What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-10-13 compared with 2020-10-13 · 194 added, 176 removed, 199 unchanged (65% of the section changed)

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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.

Consolidated net sales increased approximately $21,754,000 or 8% in fiscal year 2021 compared to fiscal year 2020.

Consolidated income from operations in fiscal year 2021 decreased compared to fiscal year 2020 by $11,791,000.

The decrease was driven primarily by the inclusion in fiscal year 2020 of a one-time receipt of $13,000,000 related to the licensing of one of our patents as further described in Note 1 of the Notes to the Consolidated Financial Statements.

Excluding the aforementioned one-time receipt of $13,000,000 in fiscal 2020, operating income for fiscal 2021 was 10% greater than the prior year.

Higher costs of sales in fiscal year 2021 due to rising commodity costs also accounted for the decrease in income from operations and was somewhat offset by lower selling, general and administrative expenses.

Consolidated net income was $11,113,000, or $1.57 per diluted common share, for the fiscal year ended July 31, 2021, a 41% decrease from net income of $18,900,000, or $2.65 per diluted common share, for the fiscal year ended July 31, 2020.

The decrease relates to the same factors decreasing income from operations noted above, partially offset by a decrease in pension service costs due to the freeze of our pension plan in fiscal year 2020 and lower pension and deferred compensation settlement costs as further described in Notes 8 and 9 of the Notes to the Consolidated Financial Statements.

Additionally, fiscal year 2021 experienced lower income tax expense than fiscal year 2020 as further described in Note 5 of the Notes to the Consolidated Financial Statements.

Our Consolidated Balance Sheets as of July 31, 2021 and our Consolidated Statements of Cash Flows for fiscal year 2021 show a decrease in total cash and cash equivalents from fiscal year-end 2020 driven, in part, by certain one-time events.

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

In late 2019 and early 2020, COVID-19 was first reported and then declared a pandemic by the World Health Organization, and continues to have a worldwide impact.

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, its continued spread and accompanying effects, there has not, to date, been a significant impact to our business as a whole.

All of our facilities, with the exception of our subsidiary in China (which experienced certain disruptions in the first half of our fiscal year 2020 but has subsequently 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.

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

Centers for Disease Control and Prevention (“CDC”) and local health and governmental authorities with respect to social distancing, physical separation, and enhanced cleaning and sanitation programs at each of our facilities.

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

As further discussed below, our net sales increased in fiscal year 2021 compared to fiscal year 2020 and represented an all time high for the Company.

Despite the overall increase in net sales during fiscal year 2021, we have not experienced any significant issues collecting amounts due from customers to date.

However, parts of our business continue to be negatively impacted by the COVID-19 outbreak.

Net sales of our industrial and sports products declined during fiscal year 2020 as many businesses that typically use our products and sports fields shut down.

As certain geographic areas are permitting broader re-openings and operations and reducing restrictions, we are starting to see a positive trend in that such businesses are increasingly re-opening, including sports fields.

As a result, as discussed below in “Retail and Wholesale Products Group,” net sales of our industrial and sports products were higher in fiscal year 2021 than in fiscal year 2020 with net sales from our industrial products returning to pre-pandemic levels.

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

As discussed below in “Foreign Operations,” net sales for our industrial floor granules in the United Kingdom as well as our purification products were lower due to restrictions imposed by the United Kingdom government on business operations in response to later waves of outbreaks of COVID-19 as well as reduced travel.

In addition, while net sales of our fluids purification products were higher in fiscal year 2021 than fiscal year 2020, COVID-19 has negatively impacted the sales of these products.

Reduced travel and, to a lesser extent, our inability due to COVID-19 to participate in our customers' plant tests of our fluids purification products, and the continued closures of schools and restaurants in some parts of the world have continued to impede our sales.

In addition, record cases of COVID-19 since the start of the pandemic in Asia and a second wave of COVID-19 starting in June of 2021 in China has somewhat hampered net sales of our animal health products, the extent to which we are monitoring closely.

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.

We did experience some delays of incoming materials from several suppliers due to COVID-19 during fiscal year 2021.

However, it did not impact our ability to fulfill customer orders and we continue to monitor our suppliers.

In general, our suppliers have either remained open or we have found new suppliers to meet the increase in consumer demand.

While we have experienced a significant increase in transportation costs as discussed further below, including increased costs from truck loading delays, we have continued to meet the increase in customer demand for our products.

In addition, we have been able to successfully navigate delays in overseas vessel deliveries of our products by increasing our safety stock 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 to comply with the CDC guidelines, but these costs did not have a significant impact on our consolidated gross profit.

Further, we have adjusted our cleaning and sanitation efforts in response to the evolution of the pandemic and increasing vaccination rates, which has reduced these costs.

In addition, we are still experiencing a decrease in travel costs as our employees have continued to travel at reduced levels during the ongoing pandemic.

We are closely monitoring the continuation, resurgence in certain areas, 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 as well as the effects of the pandemic on economic conditions and the financial markets.

In general, we have seen an increase in costs particularly as it relates to commodities as the economy continues to react to, and recover from, the pandemic and demand surpasses supply.

However, we have not experienced any significant interruptions, and we will continue to closely monitor our inventory levels to mitigate the risk of any potential supply interruptions or changes in customer demand.

It is possible that significant disruptions could occur if the pandemic continues to put pressure on transportation and shipping as a result of an imbalance of supply and demand or if there are continued increases in costs that we are unable to recover.

During the fourth quarter of fiscal year 2021, we revised our shipping terms with one of our significant customers to provide that freight charges are the responsibility of, and to be paid directly by, such customer and such costs will no longer be included in the prices we charge such customer.

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.

In addition, although COVID-19 did not materially impact our financial results to date, and because it remains uncertain whether and how consumers will modify their purchasing habits in response to COVID-19 or during the period of “reopening” as the pandemic abates in certain areas 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.

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CONSOLIDATED RESULTS

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 decreased slightly.

Consolidated net sales in fiscal year 2021 reached an all-time high of $304,981,000, an increase of $21,754,000 or 8%, from net sales of $283,227,000 in fiscal year 2020.

Net sales in both our Retail and Wholesale Products Group and Business to Business Products Group increased in fiscal year 2021 compared to the prior fiscal year as did net sales for each of our principal products by segment except for products sold by our subsidiary in the United Kingdom.

Sales fluctuations by operating segment are further discussed below.

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.

Consolidated gross profit in fiscal year 2021 was $65,241,000, a decrease of $3,465,000 from gross profit of $68,706,000 in the prior fiscal year.

Our gross margin (defined as gross profit as a percentage of net sales) in fiscal year 2021 decreased to 21% from 24% in fiscal year 2020.

As further described in Note 1 of the Notes to the Consolidated Financial Statements, we identified an error in our historical consolidated financial statements related to the classification of certain costs as selling, general and administrative costs that relate to the production of our inventory and should be classified as cost of sales.

These costs relate primarily to our annual discretionary bonus and 401(k) employer match for our manufacturing teammates, teammate salaries for individuals in our support functions that spend a portion of their time related to our manufacturing operations such as IT, and other costs mostly related to consultants and outside services.

Because the error was not material to any prior period interim or our annual financial statements, no amendments to previously filed interim or annual periodic reports were required.

We have adjusted for this error by revising the historical consolidated financial statements presented herein.

The impact to gross margin in fiscal years 2021 and 2020, on a manufactured ton basis, was $6.79 and $9.42, respectively.

Aside from the reclassification of costs from selling, general and administrative expenses to cost of sales, higher domestic freight, packaging, natural gas, materials, and non-fuel costs per manufactured ton drove the decrease in gross profit in fiscal year 2021 compared to fiscal year 2020.

Freight costs per manufactured ton increased approximately 13% compared to the prior fiscal year as the result of higher transportation rates due to a national driver shortage and tight trucking capacity in part caused by the continued return of non-essential businesses.

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.

Despite the tight trucking capacity, we have been able to continue to meet the increase in customer demand.

Packaging costs per ton were approximately 19% higher compared to the prior fiscal year due, in part, to the mix of products produced driven by higher commodity costs, particularly as it relates to the resin used in our jugs and pails.

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

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 cost per manufactured ton of natural gas used to operate kilns that dry our clay was approximately 15% higher in fiscal year 2021 compared to fiscal year 2020 due to the increase in natural gas prices.

The increased gas prices in 2021 were driven, in part, by the limited supply created by record-low temperatures across the nation, which drove up demand, and supply was further limited across the country due to natural gas pipelines and wellheads freezing in southern regions in the United States.

The limited supply coupled with high demand caused the increase in natural gas prices.

In addition, non-fuel manufacturing costs per ton increased approximately 3% compared to fiscal year 2020 driven primarily by higher purchased materials.

While we have experienced an increase in costs due to the reasons mentioned above, we anticipate being able to recover some of these rising costs through price increases.

Total selling, general and administrative expenses were 8% lower in fiscal year 2021 compared to fiscal year 2020.

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

The remaining unallocated corporate expenses in fiscal year 2021 included a lower estimated annual incentive bonus accrual for fiscal year 2021 compared to fiscal year 2020.

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.

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.

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.

Fiscal year 2021 also included lower pension service costs expense as the pension plan is frozen.

In addition, as compared to fiscal year 2020, unallocated corporate expenses are lower in fiscal year 2021 because fiscal year 2020 included a legal contingency offset by a curtailment gain related to the termination of our Supplemental Executive Retirement Plan (SERP).

See Notes 8, 9 and 11 of the Notes to the Consolidated Financial Statements for a further description of our pension plan freeze, SERP termination, and legal contingencies.

Other income (expense), net in fiscal years 2021 and 2020 included approximately $600,000 and $2,000,000, respectively, of settlement expense under our pension plan as further described in Note 8 to the Notes to the Consolidated Financial Statements.

In addition, there were lower pension costs in fiscal year 2021 due to the pension plan freeze.

Tax expense for fiscal year 2021 was $2,388,000 (effective tax rate of 17.7%) compared to $4,280,000 (effective tax rate of 18.6%) in fiscal year 2020.

The decrease in tax expense was driven by lower taxable income as well as certain employment related credits we were able to take advantage of and a tax deduction for foreign-derived income which further reduced our effective tax rate.

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 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.

Net sales of the Business to Business Products Group for fiscal year 2021 were $110,120,000, an increase of $5,860,000, or 6%, from net sales of $104,260,000 in fiscal year 2020.

Net sales increased in all product categories - agricultural and horticultural products;

fluids and purification products;

animal health products;

and cat litter.

The majority of this growth was the result of increased volume and to some degree, price increases that were implemented late in fiscal year 2021 for certain of our products.

Net sales of our agricultural and horticultural chemical carrier products increased approximately 19% or $4,149,000 in fiscal year 2021 compared to fiscal year 2020.

The increase in net sales was attributable to increased sales to existing customers, particularly to one of our largest customers using our product in some of its re-formulated goods;

the addition of several smaller new customers;

an expected shift in timing of sales to one of our largest customers from the last three months of fiscal year 2020 to fiscal year 2021 due to that customer resuming its production schedule after it experienced various supplier delays due to COVID-19;

and increased sales due to a new business application of our Agsorb product to an existing customer.

Net sales of our fluids purification products increased approximately $1,334,000 or 3% in fiscal year 2021 compared to the prior fiscal year despite the negative impacts of COVID-19.

We experienced sales improvement primarily in Latin and North America.

A key driver of the net sales growth in Latin America related to timing of sales as one of our customers ordered more than usual to navigate potential delays in ocean freight shipments.

Other drivers of the sales growth in Latin America related to new customers and increased sales to existing customers.

Net sales in North America increased in fiscal year 2021 compared to fiscal year 2020 due to an increase in air travel and more need for our jet fuel purification products as well as an increase in demand for our clay used for bio-diesel products.

However, net sales have still been impacted by the oil quality in North America, which continues to be good and, accordingly, has reduced the need for our clay products.

The increases in net sales to Latin and North America were partially offset by lower sales to Asia and to some degree, Europe.

Reduced air travel due to COVID-19 has negatively affected the sale of our jet fuel fluids purification products in Asia and Europe.

Sales to Asia also decreased in the fiscal year 2021 compared to fiscal year 2020 due to price competition.

Net sales of our animal health and nutrition products were essentially flat during fiscal year 2021 compared to fiscal year 2020 as the increases in net sales of our animal feed additives in China and Asia were offset by the decreases in net sales in other countries, including Mexico.

See “Foreign Operations” below for a discussion of net sales in China and Mexico.

The increase in net sales in Asia as well as the decreases in net sales in other countries were primarily related to timing of net sales and the impacts of COVID-19.

Net sales of our co-packaged coarse cat litter increased approximately $340,000 or 2% during fiscal year 2021 compared to the same period in the prior fiscal year due to timing of customer purchases.

The Business to Business Products Group’s selling, general and administrative expenses in fiscal year 2021 were approximately 8% or $805,000 higher compared to fiscal year 2020, but remained consistent as a percentage of sales.

During fiscal year 2021, we made a concentrated effort to invest in our animal health business through increased sales personnel, leadership hires, and marketing of our animal health products which resulted in an increase in selling general and administrative expenses.

This increase was partly offset by lower travel costs and less bad debt expense in fiscal year 2021.

The Business to Business Products Group’s segment operating income for fiscal year 2021 was $25,086,000, a decrease of $3,351,000 or 12%, from operating income of $28,437,000 in fiscal year 2020.

While net sales increased, this increase was offset by higher freight, packaging, natural gas, materials, and non-fuel costs per manufactured ton in fiscal year 2021 as discussed in Consolidated Results above as well as higher selling, general and administrative costs.

In addition, as previously noted in Note 1 to the Notes to the Consolidated Financial Statements, the allocation of additional costs from selling, general and administrative costs to cost of sales decreased segment operating income in both fiscal years 2021 and 2020.

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 .

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.

Net sales of the Retail and Wholesale Products Group for fiscal year 2021 were $194,861,000, an increase of $15,894,000, or 9%, from net sales of $178,967,000 in fiscal year 2020 driven by both increases in net sales of our cat litter and our industrial and sports products.

Total cat litter net sales increased $13,748,000 or 9% compared to the prior fiscal year with increased sales of both private label and branded scoopable litters as we gained business from new customers and from new items being sold to existing customers.

Further, an increase in e-commerce sales, where the customer base differs from brick and mortar customers, continued to increase cat litter sales.

In addition, the impact of COVID-19 on increased pet adoption continued to boost sales as well as the overall macro trend of increased spending on pets.

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 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.

Also included in the Retail and Wholesale Products Group's results were increased sales of our industrial and sports products compared to fiscal year 2020.

Net sales of our industrial and sports products increased approximately $2,689,000 or 9% in fiscal year 2021 compared to fiscal year 2020, mainly driven by the re-opening of businesses and sports fields in the third and fourth quarters of fiscal year 2021 in most, but not all, of the United States.

Industrial floor absorbent sales by our subsidiary in Canada further contributed to the net sales increase in fiscal year 2021, as discussed in “Foreign Operations” below.

To some extent, the increase in net sales for our Retail and Wholesale Products Group was also driven by price increases.

Selling, general and administrative expenses for the Retail and Wholesale Products Group were approximately $730,000 or 4% lower compared to fiscal year 2020.

The decrease was driven mainly by lower advertising expense and to some extent, lower travel costs.

The decrease was partially offset by higher personnel costs and commissions due to the increase in sales volume.

The Retail and Wholesale Products Group’s segment operating income for fiscal year 2021 was $11,916,000, an increase of $393,000 or 3%, from operating income of $11,523,000 in fiscal year 2020.

The higher sales and lower selling, general and administrative costs were partially offset by higher freight, packaging, natural gas, materials, and non-fuel costs per manufactured ton, as discussed in “Consolidated Results” above.

FOREIGN SUBSIDIARIES

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.

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.

Net sales by our foreign subsidiaries during fiscal year 2021 were $17,406,000, an increase of $2,186,000, or 14%, from net sales of $15,220,000 during fiscal year 2020.

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.

The increase relates chiefly to higher sales by our subsidiaries in Canada and China during fiscal year 2021.

Cat litter sales for our subsidiary in Canada increased by approximately $1,521,000 or 28% during fiscal year 2021 compared to the prior fiscal year due to new product sales;

higher sales to existing customers;

in-store promotions;

and pantry loading in eastern Canada due to a second wave of COVID-19 infections and lockdown restrictions during the first three months of fiscal year 2021.

In addition to increased sales of cat litter, sales of our industrial absorbent granules in Canada increased by approximately $551,000 or 27% during fiscal year 2021 compared to fiscal year 2020 due to both price increases and the re-opening of distributors in the second half of the fiscal year 2021.

Sales of our animal health products by our foreign operations also grew by $658,000 or 13% as higher sales for our subsidiary in China were somewhat offset by lower sales from our subsidiaries in Mexico and Indonesia.

Net sales in China increased approximately $1,149,000 or 54% during fiscal year 2021 compared to fiscal year 2020.

Despite the continued impacts of the African Swine Fever to pork consumption, sales of our animal health products in China were higher during fiscal year 2021 compared to fiscal year 2020 due to a new contract with an existing customer;

increased sales to existing customers;

winning back several previous distributors;

the use of two new distributors;

and implementing a concentrated sales and marketing effort.

In addition, net sales for our subsidiary in China in fiscal year 2020 were lower due to the outbreak of COVID-19 that impacted the second and third quarters of that fiscal year.

Net sales by our subsidiary in Mexico in fiscal year 2020 included a sale of equipment that did not recur in fiscal year 2021 which drove the decrease in net sales in fiscal year 2021 compared to fiscal year 2020.

The increase in net sales of our cat litter and animal health products in fiscal year 2021 were somewhat offset by the decrease in our purification products from our subsidiary in the United Kingdom.

Sales of industrial floor absorbents by our subsidiary in the United Kingdom increased marginally in the fourth quarter of fiscal year 2021 over fiscal year 2020 but were still lower overall in fiscal year 2021 than 2020.

The effect of COVID-19 lockdowns and restrictions on the industry in Europe has, to some extent, reduced demand for our products.

The discontinuation by a customer of a product that used our clay granules also contributed to the decrease in sales of our subsidiary in the United Kingdom.

Net sales by our foreign subsidiaries represented 6% of our consolidated net sales for both the fiscal years 2021 and 2020.

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.

For fiscal year 2021, our foreign subsidiaries reported a net loss of $597,000, compared to a net loss of $1,308,000 in fiscal year 2020.

The net loss in fiscal year 2021 was primarily driven by our continued investment in our subsidiary in Indonesia and higher selling, general, and administrative expenses to support increased sales for our animal health business.

Identifiable assets of our foreign subsidiaries as of July 31, 2021 were $12,572,000 compared to $12,586,000 as of July 31, 2020.

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

L IQUIDITY AND C APITAL R ESOURCES

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Cash and cash equivalents totaled $24,591,000 and $40,890,000 as of July 31, 2021 and 2020, respectively.

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.

Contributing to the cash generated in fiscal year 2020 was $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.

These receipts have since been used in our operations in fiscal 2021.

See Note 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.

Given the ongoing and 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):

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Effect of exchange rate changes on cash and cash equivalents 217 (7)

Net increase in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents $ (16,299) $ 19,028

Net cash provided by operating activities

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 2021 and 2020 were as follows:

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.

Non-cash stock compensation was $837,000 lower for fiscal 2021 compared to fiscal 2020 due to several large awards of restricted stock fully vesting early in fiscal year 2021.

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

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.

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.

No such gain was recognized in fiscal year 2021 as the SERP was terminated in fiscal year 2020.

Accounts receivable, less allowance for doubtful accounts and cash discounts, were $5,808,000 higher at fiscal year-end 2021 compared to fiscal year-end 2020 due primarily to higher sales in the fourth quarter of fiscal 2021 than in the same period in fiscal year 2020.

The same measure of accounts receivable was $411,000 lower at fiscal year-end 2020 compared to fiscal year-end 2019 due to lower sales in the fourth quarter of fiscal year 2020, an increase in our bad debt reserve for certain uninsured foreign receivables, and for two customers that were slow paying 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 $518,000 lower at fiscal year-end 2021 compared to fiscal year-end 2020 due primarily to higher sales of finished goods offset by increased packaging costs and a lower obsolescence reserve.

Packaging costs increased due to

anticipated sales demand as well as an increase in the underlying cost of packaging.

The lower obsolescence reserve is attributable to our focus on inventory management.

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

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

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 .

Prepaid expenses were $4,067,000 higher at fiscal year-end 2021 compared to fiscal year-end 2020 driven primarily by prepayment of income taxes and insurance offset by lower prepaid advertising costs.

Prepaid expenses were $949,000 higher at fiscal year end 2020 compared to fiscal year 2019 due to higher prepaid repairs.

Deferred income taxes, less provision for deferred income taxes, were $5,196,000 lower at fiscal year-end 2021 compared to fiscal year-end 2020 and were $453,000 lower at fiscal year-end 2020 compared to fiscal year-end 2019.

Deferred income taxes were lower at fiscal year-end 2021 due to pension and retirement benefits, accrued expenses, and bonus depreciation on fixed assets.

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

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

Other assets were $544,000 lower at fiscal year-end 2021 compared to fiscal year-end 2020 due to a reduction in our operating right of use lease asset for expiring leases partially offset by higher pre-production costs at certain of our mines.

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

Accounts payable were $2,411,000 lower at fiscal year-end 2021 compared to fiscal year-end 2020.

Lower trade payables drove the decrease in accounts payable in fiscal year 2021 as well as income taxes payable being in a prepaid position versus a payable position at the end of the fiscal year 2021.

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

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 $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.

Accrued expenses were $4,097,000 lower at fiscal year-end 2021 compared to fiscal year-end 2020 due mainly to a lower accrued annual discretionary bonus, as well as lower advertising expenses and real estate taxes somewhat offset by an increase in accrued freight and a reclassification of one of our accruals from long-term to short-term.

The payout of the prior fiscal year's discretionary incentive bonus reduced accrued salaries in both fiscal years, but to a greater extent in fiscal year 2021 as the accrual was higher in the prior fiscal year.

Accrued advertising expenses decreased in fiscal year 2021 more than fiscal year 2020 due to timing of our advertising programs.

Accrued real estate taxes decreased based on lower real estate taxes for one of our facilities.

These decreases were partially offset by the reclassification of the current portion of the deferred employer payroll taxes under the CARES Act, which is due by the end of calendar year 2021, as further described in Note 1 of the Notes to the Consolidated Financial Statements and an increase in accruals for unvouchered freight.

Accrued freight can vary with freight rates, timing of shipments, and production requirements.

In addition, accrued plant expenses can also fluctuate due to timing of payments, changes in the cost of goods and services we purchase, production volume levels and vendor payment terms.

Accrued expenses were $8,632,000 higher at fiscal year-end 2020 compared to fiscal year-end 2019 due primarily to accrued annual discretionary bonus, 401(k) employer match, advertising costs and an accrual for a legal contingency which is further described in Note 11 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 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 $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.

Deferred compensation balances at fiscal year-end 2021 were $770,000 lower compared to fiscal year-end 2020 and fiscal year-end 2020 was $421,000 higher compared to fiscal year-end 2019.

Deferred compensation balances were lower at fiscal year-end 2021 due to the termination and subsequent pay-out of one of our plans, the Supplemental Executive Retirement Plan, as further discussed in Note 9 to the Notes to the Consolidated Financial Statements.

Deferred compensation increased in fiscal 2020 because of higher deferrals by participants in our other deferred compensation plans.

Pension and other postretirement liabilities, net of the adjustment recorded in stockholders' equity, were $2,652,000 lower at fiscal year-end 2021 compared to fiscal year-end 2020 due to reduced service expense related to the Pension Plan which was frozen in fiscal year 2020 as well as a higher discount rate and change in census data.

These liabilities 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.

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

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

Other liabilities were $557,000 lower at fiscal year-end 2021 compared to fiscal year-end 2020.

The decrease in Other Liabilities relates to a reduction in our operating lease liability, partly offset by an increase in our reclamation liability due to increased mining activity and an increase in deferral of employer taxes under the CARES Act as further described in Note 1 to the Notes to the Consolidated Financial Statements.

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

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.

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

Net cash used in investing activities

Cash used in investing activities was $18,830,000 in fiscal year 2021 and cash used in investing activities was $14,677,000 in fiscal year 2020.

Cash used in fiscal year 2021 related chiefly to capital expenditures.

T he increase in our capital expenditures in fiscal year 2021 compared to fiscal year 2020 relates to purchases of equipment to support our increased mining and hauling activity.

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 .

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 $11,322,000 in fiscal year 2021 and $8,750,000 in fiscal year 2020.

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.

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

Total cash and investment balances held by our foreign subsidiaries as of July 31, 2021 and 2020 were $3,054,000 and $3,042,000, respectively.

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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.

In fiscal 2021 we made repurchases of stock as further discussed in Item 5, Market for Registrant's 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 spent approximately $1,023,000 less for advertising in fiscal year 2021 compared to fiscal year 2020 and we expect advertising expense in fiscal year 2022 to be higher than in fiscal year 2021.

Our expenditures for capital were higher in fiscal year 2021 compared to fiscal year 2020.

The increased capital expenditures did not dramatically impact our cash position;

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

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

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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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Promotional reserves are established based on our best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date.

To estimate trade promotion reserves, we rely on our historical experience of trade spending patterns and that of the industry, current trends and forecasted data.

To estimate trade promotion reserves, we rely on our historical experience of trade spending patterns and that of the

industry, current trends and forecasted data.

While we believe our promotional reserves are reasonable and that appropriate judgments have been made, estimated amounts could differ from future obligations.

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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.

We made payments to those participants in the pension plan 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.

The pension plan was further settled in fiscal year 2021 when we purchased an annuity.

Trade Receivables.

We recognize trade receivables when the risk of loss and title pass to the customer.

We recognize trade receivables when control of finished products are transferred to our customers.

We record an allowance for doubtful accounts based on our historical experience and a periodic review of our accounts receivable, including a review of the overall aging of accounts, consideration of customer credit risk and analysis of facts and circumstances about specific accounts.

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Taxes collected from customers and remitted to governmental authorities are excluded from net sales.

Sales returns and allowances are not material.

Sales returns are not material nor are warranties and any related obligations.

We value inventories at the lower of cost (first-in, first-out) or market.

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N EW A CCOUNTING P RONOUNCEMENTS

Recently Adopted Accounting Pronouncements

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

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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 have debt agreements that reference LIBOR and to the extent that those agreements are modified to replace LIBOR with another interest rate index, ASC 848 will allow us to account for the modification as a continuation of the existing contract without additional analysis.

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

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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.

We have performed an initial analysis of the impacts of adopting this requirement and do not anticipate that it will be material to 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