What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-10-13 compared with 2021-10-13 · 167 added, 198 removed, 195 unchanged (65% of the section changed)

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

As a result of a change in management organization during fiscal year 2022 and as part of our routine assessments of our segments, our wholly owned subsidiary located in the United Kingdom is now included in our Business to Business Products Group and our co-packaged coarse cat litter is now included in the Retail and Wholesale Products Group.

Prior year net sales and operating income have also been reclassified to reflect these changes.

The organization change was intended to better serve our customers and the segment information presented reflects the information regularly reviewed by our chief operating decision maker.

RESULTS OF OPERATIONS

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Consolidated income from operations in fiscal year 2022 decreased compared to fiscal year 2021 by $8,215,000.

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 2022 experienced lower income tax expense than fiscal year 2021 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 top priority has been, and continues to be, the safety and health of our employees, contractors, and customers.

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.

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.

Consolidated net income was $5,674,000, or $0.81 per diluted common share, for the fiscal year ended July 31, 2022, a 49% decrease from net income of $11,113,000, or $1.57 per diluted common share, for the fiscal year ended July 31, 2021.

The decrease relates to higher freight, packaging, natural gas, and non-fuel manufacturing costs and also various other rising costs as described further below.

Our Consolidated Balance Sheets as of July 31, 2022 and our Consolidated Statements of Cash Flows for fiscal year 2022 show a decrease in total cash and cash equivalents from fiscal year-end 2021 driven by higher cost of goods, increased capital requirements, and stock repurchases.

Cash reduction as of July 31, 2022 was offset by an additional $25,000,000 in loan proceeds.

As further discussed below, our consolidated net sales increased in the fiscal year 2022 compared to the fiscal year 2021.

Net sales of our industrial and sports products as well as most of our fluids purification products have mostly returned to pre-pandemic levels as many businesses and sports have re-opened and air travel has been increasing.

However, parts of our business continue to be negatively impacted by the pandemic and varying recoveries from and resurgences of the pandemic in certain areas.

Net sales for our industrial granules in the United Kingdom have increased in fiscal year 2022 as a result of the return of demand following the impact of the pandemic (and also certain timing impacts).

Net sales of our animal health and nutrition products have been dampened due to COVID-19 in certain geographic areas, particularly in China, which has continued to impose restrictions and quarantine requirements in response to COVID-19 outbreaks.

We have also experienced an increase in backlog due, in part, to supply chain disruptions, shipping delays and constraints on the availability of labor (including at our suppliers) amidst unprecedented demand for our products.

We have put in place measures to reduce the backlog that was generated during fiscal year 2022, including hiring additional labor, adding additional work shifts, improving

operating productivity in our plants, upgrading our manufacturing facilities and equipment and increasing our overseas freight forwarders.

As discussed below in "Consolidated Results," gross profit has declined in fiscal year 2022 compared to fiscal year 2021 related to rising costs and supply chain disruptions.

We have faced longer lead times for some of our materials purchases, which have contributed to an increase in our backlog, but we have been able to avoid significant out of stock issues for most of our materials.

Where possible, we have found other suppliers to meet the increase in customer demand for our products.

In addition, the cost of repair parts has increased but this has not caused any significant disruption to our business.

While we have experienced a shortage of production labor at certain times during the fiscal year 2022, which has been a contributing factor to our increase in backlog, we have been able to hire additional labor and reduce our backlog related to production constraints in the third and fourth quarters of fiscal year 2022.

We are closely monitoring the continuation, resurgence in certain areas, and effects of COVID-19 on all aspects of our business, including how it has impacted 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.

We have also seen costs increasing due to inflation.

In addition to rising commodity costs and other increased costs described below, several of our suppliers have passed along non-commodity price increases they have experienced in their own businesses.

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.

It is possible that significant disruptions could occur if the pandemic and other factors such as labor shortages, ongoing geopolitical tensions, and other strains on the supply chain continue to put pressure on production, 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.

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, 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.

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

In addition, although COVID-19 has not materially impacted our net sales to date, it remains uncertain whether and how consumers will modify their purchasing habits in response to the ongoing COVID-19 pandemic and/or the lifting or relaxing and/or re-imposition of mandates as various geographies experience resurgences and abatement of the pandemic.

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

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Consolidated net sales in fiscal year 2022 reached an all-time high of $348,589,000, an increase of $43,608,000 or 14%, from net sales of $304,981,000 in fiscal year 2021.

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

Net sales increased for both our Retail and Wholesale Products Group and Business to Business Products Group due to an increase in sales volume and higher prices instituted in response to rising costs.

The increase in demand for our products during the fiscal year 2022 has led to an increase in our backlog of orders.

We have hired additional manufacturing personnel, expanded our production shifts, increased production equipment and made various repairs to equipment in order to reduce our backlog as well as increase our use of alternate modes of transportation.

We continue to analyze the constraints on our operations and implement strategies to meet the increase in customer demand.

Segment results are discussed further below.

Consolidated gross profit in fiscal year 2022 was $62,515,000, a decrease of $2,726,000, or 4%, from gross profit of $65,241,000 in the prior fiscal year.

Our gross margin (defined as gross profit as a percentage of net sales) in fiscal year 2022 decreased to 18% from 21% in fiscal year 2021.

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.

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.

Higher freight, packaging, natural gas, and non-fuel manufacturing costs per ton drove the decrease in gross profit.

We continue to experience high freight costs both domestically and with respect to ocean freight.

Domestic freight costs per ton, excluding the freight we no longer charge to a significant customer who now picks up its own purchases, increased approximately 27% in fiscal year 2022 compared to fiscal year 2021.

The increase relates to higher transportation rates due to an increase in diesel fuel costs, a national driver shortage, and tight trucking capacity.

Ocean freight costs have also increased due to rising fuel costs and export fees.

In addition, our overall freight costs can vary between periods depending on the mix of products sold and the geographic distribution of our customers.

Packaging costs per ton for fiscal year 2022 were approximately 29% higher compared to fiscal year 2021 due to higher commodity costs, particularly as it relates to resin and pallet costs.

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

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.

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.

The cost of natural gas per ton used to operate kilns that dry our clay was 108% higher in fiscal year 2022 compared to fiscal year 2021 due to higher natural gas prices and higher natural gas delivery costs, which are being driven by demand surpassing available supply as well as the impact of the ongoing conflict between Russia and Ukraine and actions taken in response to such conflict.

Non-fuel manufacturing costs per ton also increased during fiscal year

2022 compared to fiscal year 2021 by 11%.

The increase in non-fuel manufacturing costs relate to higher repairs, utility costs, labor and benefit costs, and costs of purchased materials.

In addition to the above, during fiscal year 2022, several suppliers started to pass along non-commodity price increases related to cost increases experienced in their own businesses and we expect such increases to persist.

While we have faced higher costs due to the reasons mentioned above, we continue to strive to restore our historical margins utilizing various strategies including reducing costs where possible, increasing sales volume, and implementing price increases.

Total selling, general and administrative expenses (SG&A) were 0.3% lower in fiscal year 2022 compared to fiscal year 2021, effectively flat year over year.

An increase in compensation expense was offset by lower pension and other costs.

The discussion of each segment's operating income below describe the changes in selling, general and administrative expenses that were allocated to that segment.

The loss on impairment of goodwill of $5,644,000 is related to our Retail and Wholesale Products Group reporting unit.

Our goodwill impairment test is based on cash flow considerations and other approaches that require significant judgment with respect to volume, revenue, expenses and allocations.

We determined that, as a result of lower share prices and the continued adverse impacts of rising costs and additional expenses to prevent supply chain disruptions, and despite improving margins, we had a triggering event during the third quarter of fiscal 2022 that necessitated a goodwill impairment test and resulted in the carrying value of our Retail and Wholesale Products Group reporting unit being higher than its fair value which led to the $5,644,000 impairment charge.

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

No settlement expense was incurred in fiscal 2022.

In addition, there was pension income driven by changes in discount rates and census data in fiscal year 2022.

Tax expense for fiscal year 2022 was $97,000 (effective tax rate of 1.7%) compared to $2,388,000 (effective tax rate of 17.7%) in fiscal year 2021.

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.

The decrease in tax expense was driven by lower taxable income and additional tax deductions allowed for the mining industry.

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

The Company routinely assesses its operating segments.

In fiscal year 2022, driven by a change in its management organization, the Company decided to move its wholly-owned subsidiary in the United Kingdom from the Retail and Wholesale Products Group to the Business to Business Products Group.

In addition, the co-packaging coarse cat litter business was moved from the Business to Business Products Group to the Retail and Wholesale Products Group.

Prior year net sales and operating income have been reclassified to reflect these changes.

BUSINESS TO BUSINESS PRODUCTS GROUP

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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.

and animal health products.

This growth was the result of both price increases and higher demand for our products.

Net sales of fluid purification products increased approximately $8,715,000 or 16% in fiscal year 2022 compared with the prior year.

The increase in net sales occurred for a variety of reasons, including new customer wins, increased sales to existing customers, increase in air travel in most regions, price increases that were instituted to offset rising costs, and in some cases, timing of net sales.

The majority of this increase in net sales was concentrated in North America and Latin America.

Revenues in Europe remained relatively flat year over year due to the impact of currency translation on our selling prices as well as ocean freight shipping delays.

Net sales of our agricultural and horticultural chemical carrier products increased approximately $4,384,000, or 17%, for fiscal year 2022 compared to fiscal year 2021 as a result of continued strong demand for these products as well as price increases.

Net sales of our animal health and nutrition products increased $3,143,000, or 18%, during fiscal year 2022 compared to the prior year driven by increases in North America and Latin America, partially offset by decreases in Mexico and Asia, (excluding China which had a slight increase in net sales as discussed below in "Foreign Operations").

The increase in net sales relates to several new customers, a new product line in North America, and in general, timing of when sales occur.

Furthermore, our business to Latin America has benefited from the European Union's ("EU") new antibiotic-free regulation on foreign protein imports, as a large percentage of meat is exported from that region to the EU.

Despite the overall increase in net sales, ocean freight delays and the continuation of COVID-19, particularly in China, which has continued to impose restrictions and quarantine requirements in response to COVID-19 outbreaks, impacted our animal health business during fiscal year 2022.

See “Foreign Operations” below for a discussion of net sales for our foreign operations that sell our animal health and nutrition products.

SG&A expenses for the Business to Business Products Group increased approximately 23% or $2,628,844 for fiscal year 2022 compared to the prior fiscal year.

We continued to invest in our animal health business, which resulted in higher costs due to increased headcount of sales and leadership personnel, increased travel costs, and increased marketing efforts associated with our animal feed additives.

The increase in SG&A expenses in fiscal year 2022 also related to an increase in compensation related to additional headcount and a write off of patent applications.

The Business to Business Products Group’s operating income for fiscal year 2022 was $24,344,000, a decrease of $1,570,000, or 6%, from operating income of $25,914,000 for fiscal year 2021.

The decrease in operating income was driven by higher freight, packaging, natural gas, and non-fuel manufacturing costs per ton as discussed in “Consolidated Results” above as well as higher SG&A expenses during fiscal year 2022.

RETAIL AND WHOLESALE PRODUCTS GROUP

Net sales of the Retail and Wholesale Products Group for fiscal year 2022 were $235,210,000, an increase of $27,367,000, or 13%, from net sales of $207,843,000 in fiscal year 2021 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.

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.

Total cat litter net sales increased $20,159,000, or 11%, compared to the prior fiscal year.

This increase was driven by organic volume growth, expanded distribution, price increases in response to rising costs, and the reduced need for trade spending because of higher demand.

Net sales of branded scoopable litter, private label lightweight and heavyweight litter, and accessories (liners) increased in fiscal year 2022 compared to the prior year.

Sales to e-commerce distributors were also higher during the fiscal year 2022 compared to fiscal year 2021.

Our co-packaged coarse cat litter business experienced an increase of $2,474,300 or 17% in net sales during fiscal year 2022 compared to fiscal year 2021 primarily due to price increases partially offset by a decrease in volume.

Also included in the Retail and Wholesale Products Group's results were increased net sales of our industrial and sports products in fiscal year 2022, compared to fiscal year 2021.

Net sales of our industrial and sports products increased approximately $7,208,000 or 23% in fiscal year 2022 compared to fiscal year 2021, due to the continued re-opening of businesses and sports fields in fiscal 2022, as well as new customers and an increase in selling price per ton as we continue to respond to rising costs.

SG&A expenses for the Retail and Wholesale Products Group was lower by approximately $4,520,089, or 26%, during fiscal year 2022 compared to fiscal year 2021 due to lower advertising costs, bad debt expenses and other selling expenses in fiscal year 2022.

An impairment of goodwill of $5,644,000 was recognized in the third quarter of fiscal 2022 driven by a third quarter triggering event due to lower share prices and the continued adverse impacts of rising costs and additional expenses to prevent supply chain disruptions.

The Retail and Wholesale Products Group’s segment operating income for fiscal year 2022 was $6,252,000, a decrease of $4,836,000 or 44%, from operating income of $11,088,000 in fiscal year 2021.

The decrease in segment operating income was driven by the goodwill impairment charge recorded in the third quarter of fiscal year 2022 as well as higher freight, packaging, natural gas, and non-fuel manufacturing costs which outpaced the increase in net sales as described 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 subsidiary in Canada, which is included in the Retail and Wholesale Products Group, and our subsidiaries in the United Kingdom, China, Mexico and Indonesia, which are included in the Business to Business Products Group.

Net sales by our foreign subsidiaries during fiscal year 2022 were $19,893,000, an increase of $2,487,000, or 14%, from net sales of $17,406,000 during fiscal year 2021.

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.

All of our foreign operations, with the exception of our subsidiary in Mexico, experienced an increase in net sales during fiscal year 2022 compared to fiscal year 2021.

Total net sales of our subsidiary in Canada during fiscal year 2022 increased by $2,237,000, or 23%, compared to fiscal year 2021 driven by higher cat litter net sales.

Cat litter sales in Canada were $2,610,000 higher during fiscal year 2022 than in fiscal year 2021.

The increase in cat litter sales was mainly driven by a key customer carrying three of our products for the first time as well as price increases instituted in response to rising costs.

The increase in cat litter sales was partially offset by lower net sales of our industrial absorbent granules in fiscal year 2022 compared to fiscal year 2021.

Net sales of industrial absorbent granules were higher in fiscal year 2021 as companies emerged from the constraints of the pandemic and there was a surge in demand.

Net sales of our subsidiary in the United Kingdom in fiscal year 2022 increased by $396,000, or 21%, compared to net sales in fiscal year 2021.

The increase related to timing of net sales and partly due to demand starting to slowly return post pandemic.

Net sales of our subsidiary in Mexico decreased during fiscal year 2022 compared to fiscal year 2021 by $408,000 or 16%, as fiscal year 2021 included net sales of products in that region that are no longer part of our business strategy.

Despite the negative impacts of COVID-19 in China, net sales of our subsidiary in China increased $40,000, or 1%, during fiscal year 2022 compared to fiscal year 2021 due primarily to the addition of a new customer.

Net sales by our foreign subsidiaries represented 6% of our consolidated net sales for both the fiscal years 2022 and 2021.

For fiscal year 2022, our foreign subsidiaries reported a net loss of $756,000, compared to a net loss of $597,000 in fiscal year 2021.

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.

The net loss in fiscal year 2022 was primarily driven by unfavorable exchange rates, lower net sales for our subsidiary in Mexico, higher cost of sales, and higher SG&A expenses by our subsidiary in China due to increased sales personnel and marketing of our animal feed additives as we continue to invest in our animal health and nutrition products.

Identifiable assets of our foreign subsidiaries as of July 31, 2022 were $12,989,000 compared to $12,572,000 as of July 31, 2021.

L IQUIDITY AND C APITAL R ESOURCES

Our principal capital requirements include:

Our principal short and long-term capital requirements include:

funding working capital needs;

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supporting new product development;

spending on marketing and advertising costs;

investing in infrastructure;

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and, from time to time, business acquisitions.

During fiscal year 2021, we primarily used cash generated from operations to fund these requirements.

During fiscal year 2022, we principally funded these short and long-term capital requirements using cash from current operations as well as cash generated in the second quarter of fiscal year 2022 from borrowings under our Series Senior C Notes (described below).

Cash and cash equivalents totaled $16,298,000 and $24,591,000 as of July 31, 2022 and 2021, respectively.

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.

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

Given the dynamic nature of COVID-19 and its effects, as well as the current inflationary environment and impacts of supply chain disruption on our business, 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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Net cash used in investing activities (22,810) (18,830)

Net cash used in financing activities (11,322) (8,750)

Net cash provided by (used in) financing activities 4,703 (11,322)

Effect of exchange rate changes on cash and cash equivalents (24) 217

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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 2022 and 2021 were as follows:

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.

Non-cash stock compensation was $210,000 higher for fiscal 2022 compared to fiscal 2021 due to an increase of stock awards granted in 2022.

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

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.

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

During the third quarter of fiscal 2022, we recorded a non-cash goodwill impairment charge of $5,644,000, which left no remaining goodwill in the Retail and Wholesale Products Group reporting unit.

See Note 1 of the Notes to the Consolidated Financial Statements for further information about goodwill.

Accounts receivable, less allowance for doubtful accounts and cash discounts, were $10,881,000 higher at fiscal year-end 2022 compared to fiscal year-end 2021 due primarily to higher sales in the fourth quarter of fiscal 2022 than in the same period in fiscal year 2021.

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.

The same measure of accounts receivable was $5,808,000 higher at fiscal year-end 2021 compared to fiscal year-end 2020 due to higher sales in the fourth quarter of fiscal year 2021.

Accounts receivable increased in both fiscal years 2022 and 2021 due to the increase in net sales in both periods.

In addition, the variation in accounts receivable balances reflect differences in the level and timing of collections as well as the payment terms provided to various customers.

Inventories were $12,109,000 higher at fiscal year-end 2022 compared to fiscal year-end 2021 due primarily to rising costs and building inventory levels to meet demand and thwart potential supply chain disruptions.

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.

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.

Packaging costs increased due to anticipated sales demand as well as an increase in the underlying cost of packaging.

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

See Note 1 of the Notes to the Consolidated Financial Statements for further information regarding our inventory.

Prepaid expenses were $1,014,000 higher at fiscal year-end 2022 compared to fiscal year-end 2021 driven primarily by higher prepaid insurance costs due to the rising cost of insurance and timing of premium payments.

Prepaid expenses were $4,067,000 higher at fiscal year end 2021 compared to fiscal year 2020 due to higher prepayments of income taxes.

This increase in fiscal year 2021 was partially offset by lower prepaid advertising costs and insurance.

Deferred income taxes, less provision for deferred income taxes, were $1,581,000 higher at fiscal year-end 2022 compared to fiscal year-end 2021 and were $5,196,000 lower at fiscal year-end 2021 compared to fiscal year-end 2020.

Deferred income taxes were higher at fiscal year-end 2022 due to the election of out of bonus depreciation that the Company took in fiscal year 2021.

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

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

Other assets were $2,138,000 higher at fiscal year-end 2022 compared to fiscal year-end 2021 due to an increase in operating lease right-of-use lease assets offset by amortization of said right-of-use assets.

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 $5,002,000 higher at fiscal year-end 2022 compared to fiscal year-end 2021.

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.

Higher trade payables drove the increase in accounts payable in fiscal year 2022.

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.

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 $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.

Accrued expenses were $4,703,000 higher at fiscal year-end 2022 compared to fiscal year-end 2021 The increase in accrued expenses during the fiscal year 2022 is attributable to a continued increase in freight costs, natural gas prices and salaries and benefits.

These increases were somewhat lessened by lower accrued advertising costs.

Accrued expenses were $4,097,000 lower at fiscal year-end 2021 compared to fiscal year-end 2020 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.

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 at fiscal year-end 2022 were $189,000 higher compared to fiscal year-end 2021 and fiscal year-end 2021 was $770,000 lower compared to fiscal year-end 2020.

Deferred compensation increased in fiscal 2022 because of higher deferrals by participants in our deferred compensation plans.

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.

Pension and other postretirement liabilities, net of the adjustment recorded in stockholders' equity, were $1,938,000 lower at fiscal year-end 2022 compared to fiscal year-end 2021 due to a higher discount rate and change in census data.

These liabilities 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.

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

Other liabilities were $2,799,000 lower at fiscal year-end 2022 compared to fiscal year-end 2021.

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 was due to a reclassification of the deferred lease liability to operating lease liabilities upon adoption of ASC 842, Leases .

The decrease in Other liabilities relates to a payment of payroll taxes deferred by the CARES Act during fiscal 2022, payments made against our operating lease liability, partially offset by an increase in reclamation liability due to increased mining activity.

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 of the Notes to the Consolidated Financial Statements.

Net cash used in investing activities

Cash used in investing activities was $22,810,000 in fiscal year 2022 and cash used in investing activities was $18,830,000 in fiscal year 2021.

Cash used in fiscal year 2022 related primarily to the purchases of capital expenditures at levels comparably higher to fiscal year 2021.

During fiscal year 2022, we expanded our plant equipment and improved our facilities to support increased demand for our products as well as made improvements to our IT network.

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.

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, dividend payments, and stock purchases offset by borrowings as further described in Note 3 of the Notes to the Consolidated Financial Statements.

Net cash provided by (used in) financing activities

Cash provided in financing activities was $4,703,000 in fiscal year 2022 and cash used in financing activities was $11,322,000 in fiscal year 2021.

During fiscal year 2022, we issued $25,000,000 in aggregate principal amount of our 3.25% Series C Senior Notes, which provided cash for operations.

The primary uses of cash used in financing activities 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, 2022 and 2021 were $3,260,000 and $3,054,000, respectively.

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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.

The remaining terms were 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.

As of July 31, 2022, the variable rates would have been 5.75% for the BMO Harris’ prime-based rate or 4.04% for the LIBOR-based rate.

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As of July 31, 2022 and 2021, there were no outstanding borrowings under this credit agreement.

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.

See Note 13 of the Notes to the Consolidated Financial Statements for further information regarding our debt agreement.

See Note 3 and Note 13 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.

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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 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.

In fiscal years 2021 and 2022 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.

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.

We spent approximately $4,619,000 less for advertising in fiscal year 2022 compared to fiscal year 2021.

We spent approximately $1,023,000 less for advertising in fiscal year 2021 compared to fiscal year 2020.

We expect advertising expense in fiscal year 2023 to be higher than in fiscal year 2022 and more in line with pre-COVID spending levels.

Our expenditures for capital were higher in fiscal year 2022 compared to fiscal year 2021 and also higher in fiscal year 2021 compared to fiscal year 2020.

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

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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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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 2021 and 2020 was the FTSE Pension Discount Curve (formally called the Citi Pension Discount Curve).

The yield curve used in both fiscal years 2022 and 2021 was the FTSE Pension Discount Curve (formerly 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.

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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.

This settlement of the pension plan was completed in fiscal year 2021 when we purchased an annuity.

Trade Receivables.

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.

We record an allowance for credit losses based on our expectations 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.

A customer account is determined to be uncollectible when it is probable that a loss will be incurred after we have completed our internal collection procedures, including termination of shipments, direct customer contact and formal demand of payment.

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We also record an estimated allowance for cash discounts offered in our payment terms to some customers.

We recorded a total allowance for doubtful accounts and cash discounts of $1,174,000 and $1,078,000 as of July 31, 2021 and 2020, respectively.

We recorded a total allowance for credit losses and cash discounts of $922,000 and $1,174,000 as of July 31, 2022 and 2021, respectively.

Revenue Recognition.

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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.

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

Inventory costs include the cost of raw materials, packaging supplies, labor and other overhead costs.

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Our impairment analysis is performed in the fourth quarter of the fiscal year and may be re-performed during the year when indicators such as unexpected adverse economic factors, unanticipated technological changes, competitive activities and acts by governments and courts indicate that an asset may become impaired.

Our impairment analysis performed in the fourth quarters of both fiscal years 2021 and 2020 did not indicate any impairment.

We determined that, as a result of lower share prices and the continued adverse impacts of rising costs and additional expenses to prevent supply chain disruptions, we had a triggering event during the third quarter of fiscal year 2022 that necessitated a goodwill impairment test.

We performed a goodwill impairment test on our Retail and Wholesale Products Group and Business to Business Products Group reporting units and determined that the carrying value of our Retail and Wholesale Products Group reporting unit was higher than its fair value.

As a result, we recorded goodwill impairment of $5,644,000, which left no remaining goodwill in the Retail and Wholesale Products Group reporting unit.

We also performed a quantitative impairment analysis on the Business to Business Products Group reporting unit and concluded there was excess fair value over carrying value, therefore no impairment was recorded on this reporting unit.

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.

In addition, although we have not identified any additional 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

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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.

The impact of adopting this requirement is not material to 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 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.

We implemented this guidance effective for our first quarter of fiscal year 2022.

The impact of adopting this requirement is not 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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In general, this guidance will require modified retrospective adoption for all outstanding instruments that fall under this guidance.

This guidance is effective for our first quarter of fiscal year 2023.

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

Early adoption is permitted, and we adopted this standard for the evaluation of bad debt reserves at July 31, 2022.

Accordingly, this guidance is effective for our first quarter of fiscal year 2023.

The impact of adopting this requirement is not material to our Consolidated Financial Statements.

A summary of all recently adopted and issued accounting standards is contained in Note 1 of Notes to the Consolidated Financial Statements.

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