued Accounting Standards

In February 2016, the FASB issued guidance under ASC 842, Leases , which provides that, for leases with a term greater than 12 months, a lessee must recognize in the statement of financial position both a liability to make lease payments and a right-of-use (“ROU”) asset.

Other requirements describe expense recognition, as well as financial statement presentation and disclosure.

In July 2018, the FASB issued further guidance which provided alternative transition methods.

The Company will adopt this guidance for our first quarter of fiscal year 2020 on a modified retrospective transition approach, and will not restate prior comparative periods presented in our financial statements.

We expect to elect certain practical expedients, including the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs.

We have substantially completed our plan for the adoption of this new standard, including implementing software to meet the reporting and disclosure requirements of this standard.

We anticipate the adoption of this new standard will result in the recognition of additional ROU assets of approximately $9,222,000 and liabilities of approximately $10,784,000 with the difference largely due to deferred rent that will be reclassified.

In March 2020, the FASB issued guidance under ASC 848, Reference Rate Reform .

This guidance provides optional expedients and exceptions to account for debt, leases, contracts, hedging relationships and other transactions that reference LIBOR or another reference rate if certain criteria are met.

The guidance is effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022.

We are currently evaluating the potential effects of the adoption of this guidance on our Consolidated Financial Statements.

In December 2019, the FASB issued guidance under ASC 740, Income Taxes , which simplifies the accounting for income taxes.

The guidance removes several specific exceptions to the general principles in ASC 740 and clarifies and makes amendments to improve consistent application of and simplify existing accounting for other areas in ASC 740.

This guidance is effective for our first quarter of fiscal year 2022, with early adoption permitted.

We are currently evaluating the impact of the adoption of this requirement on our Consolidated Financial Statements.

In June 2016, the FASB issued guidance under ASC 326, Financial Instruments-Credit Losses , which requires companies to utilize an impairment model for most financial assets measured at amortized cost and certain other financial instruments, which include trade and other receivables, loans and held-to-maturity debt securities, to record an allowance for credit risk based on expected losses rather than incurred losses.

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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-K

Item 7. Management’s Discussion and Analysis