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UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D. C.
20549
FORM
10-Q
(Mark
One)
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☒
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Quarterly Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the Quarterly
Period Ended April 30, 2020
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or
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☐
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Transition Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
transition period from _____________ to ______________
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Commission File
Number 001-12622
OIL-DRI CORPORATION
OF AMERICA
(Exact name of
the registrant as specified in its charter)
Delaware
36-2048898
(State or other
jurisdiction of incorporation or organization) (I.R.S. Employer
Identification No.)
410 North
Michigan Avenue, Suite 400
60611-4213
Chicago,
Illinois (Zip Code)
(Address of
principal executive offices)
The registrant's
telephone number, including area code: (312)
321-1515
Indicate by check
mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has
been subject to such filing requirements for at least the past 90
days. Yes
☒ No ☐
Indicate by check
mark whether the registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files). Yes
☒ No ☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
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Large
accelerated filer o
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Accelerated
filer x
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Non-accelerated
filer o
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Smaller reporting
company x
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Emerging growth
company o
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If an emerging
growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ☐ No ☒
Securities
registered pursuant to Section 12(b) of the Act:
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Title of
each class
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Trading
Symbol(s)
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Name of each
exchange on which registered
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Common Stock, par value
$0.10 per share
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ODC
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New York Stock
Exchange
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Indicate the
number of shares outstanding of each of the issuer’s classes of
common stock as of April 30,
2020.
Common Stock
– 5,307,384
Shares and Class
B Stock – 2,176,142
Shares
CONTENTS
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PART I –
FINANCIAL INFORMATION
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Page
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Item
1:
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Item
2:
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Item
4:
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PART II –
OTHER INFORMATION
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Item
1A:
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Risk Factors
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Item
2:
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Item
4:
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Item
6:
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FORWARD-LOOKING
STATEMENTS
Certain
statements in this report, including, but not limited to, those
under the heading “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and those statements
elsewhere in this report and other documents that we file with the
Securities and Exchange Commission (“SEC”), contain forward-looking
statements that are based on current expectations, estimates,
forecasts and projections about our future performance, our
business, our beliefs and our management’s assumptions. In
addition, we, or others on our behalf, may make forward-looking
statements in press releases or written statements, or in our
communications and discussions with investors and analysts in the
normal course of business through meetings, webcasts, phone calls
and conference calls. Words such as “expect,” “outlook,”
“forecast,” “would,” “could,” “should,” “project,” “intend,”
“plan,” “continue,” “believe,” “seek,” “estimate,” “anticipate,”
“may,” “assume,” "potential," and variations of such words and
similar expressions are intended to identify such forward-looking
statements, which are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of
1995.
Such statements
are subject to certain risks, uncertainties and assumptions that
could cause actual results to differ materially, including, but not
limited to, those described in Item 1A, Risk Factors, herein, and
in our Annual Report on Form 10-K for the fiscal year ended
July 31, 2019. Should one or more of these
or other risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially
from those anticipated, intended, expected, believed, estimated,
projected or planned. Investors are cautioned not to place
undue reliance on these forward-looking statements, which speak
only as of the date hereof. Except to the extent required by
law, we do not have any intention or obligation to update publicly
any forward-looking statements after the distribution of this
report, whether as a result of new information, future events,
changes in assumptions or otherwise.
TRADEMARK
NOTICE
Oil-Dri is a
registered trademark of Oil-Dri Corporation of
America.
PART I -
FINANCIAL INFORMATION
ITEM
1. Financial Statements
OIL-DRI
CORPORATION OF AMERICA
Condensed
Consolidated Balance Sheet
(in
thousands, except share and per share amounts)
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(unaudited)
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ASSETS
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April 30,
2020
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July 31,
2019
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Current Assets
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Cash and cash
equivalents
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$
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20,548
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$
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21,862
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Accounts receivable, less
allowance of
$1,324 and $644 at April 30, 2020 and July 31, 2019,
respectively
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41,846
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35,459
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Inventories
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24,096
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24,163
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Prepaid repairs
expense
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5,163
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4,708
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Prepaid expenses and other
assets
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2,460
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3,084
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Total
Current Assets
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94,113
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89,276
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Property, Plant and Equipment
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Cost
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257,123
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249,834
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Less accumulated depreciation
and amortization
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(166,990
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)
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(159,036
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)
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Total
Property, Plant and Equipment, Net
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90,133
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90,798
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Other Assets
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Goodwill
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9,262
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9,262
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Other intangibles, net of
accumulated amortization
of $415 and $299 at April 30, 2020 and July 31, 2019,
respectively
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1,551
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1,599
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Customer list, net of
accumulated amortization
of $6,739 and $6,297 at April 30, 2020 and July 31, 2019,
respectively
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1,046
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1,488
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Deferred income
taxes
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6,397
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7,755
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Operating lease right-of-use
assets
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8,327
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—
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Other
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5,152
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5,049
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Total Other
Assets
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31,735
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25,153
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Total
Assets
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$
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215,981
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$
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205,227
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The accompanying
notes are an integral part of the Condensed Consolidated Financial
Statements.
OIL-DRI
CORPORATION OF AMERICA
Condensed
Consolidated Balance Sheet (continued)
(in
thousands, except share and per share amounts)
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|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
LIABILITIES
& STOCKHOLDERS’ EQUITY
|
April 30,
2020
|
|
July 31,
2019
|
|
Current Liabilities
|
|
|
|
|
Current maturities of notes
payable, net of unamortized debt issuance costs
of $10 at April 30, 2020
|
$
|
3,074
|
|
|
$
|
3,083
|
|
|
Accounts payable
|
10,524
|
|
|
8,092
|
|
|
Dividends
payable
|
1,735
|
|
|
1,761
|
|
|
Operating lease
liabilities
|
1,561
|
|
|
—
|
|
|
Accrued
expenses:
|
|
|
|
|
|
Salaries, wages and
commissions
|
10,559
|
|
|
6,740
|
|
|
Trade promotions and
advertising
|
1,853
|
|
|
1,588
|
|
|
Freight
|
2,216
|
|
|
2,635
|
|
|
Other
|
9,425
|
|
|
8,707
|
|
|
Total
Current Liabilities
|
40,947
|
|
|
32,606
|
|
|
|
|
|
|
|
Noncurrent Liabilities
|
|
|
|
|
|
|
Notes payable, net of
unamortized debt issuance costs
of $31 at July 31, 2019
|
—
|
|
|
3,052
|
|
|
Deferred
compensation
|
4,847
|
|
|
6,014
|
|
|
Pension and postretirement
benefits
|
12,565
|
|
|
23,721
|
|
|
Long-term operating lease
liabilities
|
8,285
|
|
|
—
|
|
|
Other
|
2,682
|
|
|
4,288
|
|
|
Total
Noncurrent Liabilities
|
28,379
|
|
|
37,075
|
|
|
|
|
|
|
|
Total
Liabilities
|
69,326
|
|
|
69,681
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
Common Stock, par value $.10
per share, issued 8,371,197 shares at April 30, 2020
and 8,284,199 shares at July 31, 2019
|
837
|
|
|
828
|
|
|
Class B Stock, par value $.10
per share, issued 2,511,958 shares at April 30, 2020
and 2,576,479 shares at July 31, 2019
|
251
|
|
|
258
|
|
|
Additional paid-in
capital
|
44,149
|
|
|
41,300
|
|
|
Retained
earnings
|
172,504
|
|
|
164,756
|
|
|
Noncontrolling
interest
|
(169
|
)
|
|
(14
|
)
|
|
Accumulated Other
Comprehensive Loss:
|
|
|
|
|
|
|
Pension and postretirement
benefits
|
(9,217
|
)
|
|
(14,891
|
)
|
|
Cumulative translation
adjustment
|
(378
|
)
|
|
(148
|
)
|
|
Total Accumulated Other
Comprehensive Loss
|
(9,595
|
)
|
|
(15,039
|
)
|
|
Less Treasury Stock, at cost
(3,063,813 Common and 335,816 Class B shares at
April 30, 2020 and 2,926,547 Common and 324,741 Class B shares at
July 31, 2019)
|
(61,322
|
)
|
|
(56,543
|
)
|
|
Total
Stockholders’ Equity
|
146,655
|
|
|
135,546
|
|
|
|
|
|
|
|
Total
Liabilities & Stockholders’ Equity
|
$
|
215,981
|
|
|
$
|
205,227
|
|
The accompanying notes are an
integral part of the Condensed Consolidated Financial
Statements.
OIL-DRI
CORPORATION OF AMERICA
Condensed
Consolidated Statements of Income
(in
thousands, except for per share amounts)
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
For the Nine
Months Ended April 30,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
Net
Sales
|
$
|
218,383
|
|
|
$
|
206,908
|
|
|
Cost of
Sales
|
(158,105
|
)
|
|
(158,660
|
)
|
|
Gross
Profit
|
60,278
|
|
|
48,248
|
|
|
Selling,
General and Administrative Expenses
|
(44,584
|
)
|
|
(42,091
|
)
|
|
Income from
Operations
|
15,694
|
|
|
6,157
|
|
|
|
|
|
|
|
Other
(Expense) Income
|
|
|
|
|
|
|
Interest expense
|
(314
|
)
|
|
(434
|
)
|
|
Interest income
|
238
|
|
|
149
|
|
|
Other, net (1)
|
(186
|
)
|
|
4,504
|
|
|
Total Other
(Expense) Income, Net
|
(262
|
)
|
|
4,219
|
|
|
|
|
|
|
|
Income
Before Income Taxes
|
15,432
|
|
|
10,376
|
|
|
Income Tax
Expense
|
(2,573
|
)
|
|
(1,599
|
)
|
|
Net
Income
|
12,859
|
|
|
8,777
|
|
|
Net Loss
Attributable to Noncontrolling Interest
|
(155
|
)
|
|
(35
|
)
|
|
Net Income
Attributable to Oil-Dri
|
13,014
|
|
|
8,812
|
|
|
|
|
|
|
|
Net Income
Per Share
|
|
|
|
|
Basic
Common
|
$
|
1.85
|
|
|
$
|
1.27
|
|
|
Basic Class
B Common
|
$
|
1.39
|
|
|
$
|
0.95
|
|
|
Diluted
Common
|
$
|
1.69
|
|
|
$
|
1.17
|
|
|
Average
Shares Outstanding
|
|
|
|
|
Basic
Common
|
5,152
|
|
|
5,108
|
|
|
Basic Class
B Common
|
2,042
|
|
|
2,068
|
|
|
Diluted
Common
|
7,310
|
|
|
7,245
|
|
|
Dividends
Declared Per Share
|
|
|
|
|
Basic
Common
|
$
|
0.7500
|
|
|
$
|
0.7200
|
|
|
Basic Class
B Common
|
$
|
0.5625
|
|
|
$
|
0.5400
|
|
(1) See Note 8 of
the Notes to the Unaudited Condensed Consolidated Financial
Statements for further information about amounts included in this
line item for the nine months ended April 30, 2019.
The accompanying notes are an
integral part of the Condensed Consolidated Financial
Statements.
OIL-DRI
CORPORATION OF AMERICA
Condensed
Consolidated Statements of Comprehensive Income
(in
thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
For the Nine
Months Ended April 30,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
Net Income
Attributable to Oil-Dri
|
$
|
13,014
|
|
|
$
|
8,812
|
|
|
|
|
|
|
|
Other Comprehensive
Income:
|
|
|
|
|
Pension and postretirement
benefits (net of tax)
|
5,674
|
|
|
437
|
|
|
Cumulative translation
adjustment
|
(230
|
)
|
|
(7
|
)
|
|
Other
Comprehensive Income
|
5,444
|
|
|
430
|
|
|
Total
Comprehensive Income
|
$
|
18,458
|
|
|
$
|
9,242
|
|
The accompanying notes are an
integral part of the Condensed Consolidated Financial
Statements.
OIL-DRI
CORPORATION OF AMERICA
Condensed
Consolidated Statements of Income
(in
thousands, except for per share amounts)
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
For the
Three Months Ended April 30,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
Net
Sales
|
$
|
76,256
|
|
|
$
|
70,885
|
|
|
Cost of
Sales
|
(54,871
|
)
|
|
(54,051
|
)
|
|
Gross
Profit
|
21,385
|
|
|
16,834
|
|
|
Selling,
General and Administrative Expenses
|
(15,685
|
)
|
|
(14,507
|
)
|
|
Income from
Operations
|
5,700
|
|
|
2,327
|
|
|
|
|
|
|
|
Other
(Expense) Income
|
|
|
|
|
|
|
Interest expense
|
(108
|
)
|
|
(141
|
)
|
|
Interest income
|
48
|
|
|
53
|
|
|
Other, net (1)
|
(43
|
)
|
|
4,465
|
|
|
Total Other
(Expense) Income, Net
|
(103
|
)
|
|
4,377
|
|
|
|
|
|
|
|
Income
Before Income Taxes
|
5,597
|
|
|
6,704
|
|
|
Income Tax
Expense
|
(947
|
)
|
|
(1,143
|
)
|
|
Net
Income
|
4,650
|
|
|
5,561
|
|
|
Net Income
(Loss) Attributable to Noncontrolling Interest
|
2
|
|
|
(58
|
)
|
|
Net Income
Attributable to Oil-Dri
|
4,648
|
|
|
5,619
|
|
|
|
|
|
|
|
Net Income
Per Share
|
|
|
|
|
Basic
Common
|
$
|
0.66
|
|
|
$
|
0.81
|
|
|
Basic Class
B
|
$
|
0.50
|
|
|
$
|
0.61
|
|
|
Diluted
Common
|
$
|
0.61
|
|
|
$
|
0.74
|
|
|
Average
Shares Outstanding
|
|
|
|
|
Basic
Common
|
5,126
|
|
|
5,126
|
|
|
Basic Class
B
|
2,036
|
|
|
2,068
|
|
|
Diluted
Common
|
7,288
|
|
|
7,253
|
|
|
Dividends
Declared Per Share
|
|
|
|
|
Basic
Common
|
$
|
0.2500
|
|
|
$
|
0.2400
|
|
|
Basic Class
B
|
$
|
0.1875
|
|
|
$
|
0.1800
|
|
(1) See note 8 of the Notes
to the Unaudited Condensed Consolidated financial statements for
further information about amounts included in this line item for
the three months ended April 30, 2019.
The accompanying notes are an
integral part of the Condensed Consolidated Financial
Statements.
OIL-DRI
CORPORATION OF AMERICA
Condensed
Consolidated Statements of Comprehensive Income
(in
thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
For the
Three Months Ended April 30,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
Net Income
Attributable to Oil-Dri
|
$
|
4,648
|
|
|
$
|
5,619
|
|
|
|
|
|
|
|
Other Comprehensive
Income:
|
|
|
|
|
Pension and postretirement
benefits (net of tax)
|
126
|
|
|
146
|
|
|
Cumulative translation
adjustment
|
(132
|
)
|
|
29
|
|
|
Other
Comprehensive Income
|
(6
|
)
|
|
175
|
|
|
Total
Comprehensive Income
|
$
|
4,642
|
|
|
$
|
5,794
|
|
The accompanying notes are an
integral part of the Condensed Consolidated Financial
Statements.
OIL-DRI
CORPORATION OF AMERICA
Consolidated
Statements of Stockholders' Equity
(in
thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
Nine Months Ended April 30
|
|
|
(unaudited)
|
|
|
Number of
Shares
|
|
|
|
|
Common
&
Class B
Stock
|
|
Treasury
Stock
|
|
Common
&
Class B
Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Treasury
Stock
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Non-Controlling
Interest
|
|
Total
Stockholders’
Equity
|
|
Balance, July 31, 2018
|
10,555,828
|
|
|
(3,238,833
|
)
|
|
$
|
1,056
|
|
|
$
|
38,473
|
|
|
$
|
158,935
|
|
|
$
|
(55,946
|
)
|
|
$
|
(10,615
|
)
|
|
$
|
(18
|
)
|
|
$
|
131,885
|
|
|
Net Income
(Loss)
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
8,812
|
|
|
—
|
|
|
—
|
|
|
(35
|
)
|
|
8,777
|
|
|
Other Comprehensive
Income
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
430
|
|
|
—
|
|
|
430
|
|
|
Dividends
Declared
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
(5,029
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,029
|
)
|
|
Purchases of Treasury
Stock
|
|
|
|
(4,545
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(141
|
)
|
|
—
|
|
|
—
|
|
|
(141
|
)
|
|
Net issuance of stock under
long-term incentive plans
|
297,600
|
|
|
(7,737
|
)
|
|
29
|
|
|
420
|
|
|
—
|
|
|
(450
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
Amortization of Restricted
Stock
|
|
|
|
|
|
|
—
|
|
|
1,594
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,594
|
|
|
Balance,
April 30, 2019
|
10,853,428
|
|
|
(3,251,115
|
)
|
|
$
|
1,085
|
|
|
$
|
40,487
|
|
|
$
|
162,718
|
|
|
$
|
(56,537
|
)
|
|
$
|
(10,185
|
)
|
|
$
|
(53
|
)
|
|
$
|
137,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
July 31, 2019
|
10,860,678
|
|
|
(3,251,288
|
)
|
|
$
|
1,086
|
|
|
$
|
41,300
|
|
|
$
|
164,756
|
|
|
$
|
(56,543
|
)
|
|
$
|
(15,039
|
)
|
|
$
|
(14
|
)
|
|
$
|
135,546
|
|
|
Net Income
(Loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,014
|
|
|
—
|
|
|
—
|
|
|
(155
|
)
|
|
12,859
|
|
|
Other Comprehensive
Income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,444
|
|
|
—
|
|
|
5,444
|
|
|
Dividends
Declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,266
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,266
|
)
|
|
Purchases of Treasury
Stock
|
—
|
|
|
(143,391
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,620
|
)
|
|
—
|
|
|
—
|
|
|
(4,620
|
)
|
|
Net issuance of stock under
long-term incentive plans
|
22,477
|
|
|
(4,950
|
)
|
|
2
|
|
|
158
|
|
|
—
|
|
|
(159
|
)
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Amortization of Restricted
Stock
|
—
|
|
|
—
|
|
|
—
|
|
|
2,549
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,549
|
|
|
Contributions from
noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
142
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
142
|
|
|
Balance,
April 30, 2020
|
10,883,155
|
|
|
(3,399,629
|
)
|
|
$
|
1,088
|
|
|
$
|
44,149
|
|
|
$
|
172,504
|
|
|
$
|
(61,322
|
)
|
|
$
|
(9,595
|
)
|
|
$
|
(169
|
)
|
|
$
|
146,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
Three Months Ended April 30
|
|
|
(unaudited)
|
|
|
Number of
Shares
|
|
|
|
|
Common
&
Class B
Stock
|
|
Treasury
Stock
|
|
Common
&
Class B
Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Treasury
Stock
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Non-Controlling
Interest
|
|
Total
Stockholders’
Equity
|
|
Balance,
January 31, 2019
|
10,812,928
|
|
|
(3,249,728
|
)
|
|
$
|
1,081
|
|
|
$
|
39,730
|
|
|
$
|
158,788
|
|
|
$
|
(56,480
|
)
|
|
$
|
(10,360
|
)
|
|
$
|
5
|
|
|
$
|
132,764
|
|
|
Net Income
(Loss)
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
5,619
|
|
|
—
|
|
|
—
|
|
|
(58
|
)
|
|
5,561
|
|
|
Other Comprehensive
Income
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
175
|
|
|
—
|
|
|
175
|
|
|
Dividends
Declared
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
(1,689
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,689
|
)
|
|
Purchases of Treasury
Stock
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
Net issuance of stock under
long-term incentive plans
|
40,500
|
|
|
(1,387
|
)
|
|
4
|
|
|
47
|
|
|
—
|
|
|
(51
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Amortization of Restricted
Stock
|
|
|
|
|
|
|
—
|
|
|
710
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
710
|
|
|
Balance,
April 30, 2019
|
10,853,428
|
|
|
(3,251,115
|
)
|
|
$
|
1,085
|
|
|
$
|
40,487
|
|
|
$
|
162,718
|
|
|
$
|
(56,537
|
)
|
|
$
|
(10,185
|
)
|
|
$
|
(53
|
)
|
|
$
|
137,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 31, 2020
|
10,881,155
|
|
|
(3,269,059
|
)
|
|
$
|
1,088
|
|
|
$
|
43,149
|
|
|
$
|
169,590
|
|
|
$
|
(57,138
|
)
|
|
$
|
(9,589
|
)
|
|
$
|
(171
|
)
|
|
$
|
146,929
|
|
|
Net Income
(Loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,648
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
4,650
|
|
|
Other Comprehensive
Income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
(6
|
)
|
|
Dividends
Declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,734
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,734
|
)
|
|
Purchases of Treasury
Stock
|
—
|
|
|
(127,770
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,097
|
)
|
|
—
|
|
|
—
|
|
|
(4,097
|
)
|
|
Net issuance of stock under
long-term incentive plans
|
2,000
|
|
|
(2,800
|
)
|
|
—
|
|
|
88
|
|
|
—
|
|
|
(87
|
)
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Amortization of Restricted
Stock
|
—
|
|
|
—
|
|
|
—
|
|
|
770
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
770
|
|
|
Contributions from
noncontrolling interests (1)
|
—
|
|
|
—
|
|
|
—
|
|
|
142
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
142
|
|
|
Balance,
April 30, 2020
|
10,883,155
|
|
|
(3,399,629
|
)
|
|
$
|
1,088
|
|
|
$
|
44,149
|
|
|
$
|
172,504
|
|
|
$
|
(61,322
|
)
|
|
$
|
(9,595
|
)
|
|
$
|
(169
|
)
|
|
$
|
146,655
|
|
(1) On April 1,
2020 we increased our interest in one of our non-wholly owned
subsidiaries from 52.0%
to
78.4%
for
approximately $724,000
when that
subsidiary issued shares through a capital call. Certain other
noncontrolling interest holders also purchased shares but to a
lesser extent, thereby diluting their collective ownership
from 48.0%
to
21.6%.
The accompanying
notes are an integral part of the Condensed Consolidated Financial
Statements.
Condensed
Consolidated Statements of Cash Flows
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
For the Nine
Months Ended April 30,
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
2020
|
|
2019
|
|
Net
Income
|
$
|
12,859
|
|
|
$
|
8,777
|
|
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation and
amortization
|
10,399
|
|
|
9,849
|
|
|
Amortization of investment
net discount
|
—
|
|
|
(10
|
)
|
|
Stock-based
compensation
|
2,549
|
|
|
1,590
|
|
|
Deferred income
taxes
|
1,367
|
|
|
277
|
|
|
Provision for bad debts and
cash discounts
|
704
|
|
|
(151
|
)
|
|
Loss on the sale of fixed
assets
|
102
|
|
|
4
|
|
|
Curtailment gain on SERP
Plan
|
(1,296
|
)
|
|
—
|
|
|
(Increase) Decrease in
assets:
|
|
|
|
|
|
|
Accounts
receivable
|
(7,296
|
)
|
|
(2,185
|
)
|
|
Inventories
|
(72
|
)
|
|
(4,248
|
)
|
|
Prepaid expenses
|
120
|
|
|
(201
|
)
|
|
Other assets
|
816
|
|
|
(564
|
)
|
|
Increase (Decrease) in
liabilities:
|
|
|
|
|
|
|
Accounts payable
|
3,859
|
|
|
2,873
|
|
|
Accrued expenses
|
4,612
|
|
|
(1,762
|
)
|
|
Deferred
compensation
|
129
|
|
|
(421
|
)
|
|
Pension and postretirement
benefits
|
(5,482
|
)
|
|
1,287
|
|
|
Other
liabilities
|
(1,101
|
)
|
|
249
|
|
|
Total
Adjustments
|
9,410
|
|
|
6,587
|
|
|
Net Cash
Provided by Operating Activities
|
22,269
|
|
|
15,364
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
Capital
expenditures
|
(10,870
|
)
|
|
(10,162
|
)
|
|
Proceeds from sale of
property, plant and equipment
|
112
|
|
|
—
|
|
|
Purchases of short-term
investments
|
—
|
|
|
(4,678
|
)
|
|
Dispositions of short-term
investments
|
—
|
|
|
11,082
|
|
|
Net Cash
Used in Investing Activities
|
(10,758
|
)
|
|
(3,758
|
)
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
Principal payments on notes
payable
|
(3,082
|
)
|
|
(3,083
|
)
|
|
Dividends paid
|
(5,292
|
)
|
|
(4,967
|
)
|
|
Purchase of treasury
stock
|
(4,620
|
)
|
|
(141
|
)
|
|
Contributions from
noncontrolling interests
|
142
|
|
|
—
|
|
|
Net Cash
Used in Financing Activities
|
(12,852
|
)
|
|
(8,191
|
)
|
|
Effect of exchange rate
changes on Cash and Cash Equivalents
|
27
|
|
|
52
|
|
|
Net
(Decrease) Increase in Cash and Cash Equivalents
|
(1,314
|
)
|
|
3,467
|
|
|
Cash and
Cash Equivalents, Beginning of Period
|
21,862
|
|
|
12,757
|
|
|
Cash and
Cash Equivalents, End of Period
|
$
|
20,548
|
|
|
$
|
16,224
|
|
OIL-DRI
CORPORATION OF AMERICA
Condensed
Consolidated Statements of Cash Flows - Continued
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
For the Nine
Months Ended April 30,
|
|
|
2020
|
|
2019
|
|
Supplemental
disclosure of non-cash investing and financing
activities:
|
|
|
|
|
Capital expenditures accrued,
but not paid
|
$
|
784
|
|
|
$
|
468
|
|
|
Cash dividends declared and
accrued, but not paid
|
$
|
1,735
|
|
|
$
|
1,689
|
|
The accompanying notes are an
integral part of the Condensed Consolidated Financial
Statements.
OIL-DRI
CORPORATION OF AMERICA
Notes To
Condensed Consolidated Financial Statements
(Unaudited)
1. BASIS
OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of
Presentation
The accompanying
unaudited Condensed Consolidated Financial Statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) for interim
financial information and in compliance with instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by U.S.
GAAP for complete financial statements. The financial statements
and the related notes are condensed and should be read in
conjunction with the Consolidated Financial Statements and related
notes for the fiscal year ended
July 31, 2019 included in our Annual Report
on Form 10-K filed with the SEC.
The unaudited
Condensed Consolidated Financial Statements include the accounts of
Oil-Dri Corporation of America and its subsidiaries. All
significant intercompany transactions are eliminated. Except as
otherwise indicated herein or as the context otherwise requires,
references to “Oil-Dri,” the “Company,” “we,” “us” or “our” refer
to Oil-Dri Corporation of America and its
subsidiaries.
The unaudited
Condensed Consolidated Financial Statements reflect all
adjustments, consisting of normal recurring accruals and
reclassifications which are, in the opinion of management,
necessary for a fair presentation of the statements contained
herein. In addition, certain prior year reclassifications were
made to conform to the current year presentation. Operating results
for the
three and nine months ended
April 30, 2020 are not necessarily an
indication of the results that may be expected for the fiscal year
ending
July 31, 2020.
In March 2020,
the World Health Organization declared the recent novel coronavirus
outbreak ("the coronavirus" or "COVID-19") a pandemic. Despite the
adverse effects of COVID-19 on the overall economy, we have not
experienced a significant decline in customer orders and sales in
the third quarter of fiscal year 2020. However, the effects of
COVID-19 are unprecedented, and therefore we are unable to
ascertain the effects on our sales and net earnings for the balance
of fiscal year 2020.
Management
Use of Estimates
The preparation
of the unaudited Condensed Consolidated Financial Statements in
conformity with U.S. GAAP requires the use of estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses during the reporting period, as
well as the related disclosures. All of our estimates and
assumptions are revised periodically. Actual results could
differ from these estimates.
Summary of
Significant Accounting Policies
Our significant
accounting policies, which are detailed in our Annual Report on
Form 10-K for the fiscal year ended July 31, 2019
have not
materially changed, except as described herein, including policies
associated with the August 1, 2019 adoption of Accounting Standards
Codification (“ASC”) 842, Leases.
Changes to our accounting policies as a result of the ASC 842
adoption are discussed below and further information is also
provided in Note 2 of the Notes to unaudited
Condensed Consolidated Financial Statements. Following is a
description of certain of our significant accounting
policies.
Trade
Receivables. 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 customer
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.
Overburden
Removal and Mining Costs. We mine sorbent materials on
property that we either own or lease as part of our overall
operations. A significant part of our overall mining cost is
incurred during the process of removing the overburden (non-usable
material) from the mine site, thus exposing the sorbent material
used in a majority of our production processes. These
stripping costs are treated as a variable inventory production cost
and are included in cost of sales in the period they are
incurred. We defer and amortize the pre-production overburden
removal costs associated with opening a new mine.
Additionally, it
is our policy to capitalize the purchase cost of land and mineral
rights, including associated legal fees, survey fees and real
estate fees. The costs of obtaining mineral patents, including
legal fees and drilling expenses, are also
capitalized. Pre-production development costs on new mines and
any prepaid royalties that may be offset against future royalties
due upon extraction of the minerals are also capitalized. All
exploration related costs are expensed as incurred.
We perform
ongoing reclamation activities during the normal course of our
overburden removal. As overburden is removed from a mine site,
it is hauled to previously mined sites and is used to refill older
sites. This process allows us to continuously reclaim older
mine sites and dispose of overburden simultaneously, therefore
minimizing the costs associated with the reclamation
process.
Leases.
ASC 842 provides
that a contract is, or contains, a lease if it conveys the right to
control the use of an identified asset and, accordingly, a lease
liability and a related right-of-use (“ROU”) asset is recognized at
the commencement date on our consolidated balance sheet. As
provided in ASC 842, we have elected not to apply these measurement
and recognition requirements to short-term leases (i.e., leases
with a term of 12 months or less). Short-term leases will not be
recorded as ROU assets or lease liabilities on our consolidated
balance sheet, and the related lease payments will be recognized in
net earnings on a straight-line basis over the lease term. For
leases other than short-term leases, the lease liability is equal
to the present value of unpaid lease payments over the remaining
lease term. The lease term may reflect options to extend or
terminate the lease when it is reasonably certain that such options
will be exercised. To determine the present value of the lease
liability, we used an incremental borrowing rate, which is defined
as the rate of interest we would have to pay to borrow (on a
collateralized basis over a similar term) an amount equal to the
lease payments in similar economic environments. The ROU asset is
based on the corresponding lease liability adjusted for certain
costs such as initial direct costs, prepaid lease payments and
lease incentives received. Both operating and finance lease ROU
assets are reviewed for impairment, consistent with other
long-lived assets, whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. After a
ROU asset is impaired, any remaining balance of the ROU asset is
amortized on a straight-line basis over the shorter of the
remaining lease term or the estimated useful life. After the lease
commencement date, we evaluate lease modifications, if any, that
could result in a change in the accounting for leases.
Certain of our
leases provide for variable lease payments that vary due to changes
in facts and circumstances occurring after the commencement date,
other than the passage of time. Variable lease payments that are
dependent on an index or rate (e.g., Consumer Price Index) are
included in the initial measurement of the lease liability and the
ROU asset. Variable lease payments that are not known at the
commencement date and are determinable based on the performance or
use of the underlying asset, are expensed as incurred. Our variable
lease payments primarily include common area maintenance charges
based on the percentage of the total square footage leased and the
usage of assets, such as photocopiers.
Some of our
contracts may contain lease components as well as non-lease
components, such as an agreement to purchase services. As allowed
under ASC 842, we have elected not to separate the lease components
from non-lease components for all asset classes and we will not
allocate the contract consideration to these components. This
policy was applied to all existing leases upon adoption of ASC 842
and will be applied to new leases on an ongoing basis.
Revenue
Recognition. We recognize revenue when
performance obligations under the terms of the contracts with
customers are satisfied. Our performance obligation generally
consists of the promise to sell finished products to wholesalers,
distributors and retailers or consumers and our obligations have an
original duration of one year or less. Control of the finished
products are transferred upon shipment to, or receipt at,
customers' locations, as determined by the specific terms of the
contract. We have completed our performance obligation when control
is transferred and we recognize revenue accordingly.
We have an
unconditional right to consideration under the payment terms
specified in the contract upon completion of the performance
obligation. We may require certain customers to provide payment in
advance of product shipment. We recorded a liability for these
advance payments of $362,000
and
$259,000
as of
April 30,
2020 and July 31,
2019,
respectively. This liability is reported in Other Accrued Expenses
on the unaudited Condensed Consolidated Balance Sheet. Revenue
recognized during the nine months ended
April 30,
2020 that
was included in the liability for advance payments at the beginning
of the period was $174,000.
We routinely
commit to one-time or ongoing trade promotion programs directly
with consumers, such as coupon programs, and with customers, such
as volume discounts, cooperative marketing and other arrangements.
We estimate and accrue the expected costs of these programs. These
costs are considered variable consideration under ASC 606,
Revenue
from Contracts with Customers, and are netted against
sales when revenue is recorded. The accruals are based on our best
estimate of the amounts necessary to settle future and existing
obligations on products sold as of the balance sheet date. To
estimate these accruals, we rely on our historical experience of
trade spending patterns and that of the industry, current trends
and forecasted data.
Selling,
General and Administrative Expenses. Selling, general and
administrative expenses (“SG&A”) include salaries, wages and
benefits associated with staff outside the manufacturing and
distribution functions, all marketing related costs,
any
miscellaneous
trade spending expenses not required to be included in net sales,
research and development costs, depreciation and amortization
related to assets outside the manufacturing and distribution
process and all other non-manufacturing and non-distribution
expenses.
Income
Taxes
On March 27,
2020, in response to the COVID-19 pandemic, the Coronavirus Aid,
Relief, and Economic Security Act (the “CARES Act”) was signed into
U.S. law. The CARES Act provides for, among other things, deferral
of the employer portion of social security taxes incurred through
the end of calendar 2020. As permitted by the CARES Act, we
deferred approximately $130,000
in payroll taxes
during its quarter ended April 30, 2020 and expect to defer the
payment of payroll taxes each quarter for the remainder of 2020 to
be paid equally in the fourth quarters of 2021 and 2022
representing approximately $2,000,000
in payroll
taxes.
2. NEW
ACCOUNTING PRONOUNCEMENTS AND REGULATIONS
Recently
Adopted 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
ROU assets and lease liabilities related to operating leases of
$9,348,000
and
$10,910,000,
respectively, on our unaudited Condensed Consolidated Balance
Sheet. There was no material impact to any of our other unaudited
consolidated financial statements.
Recently
Issued Pronouncements
In March 2020,
the FASB issued guidance under ASC 848, Reference
Rate Reform. This guidance provides
optional expedients and exceptions to account for debt, leases,
contracts, hedging relationships and other transactions that
reference LIBOR or another reference rate if certain criteria are
met. The guidance is effective immediately and may be applied
prospectively to contract modifications made and hedging
relationships entered into or evaluated on or before December 31,
2022. We are currently evaluating the potential effects of the
adoption of this guidance on our Consolidated Financial
Statements.
In December 2019,
the FASB issued guidance under ASC 740, Income
Taxes,
which simplifies the accounting for income taxes. The guidance
removes several specific exceptions to the general principles in
ASC 740 and clarifies and makes amendments to improve consistent
application of and simplify existing accounting for other areas in
ASC 740. This guidance is effective for our first quarter of fiscal
year 2022, with early adoption permitted. We are currently
evaluating the impact of the adoption of this requirement on our
Consolidated Financial Statements.
In June 2016, the
FASB issued guidance under ASC 326, Financial
Instruments-Credit Losses, which requires companies to
utilize an impairment model for most financial assets measured at
amortized cost and certain other financial instruments, which
include trade and other receivables, loans and held-to-maturity
debt securities, to record an allowance for credit risk based on
expected losses rather than incurred losses. In addition, this new
guidance changes the recognition method for credit losses on
available-for-sale debt securities, which can occur as a result of
market and credit risk, as well as additional disclosures. 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.
There have been
no other accounting pronouncements issued but not yet adopted by us
which are expected to have a material impact on our Consolidated
Financial Statements.
3. INVENTORIES
The composition
of inventories is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
April 30,
2020
|
|
July 31,
2019
|
|
Finished goods
|
$
|
14,250
|
|
|
$
|
13,957
|
|
|
Packaging
|
5,576
|
|
|
5,681
|
|
|
Other
|
4,270
|
|
|
4,525
|
|
|
Total
Inventories
|
$
|
24,096
|
|
|
$
|
24,163
|
|
Inventories are
valued 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. We
performed a detailed review of our inventory items to determine if
an obsolescence reserve adjustment was necessary. The review
surveyed all of our operating facilities and sales groups to ensure
that both historical issues and new market trends were
considered. The obsolescence reserve not only considered
specific items, but also took into consideration the overall value
of the inventory as of the balance sheet date. The inventory
obsolescence reserve values at
April 30, 2020 and
July 31, 2019 were $1,350,000
and
$704,000,
respectively. The higher obsolescence reserve is attributed to our
focus on inventory management and enhanced data available from our
enterprise resource planning (“ERP”) system.
4. FAIR
VALUE MEASUREMENTS
Fair value is
defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The inputs used
to measure fair value are prioritized into categories based on the
lowest level of input that is significant to the fair value
measurement. The categories in the fair value hierarchy are as
follows:
Level 1: Quoted
market prices in active markets for identical assets or
liabilities.
Level 2:
Observable market-based inputs for similar assets or liabilities or
valuation models whose inputs are observable, directly or
indirectly.
Level 3:
Unobservable inputs.
Cash equivalents
are primarily money market mutual funds classified as Level 1. We
had $103,000
and
$26,000
cash equivalents
as of April 30, 2020 and July 31, 2019, respectively, which are
included in Cash and cash equivalents on the unaudited Condensed
Consolidated Balance Sheet.
Balances of
accounts receivable and accounts payable approximated their fair
values at
April 30, 2020 and July 31, 2019
due to the short
maturity and nature of those balances.
Notes payable are
reported at the face amount of future maturities. The
estimated fair value of notes payable, including current
maturities, was $3,195,000
and
$6,357,000
as of
April 30, 2020 and July 31,
2019,
respectively, and are classified as Level 2. The fair value was
estimated using the exit price notion of fair value.
We apply fair
value techniques on at least an annual basis associated with: (1)
valuing potential impairment loss related to goodwill, trademarks
and other indefinite-lived intangible assets and (2) valuing
potential impairment loss related to long-lived assets. See
Note 5 of the Notes to unaudited
Condensed Consolidated Financial Statements for further information
about goodwill and other intangible assets.
5.
GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible
assets, other than goodwill, include trademarks, patents, customer
lists and product registrations. Intangible amortization expense
was $184,000
and
$209,000
in the
third
quarter of fiscal
years 2020 and 2019, respectively. Intangible
amortization expense was $600,000
and
$628,000
in the
first nine months of fiscal years 2020
and 2019. Estimated intangible amortization for the remainder of
fiscal year 2020 is $183,000.
Estimated intangible amortization for the next five fiscal years is
as follows (in thousands):
|
|
|
|
|
|
2021
|
$
|
547
|
|
|
2022
|
$
|
397
|
|
|
2023
|
$
|
202
|
|
|
2024
|
$
|
69
|
|
|
2025
|
$
|
47
|
|
We have one
acquired trademark recorded at a cost of $376,000
that was
determined to have an indefinite life and is not
amortized.
We performed our
annual goodwill impairment analysis in the fourth quarter of fiscal
year 2019 and no
impairment was
identified. There have been no triggering events that would
indicate a new impairment analysis is needed. Although we
have not identified any trigging 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 below.
6.
LEASES
We have operating
leases primarily for real estate properties, including corporate
headquarters, customer service and sales offices, manufacturing and
packaging facilities, warehouses, and research and development
facilities, as well as for rail tracks, railcars and office
equipment. Certain of our leases for a shared warehouse and office
facility, rail track and railcars have options to extend which we
are reasonably certain we will exercise and, accordingly, have been
considered in the lease term used to recognize our ROU assets and
lease liabilities. Further information about our accounting policy
for leases is included in Note 1 of the Notes to unaudited
Condensed Consolidated Financial Statements.
We have no
material finance leases, and variable costs for operating leases
are immaterial for the third quarter of fiscal year
2020. Operating lease costs are
included in Cost of Sales or SG&A expenses based on the nature
of the lease. The following table summarizes total lease costs for
our operating leases (in thousands):
|
|
|
|
|
|
|
|
|
|
For the
Three Months Ended April 30, 2020
|
For the Nine
Months Ended April 30, 2020
|
|
Operating
Lease Cost
|
|
|
|
Operating lease
cost
|
$
|
517
|
|
$
|
1,551
|
|
|
Short-term operating lease
cost
|
190
|
|
590
|
|
Supplemental cash
flow information related to leases was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
For the
Three Months Ended April 30, 2020
|
For the Nine
Months Ended April 30, 2020
|
|
Other
Information
|
|
|
|
Cash paid for amounts
included in the measurement of lease liabilities:
|
|
|
|
Operating
cash flows from operating leases
|
$
|
430
|
|
$
|
1,285
|
|
Operating lease
ROU assets and operating lease liabilities are separately presented
on the unaudited Condensed Consolidated Balance Sheet, excluding
leases with an initial term of twelve months or less. Other
supplemental balance sheet information related to leases was as
follows:
|
|
|
|
|
For the Nine
Months Ended April 30, 2020
|
|
Weighted-average
remaining lease term - operating leases
|
10.6
years
|
|
Weighted-average
discount rate - operating leases
|
4.02%
|
The following
table summarizes scheduled minimum future lease payments due within
twelve months for operating leases with terms longer than one year
for which cash flows are fixed and determinable as of
April 30,
(in
thousands):
|
|
|
|
|
|
2020
|
$
|
1,912
|
|
|
2021
|
1,507
|
|
|
2022
|
983
|
|
|
2023
|
781
|
|
|
2024
|
767
|
|
|
Thereafter
|
6,320
|
|
|
Total
|
12,270
|
|
|
Less: imputed
interest
|
(2,424
|
)
|
|
Net lease
obligation
|
$
|
9,846
|
|
The following
table summarizes scheduled minimum future lease payments due within
twelve months for operating leases with terms longer than one year
for which cash flows are fixed and determinable as of July 31, 2019
(in thousands):
|
|
|
|
|
|
2020
|
$
|
2,255
|
|
|
2021
|
1,640
|
|
|
2022
|
1,513
|
|
|
2023
|
1,038
|
|
|
2024
|
899
|
|
|
Thereafter
|
7,422
|
|
7. PENSION
AND OTHER POSTRETIREMENT BENEFITS
Pension and
Postretirement Health Benefits
The Oil-Dri
Corporation of America Pension Plan (“Pension Plan”) is a defined
benefit pension plan for eligible salaried and hourly employees.
Pension benefits are based on a formula of years of credited
service and levels of compensation or stated amounts for each year
of credited service. On January 9, 2020, we amended the Pension
Plan to freeze participation, all future benefit accruals and
accrual of benefit service, including consideration of compensation
increases, effective March 1, 2020. Consequently, the Pension Plan
is closed to new participants and current participants will no
longer earn additional benefits on or after March 1,
2020.
The amendment of
the Pension Plan triggered a pension curtailment, which required a
remeasurement of the Pension Plan's obligation. The remeasurement
resulted in a decrease in the benefit obligation of
approximately $6,632,000,
which was recorded in Other Comprehensive Income, net of taxes
of $1,592,000
in the second
quarter of fiscal year 2020.
The components of
net periodic pension and postretirement health benefit costs were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Benefits
|
|
|
(in
thousands)
|
|
|
For the
Three Months Ended April 30,
|
|
For the Nine
Months Ended April 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Service cost
|
$
|
122
|
|
|
$
|
407
|
|
|
$
|
973
|
|
|
$
|
1,220
|
|
|
Interest cost
|
444
|
|
|
529
|
|
|
1,456
|
|
|
1,586
|
|
|
Expected return on plan
assets
|
(688
|
)
|
|
(702
|
)
|
|
(2,102
|
)
|
|
(2,107
|
)
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
Prior service
costs
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Other actuarial
loss
|
167
|
|
|
192
|
|
|
837
|
|
|
578
|
|
|
Net periodic
benefit cost
|
$
|
45
|
|
|
$
|
426
|
|
|
$
|
1,164
|
|
|
$
|
1,278
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
Health Benefits
|
|
|
(in
thousands)
|
|
|
For the
Three Months Ended April 30,
|
|
For the Nine
Months Ended April 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Service cost
|
$
|
29
|
|
|
$
|
27
|
|
|
$
|
87
|
|
|
$
|
79
|
|
|
Interest cost
|
20
|
|
|
24
|
|
|
61
|
|
|
73
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
Prior service
costs
|
(2
|
)
|
|
(2
|
)
|
|
(5
|
)
|
|
(5
|
)
|
|
Net periodic
benefit cost
|
$
|
47
|
|
|
$
|
49
|
|
|
$
|
143
|
|
|
$
|
147
|
|
The non-service
cost components of net periodic benefit cost are included in Other
Income (Expense) in the line item Other, net on the unaudited
Condensed Consolidated Statements of Income.
The Pension Plan
is funded based upon actuarially determined contributions that take
into account the amount deductible for income tax purposes, the
normal cost and the minimum contribution required and the maximum
contribution allowed under applicable regulations.
We were not
required to make, but did make a $5,000,000
voluntary
contribution to the Pension Plan during the second quarter of
fiscal year 2020. We have no
minimum funding
requirements for the remainder of fiscal year 2020 but we may consider making an
additional voluntary contribution.
The
postretirement health plan is an unfunded plan. We pay insurance
premiums and claims from our assets.
Assumptions used
in the previous calculations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Benefits
|
|
Postretirement
Health Benefits
|
|
|
For the
Three and Nine Months Ended April 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Discount rate for net
periodic benefit cost
|
3.35
|
%
|
|
4.04
|
%
|
|
2.93
|
%
|
|
3.81
|
%
|
|
Rate of increase in
compensation levels
|
3.50
|
%
|
|
3.50
|
%
|
|
—
|
|
|
—
|
|
|
Long-term expected rate of
return on assets
|
7.00
|
%
|
|
7.00
|
%
|
|
—
|
|
|
—
|
|
The medical cost
trend assumption for postretirement health benefits was
7.35%. The graded trend rate is
expected to decrease to an ultimate rate of
4.50% in fiscal year
2038.
Supplemental
Executive Retirement Plan
The Oil-Dri
Corporation of America Supplemental Executive Retirement Plan
(“SERP”) provides certain retired participants in the Pension Plan
with the amount of benefits that would have been provided under the
Pension Plan but for: (1) the limitations on benefits imposed by
Section 415 of the Internal Revenue Code (“Code”) and/or (2) the
limitation on compensation for purposes of calculating benefits
under the Pension Plan imposed by Section 401(a)(17) of the Code.
The SERP liability is actuarially determined at the end of each
fiscal year using assumptions similar to those used for the Pension
Plan. The SERP is unfunded and benefits will be funded when
payments are made.
On January 9,
2020, we amended the SERP to freeze participation and any excess
benefit, supplemental benefit or additional benefit effective March
1, 2020. Consequently, the SERP is closed to new participants and
current participants no longer earn additional benefits on or after
March 1, 2020.
The amendment of
the SERP triggered a pension curtailment which required a
remeasurement of the SERP's obligation. The remeasurement resulted
in a decrease in the SERP liability of approximately
$1,296,000,
which was recorded in SG&A in the second quarter of fiscal year
2020.
8.
OPERATING SEGMENTS
We have
two
operating
segments: (1) Business to Business Products Group and (2)
Retail and Wholesale Products Group. These operating segments
are managed separately and each segment's major customers have
different characteristics. The Retail and Wholesale Products
Group customers include: mass merchandisers; wholesale clubs;
drugstore chains; pet specialty retail outlets; dollar stores;
retail grocery stores; distributors of industrial cleanup and
automotive products; environmental service companies; and sports
field product users. The Business to Business Products Group
customers include: processors and refiners of edible oils,
petroleum-based oils and biodiesel fuel; manufacturers of animal
feed and agricultural chemicals; distributors of animal health and
nutrition products; and marketers of consumer products. Our
operating segments are also our reportable segments. The
accounting policies of the segments are the same as those described
in Note 1 of the Notes to the Consolidated Financial Statements
included in our Annual Report on Form 10-K for the fiscal year
ended
July 31, 2019.
Net sales for our
principal products by segment are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business to
Business Products Group
|
|
Retail and
Wholesale Products Group
|
|
|
For the Nine
Months Ended April 30,
|
|
Product
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Cat Litter
|
$
|
11,026
|
|
|
$
|
9,943
|
|
|
$
|
116,010
|
|
|
$
|
101,754
|
|
|
Industrial and
Sports
|
—
|
|
|
—
|
|
|
22,906
|
|
|
25,509
|
|
|
Agricultural and
Horticultural
|
16,518
|
|
|
18,320
|
|
|
—
|
|
|
—
|
|
|
Bleaching Clay and Fluids
Purification
|
37,142
|
|
|
38,116
|
|
|
1,835
|
|
|
1,820
|
|
|
Animal Health and
Nutrition
|
12,946
|
|
|
11,446
|
|
|
—
|
|
|
—
|
|
|
Net Sales
|
$
|
77,632
|
|
|
$
|
77,825
|
|
|
$
|
140,751
|
|
|
$
|
129,083
|
|
|
|
|
|
|
|
|
|
|
|
|
Business to
Business Products Group
|
|
Retail and
Wholesale Products Group
|
|
|
For the
Three Months Ended April 30,
|
|
Product
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Cat Litter
|
$
|
3,779
|
|
|
$
|
3,441
|
|
|
$
|
41,040
|
|
|
$
|
34,141
|
|
|
Industrial and
Sports
|
—
|
|
|
—
|
|
|
7,894
|
|
|
10,080
|
|
|
Agricultural and
Horticultural
|
6,222
|
|
|
5,622
|
|
|
—
|
|
|
—
|
|
|
Bleaching Clay and Fluids
Purification
|
12,537
|
|
|
13,662
|
|
|
639
|
|
|
623
|
|
|
Animal Health and
Nutrition
|
4,145
|
|
|
3,316
|
|
|
—
|
|
|
—
|
|
|
Net Sales
|
$
|
26,683
|
|
|
$
|
26,041
|
|
|
$
|
49,573
|
|
|
$
|
44,844
|
|
|
|
|
|
|
|
|
|
|
We do not rely on
any segment asset allocations and we do not consider them
meaningful because of the shared nature of our production
facilities; however, we have estimated the segment asset
allocations below for those assets for which we can reasonably
determine. The unallocated asset category is the remainder of
our total assets. We have refined the basis of allocation for
certain of our assets as of April 30, 2020
and we have
restated the allocation of assets as of July 31, 2019
presented below
to enhance comparability. The asset allocation is estimated and is
not a measure used by our chief operating decision maker about
allocating resources to the operating segments or in assessing
their performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
April 30,
2020
|
|
July 31,
2019
|
|
|
|
|
|
|
(in
thousands)
|
|
Business to Business Products
Group
|
|
$
|
69,184
|
|
|
$
|
66,655
|
|
|
Retail and Wholesale Products
Group
|
|
100,636
|
|
|
95,593
|
|
|
Unallocated
Assets
|
|
46,161
|
|
|
42,979
|
|
|
Total
Assets
|
|
$
|
215,981
|
|
|
$
|
205,227
|
|
Net sales and
operating income for each segment are provided below. The corporate
expenses line includes certain unallocated expenses, including
primarily salaries, wages and benefits, purchased services, rent,
utilities and depreciation and amortization associated with
corporate functions such as research and development, information
systems, finance, legal, human resources and customer
service. Corporate expenses also include the estimated annual
incentive plan bonus accrual. Other income for the third quarter
and the first nine months of fiscal year 2019 included net proceeds
upon resolution of legal proceedings. The amount received under a
confidential agreement resolving such legal proceedings was
material to our financial results for the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine
Months Ended April 30,
|
|
|
Net
Sales
|
|
Income
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(in
thousands)
|
|
Business to Business Products
Group
|
$
|
77,632
|
|
|
$
|
77,825
|
|
|
$
|
24,046
|
|
|
$
|
21,758
|
|
|
Retail and Wholesale Products
Group
|
140,751
|
|
|
129,083
|
|
|
15,380
|
|
|
6,823
|
|
|
Net
Sales
|
$
|
218,383
|
|
|
$
|
206,908
|
|
|
|
|
|
|
Corporate
Expenses
|
|
(23,732
|
)
|
|
(22,424
|
)
|
|
Income from
Operations
|
|
15,694
|
|
|
6,157
|
|
|
Total Other (Expense) Income,
Net
|
|
(262
|
)
|
|
4,219
|
|
|
Income
before Income Taxes
|
|
15,432
|
|
|
10,376
|
|
|
Income Tax
Expense
|
|
(2,573
|
)
|
|
(1,599
|
)
|
|
Net
Income
|
|
12,859
|
|
|
8,777
|
|
|
Net Loss
Income Attributable to Noncontrolling Interest
|
|
(155
|
)
|
|
(35
|
)
|
|
Net Income
Attributable to Oil-Dri
|
|
$
|
13,014
|
|
|
$
|
8,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
Three Months Ended April 30,
|
|
|
Net
Sales
|
|
Income
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(in
thousands)
|
|
Business to Business Products
Group
|
$
|
26,683
|
|
|
$
|
26,041
|
|
|
$
|
8,198
|
|
|
$
|
7,454
|
|
|
Retail and Wholesale Products
Group
|
49,573
|
|
|
44,844
|
|
|
6,412
|
|
|
4,161
|
|
|
Net
Sales
|
$
|
76,256
|
|
|
$
|
70,885
|
|
|
|
|
|
|
Corporate
Expenses
|
|
(8,910
|
)
|
|
(9,288
|
)
|
|
Income from
Operations
|
|
5,700
|
|
|
2,327
|
|
|
Total Other (Expense) Income,
Net
|
|
(103
|
)
|
|
4,377
|
|
|
Income
before Income Taxes
|
|
5,597
|
|
|
6,704
|
|
|
Income Tax
Expense
|
|
(947
|
)
|
|
(1,143
|
)
|
|
Net
Income
|
|
4,650
|
|
|
5,561
|
|
|
Net Income
(Loss) Attributable to Noncontrolling Interest
|
|
2
|
|
|
(58
|
)
|
|
Net Income
Attributable to Oil-Dri
|
|
$
|
4,648
|
|
|
$
|
5,619
|
|
9. STOCK-BASED
COMPENSATION
The Oil-Dri
Corporation of America 2006 Long Term Incentive Plan, as amended
(the “2006 Plan”), permits the grant of stock options, stock
appreciation rights, restricted stock, restricted stock units,
performance awards and other stock-based and cash-based
awards. Our employees and outside directors are eligible to
receive grants under the 2006 Plan. The total number of shares
of stock subject to grants under the 2006 Plan may not
exceed 1,219,500.
Restricted
Stock
All of our
non-vested restricted stock as of
April 30, 2020 was issued under the 2006
Plan with vesting periods generally between
one and
five years. We determined the fair
value of restricted stock as of the grant date. We recognize
the related compensation expense over the period from the date of
grant to the date the shares vest.
There were
2,000
and
41,000
restricted shares
of Common Stock granted during the third quarter of fiscal
years 2020 and 2019, respectively. Stock-based
compensation expense related to non-vested restricted stock
was $770,000
and
$710,000
for the
third
quarter of fiscal
years 2020 and 2019, respectively, and
was $2,549,000
and
$1,599,000
for the first
nine months of fiscal years
2020
and
2019, respectively.
A summary of
restricted stock transactions is shown below:
|
|
|
|
|
|
|
|
|
|
Restricted
Shares
(in
thousands)
|
|
Weighted
Average Grant Date Fair Value
|
|
Non-vested restricted stock
outstanding at July 31, 2019
|
414
|
|
|
$
|
33.09
|
|
|
Granted
|
23
|
|
|
$
|
33.33
|
|
|
Vested
|
(41
|
)
|
|
$
|
32.34
|
|
|
Forfeitures
|
(5
|
)
|
|
$
|
32.33
|
|
|
Non-vested restricted stock
outstanding at April 30, 2020
|
391
|
|
|
|
|
10. ACCUMULATED
OTHER COMPREHENSIVE (LOSS) INCOME
The following table
summarizes the changes in accumulated other comprehensive (loss)
income by component as of April 30,
2020 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and
Postretirement Health Benefits
|
|
Cumulative
Translation Adjustment
|
|
Total
Accumulated Other Comprehensive (Loss) Income
|
|
Balance as of July 31,
2019
|
$
|
(14,891
|
)
|
|
$
|
(148
|
)
|
|
$
|
(15,039
|
)
|
|
Other comprehensive loss
before reclassifications, net of tax
|
—
|
|
|
(230
|
)
|
|
(230
|
)
|
|
Amounts reclassified from
accumulated other comprehensive income, net of tax
|
634
|
|
(a)
|
—
|
|
|
634
|
|
|
Curtailment on Pension
Plan
|
$
|
5,040
|
|
(b)
|
$
|
—
|
|
|
$
|
5,040
|
|
|
Net current-period other
comprehensive income (loss), net of tax
|
5,674
|
|
|
(230
|
)
|
|
5,444
|
|
|
Balance as of April 30,
2020
|
$
|
(9,217
|
)
|
|
$
|
(378
|
)
|
|
$
|
(9,595
|
)
|
(a) Amount is net
of tax expense of $199,860.
Amount is included in the components of net periodic benefit cost
for the pension and postretirement health plans. See Note
7
of the Notes to
unaudited Condensed Consolidated Financial Statements for further
information.
(b) Amount is net
of tax expense of $1,592,000.
See Note 7 of the Notes to the unaudited Condensed Consolidated
Financial Statements for further information.
11.
RELATED PARTY TRANSACTIONS
One member of our
Board of Directors (the “Board”), and our Lead Independent
Director, retired from the role of President and Chief Executive
Officer of a customer of ours in September 2019. That company was a
customer of ours before the board member joined that company and
before he became a member of our Board. Total net sales to that
customer, including sales to subsidiaries of that customer,
were $103,000
and
$158,000
for the
third
quarter of fiscal
years 2020 and 2019, respectively, and
were $263,000
and
$360,000
for the
first nine months of fiscal years
2020
and
2019, respectively. Outstanding
accounts receivable from that customer, and its subsidiaries,
were $22,000
and
$10,000
at
April 30, 2020 and July 31,
2019,
respectively.
One member of our
Board, and of the Compensation Committee of our Board, is the
President and Chief Executive Officer as well as a director and
shareholder of a law firm that regularly provides services to us.
Total payments to that vendor for fees and cost reimbursements
were $119,000
and
$140,000
for the
third
quarter of fiscal
years 2020 and 2019, respectively, and
were $182,000
and
$237,000
for the
first nine months of fiscal years
2020
and
2019, respectively. There
were no
outstanding
accounts payable to that vendor as of April 30, 2020
or
July 31,
2019.
12.
SUBSEQUENT EVENTS
Amended
Note Agreement
On May 15, 2020
(the “Effective Date”), the Company entered into an Amended and
Restated Note Purchase and Private Shelf Agreement (the “Amended
Note Agreement”) with PGIM, Inc. (“Prudential”) and certain
existing noteholders and purchasers affiliated with Prudential
named therein. The Amended Note Agreement amends and restates the
Note Agreement between the Company, Prudential and certain existing
noteholders named therein, dated as of November 12, 2010 (the
“Prior Note Agreement”), under which the Company’s
3.96%
Series A Senior
Notes due August 1, 2020
(the
“Series A Notes”) were previously issued in an original
aggregate principal amount of $18,500,000.
Pursuant to the
Amended Note Agreement, (i) the Series A Notes, in an
aggregate principal amount of $3,100,000
as of immediately
prior to the Effective Date, continue to remain outstanding under
and subject to the terms of the Amended Note Agreement, and (ii)
the Company issued $10,000,000
in aggregate
principal amount of its 3.95%
Series B Senior
Notes due May 15, 2030 (the “Series B Notes”). In
addition, the Amended Note Agreement 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 Amended Note Agreement), that
Prudential affiliate(s) purchase, at Prudential’s discretion and on
an uncommitted basis, additional senior unsecured notes of the
Company (the “Shelf Notes,” and collectively with the Series A
Notes and Series B Notes, the “Notes”) in an aggregate principal
amount of up to $75,000,000
minus the
aggregate principal amount of Notes then outstanding and Shelf
Notes that have been accepted for purchase. Interest payable on any
Shelf Note agreed to be purchased under the Amended Note Agreement
will be at a rate determined by Prudential and will mature not more
than fifteen years after the date of original issue of such Shelf
Note.
Like the Prior
Note Agreement, the Amended Note Agreement is guaranteed, on an
unsecured basis, by certain U.S. subsidiaries of the Company, and
contains customary covenants, including but not limited to,
limitations on the Company’s and certain Company subsidiaries’
ability to incur indebtedness, incur liens, engage in mergers, and
sell or transfer assets and stock, as well as financial covenants,
including a minimum fixed charges coverage ratio and consolidated
debt ratio that remain the same as those contained in the Prior
Note Agreement. Upon the occurrence of certain events of default,
the Company’s obligations under the Amended Note Agreement may be
accelerated. Such events of default include payment defaults,
covenant defaults and other enumerated defaults.
License
Payment
Subsequent to the
quarter end, the Company entered into a confidential agreement.
Pursuant to this agreement, the Company granted a non-exclusive,
perpetual license to develop, manufacture, use, distribute and sell
products produced using formulations under certain of our patents
until their expiration in exchange for a one-time payment of
$13,000,000
as well as
certain limitations on the ability of the parties to bring forth
patent infringement claims or challenges relating to certain
products. The Company received the one-time payment in the fourth
quarter of fiscal year 2020.
Pension
In connection
with the freeze of our Pension Plan, as described in Note 7 to the
Notes to the unaudited Condensed Consolidated Financial Statements,
we offered terminated participants with vested benefits who have
not yet begun receipt of benefits under the Plan the opportunity to
receive their pension benefits in a single payment (the "Lump Sum
Option"). We plan to make payments in the fourth quarter of fiscal
year 2020 to those participants who elected the Lump Sum Option by
the May 15, 2020 election deadline. We estimate that the settlement
expense will be approximately $2,000,000.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of our financial condition and
results of operations should be read together with the financial
statements and the related notes included herein and our
Consolidated Financial Statements, accompanying notes and
Management’s Discussion and Analysis of Financial Condition and
Results of Operations contained in our Annual Report on Form 10-K
for the fiscal year ended
July 31, 2019. This
discussion contains forward-looking statements that involve risks
and uncertainties. Our actual results may differ materially
from the results discussed in the forward-looking
statements. Factors that might cause a difference include, but
are not limited to, those discussed under “Forward-Looking
Statements” and Item 1A, Risk Factors of this quarterly report on
Form 10-Q for the quarter ended April 30, 2020 and of our Annual
Report on Form 10-K for the fiscal year ended
July 31, 2019.
OVERVIEW
We develop, mine,
manufacture and market sorbent products principally produced from
clay minerals and, to a lesser extent, other clay-like sorbent
materials. Our principal products include agricultural and
horticultural chemical carriers, animal health and nutrition
products, bleaching clay and fluid purification aids, cat litter,
industrial and automotive floor absorbents and sports field
products. Our products are sold to two primary customer
groups, including customers who resell our products as originally
produced to the end consumer and those who use our products as part
of their production process or use them as an ingredient in their
final finished product. We have two reportable operating
segments based on the different characteristics of our two primary
customer groups: Retail and Wholesale Products Group and Business
to Business Products Group, as described in Note
8
of the Notes to
unaudited Condensed Consolidated Financial Statements.
RESULTS OF OPERATIONS
OVERVIEW
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. COVID-19 has not, to date, had a
significant impact on our business. All of our facilities, with the
exception of our subsidiary in China, have continued to operate as
essential businesses pursuant to the applicable shelter-in-place
mandates issued where we operate due to our inclusion in the
Critical Manufacturing Sector as defined by the U.S. Department of
Homeland Security and where otherwise recognized as an essential
business 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 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 shut downs due
to workforce absences or illnesses.
As further
discussed below, our sales have increased significantly in the
third quarter of fiscal year 2020. One of the primary drivers of
the increase is that consumers purchased more cat litter and
related products in anticipation of potential future shortages and
store closures due to COVID-19. We have experienced increases in
cat litter sales for both our North American business and our
subsidiary in Canada as consumers bought more cat litter and
related products via e-commerce during COVID-19 due to
shelter-in-place orders. Despite the increase in sales, we have not
experienced any significant issues collecting amounts due
from customers to
date. However, parts of our business have been negatively impacted.
Sales of our industrial and sports businesses declined as
businesses and sports fields shut down. There has been some lower
demand from our customers in our agricultural business. In
addition, our fluids purification sales decreased in part due
to the closures of restaurants and schools, causing sales to edible
oil producers to decrease. To a lesser extent, our inability due to
COVID-19 to participate in our customer's plant tests of our fluids
purification business has also impeded our sales in recent months.
Further, during the second quarter of fiscal year 2020 our
operations in China were temporarily closed which disrupted our
business but has since opened in the third quarter of fiscal year
2020.
Consolidated
gross profit has not been significantly impacted by COVID-19. Our
suppliers have either remained open or we have found new suppliers
to meet the increase in consumer demand without an impact to
pricing. While we have incurred some additional costs from truck
loading delays due to the large volume of sales, these costs have
not been significant. 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 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 impacts or interruptions and we will
continue to closely monitor our inventory levels to mitigate the
risk of any potential supply interruptions. 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 are
evolving 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 results for the remainder
of fiscal year 2020. See “Part II - Item 1A - Risk Factors” for
additional discussion regarding the risks COVID-19 presents our
business.
The impacts of
COVID-19 to our specific operating segments are discussed
below.
NINE
MONTHS ENDED
APRIL 30, 2020
COMPARED TO
NINE
MONTHS ENDED
APRIL 30, 2019
CONSOLIDATED
RESULTS
Consolidated net
sales for the nine months ended
April 30, 2020 were
$218,383,000, a 6% increase compared to net sales
of $206,908,000
for the
nine
months
ended
April 30, 2019. Net sales increased for our
Retail and Wholesale Products Group but slightly decreased for our
Business to Business Products Group. Segment results are discussed
further below.
Consolidated
gross profit for the first nine months of fiscal year
2020
was
$60,278,000,
or 28% of net sales, compared
to $48,248,000,
or 23% of net sales, for the
first nine months of fiscal year
2019. Lower freight and
natural gas costs drove the increase in gross profit. Freight costs
per manufactured ton declined approximately 20% for the first nine
months of fiscal year 2020 compared to the same period in fiscal
year 2019 as the result of lower transportation rates from improved
truck availability. In addition, costs were higher in the first
half of the prior fiscal year due to other one-time events,
including a greater number of product transfers between our plants
and warehouses to support customer service during the
implementation of our new ERP system on August 1, 2018 and
disruptions due to Hurricane Michael. Our overall freight costs
also vary between periods depending on the mix of products sold and
the geographic distribution of our customers. The COVID-19 outbreak
did not have a significant impact on our freight costs. The cost of
natural gas used to operate kilns that dry our clay was
approximately 30% lower per manufactured ton in the first
nine
months of fiscal
year 2020 compared to the first
nine
months of fiscal
year 2019. Non-fuel manufacturing
costs per manufactured ton were flat compared to the first
nine
months of the
prior fiscal year. In contrast, packaging costs per manufactured
ton for the first nine months of fiscal year
2020
were
approximately 2% higher compared to the first nine months of fiscal year
2019, due in part to the mix of
products produced. In addition, many of our contracts for packaging
purchases are subject to periodic price adjustments, which trail
changes in underlying commodity prices. While we incurred
additional employee compensation costs to meet increased customer
demand as well as cleaning and sanitation costs in recent months
due to COVID-19, these costs did not have a significant impact on
our consolidated gross profit. In addition, our suppliers have
remained open and have been able to meet our increased demand
without any price increases.
Total SG&A
expenses were $44,584,000
for the
first nine months of fiscal year
2020, a 6% increase compared to
$42,091,000
for the
first nine months of fiscal year
2019. The discussion of the
segments' operating incomes below describes the changes in SG&A
expenses that were allocated to the operating segments. The
remaining unallocated corporate expenses included a higher
estimated annual incentive bonus accrual, which was based on
performance targets established for each fiscal year. The increased
bonus expense was partially offset
by a curtailment gain reported upon the freeze of our SERP in the
second quarter of fiscal year 2020 (see Note 7
of
the Notes to the unaudited Condensed Consolidated Financial
Statements). In addition, higher SG&A expenses were reported in
the first nine months of fiscal year 2019 for consulting costs
related to our ERP system implemented in the
first quarter of the prior fiscal year and legal costs for legal
proceedings resolved in the third quarter of the prior fiscal
year.
Other income of
$4,219,000 for the third quarter of fiscal year 2019 included net
proceeds upon resolution of legal proceedings. The amounts received
under a confidential agreement resolving such legal proceedings was
material to our financial results for the period.
Consolidated net
income before taxes for the first nine months of fiscal year
2020
was
$15,432,000,
a 49% increase from net income before taxes
of $10,376,000
for the
first nine months of fiscal year
2019. Results for the
first nine months of fiscal year
2020
were driven by
the factors discussed above, including higher sales and lower
freight and natural gas costs, which more than offset the increase
in SG&A expenses.
The tax expense
for the first nine months of fiscal year
2020
was
$2,573,000
(an effective tax
rate of 16.7%) compared to
$1,599,000
for the
first nine months of fiscal year
2019
(an effective tax
rate of 15.0%). An estimated annual effective tax rate was used in
both periods to determine the provision for income taxes, which is
based on expected annual taxable income and the assessment of
various tax deductions, including depletion. The lower tax rate in
fiscal year 2019 primarily relates to the discrete benefit recorded
relating to the completion of a federal income tax return
examination in the first quarter of that year.
BUSINESS TO
BUSINESS PRODUCTS GROUP
Net sales of the
Business to Business Products Group for the first
nine
months of fiscal
year 2020 slightly decreased as
compared to the first nine months of fiscal year 2019. Net sales
were $77,632,000,
a decrease
of
$193,000, from net sales of
$77,825,000
for the
first nine months of fiscal year
2019. Net sales of our
agricultural and horticultural chemical carrier products
decreased
approximately
10%
for the first
nine months of fiscal year 2020 compared to the same period in
fiscal year 2019. Sales of traditional granules declined due
primarily to the 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
decreased approximately 3% compared to the first nine
months of 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. In addition, our inability due to COVID-19
to participate in our customer's plant tests of our products has
also impeded our sales in recent months. These lower sales were
partially offset by higher sales of other products in the Business
to Business Group, including an increase of approximately
11%
compared to the
first nine months of the prior fiscal year for sales of our
co-packaged coarse cat litter as consumers purchased more cat
litter and related products in anticipation of potential future
shortages and store closures. Net sales of our animal health and
nutrition products also increased approximately
13%
compared to the
first nine months of the prior year.
Sales growth occurred for our animal feed additives primarily in
Latin America, Mexico, Africa, the Middle East and Asia, excluding
China. See “Foreign Operations” below for a discussion of sales in
China, which were impacted by the spread of the African swine fever
in the prior year and COVID-19 in late 2019 and in
2020.
SG&A expenses
for the Business to Business Products Group were approximately 10%
higher for the first nine months of fiscal year
2020
compared to the
same period of the prior year, 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 and additional costs to establish our
subsidiary in Indonesia.
The Business to
Business Products Group’s operating income for the first
nine
months of fiscal
year 2020 was $24,046,000,
an
increase of $2,288,000, or 11%, from operating income
of $21,758,000
for the
first nine months of fiscal year
2019. The improved operating
income was driven primarily by the lower freight and natural gas
costs discussed in “Consolidated Results” above.
RETAIL AND
WHOLESALE PRODUCTS GROUP
Net sales of the
Retail and Wholesale Products Group for the first
nine
months of fiscal
year 2020 were $140,751,000,
an
increase of $11,668,000,
or 9%, from net sales of
$129,083,000
for the
first nine months of fiscal year
2019. Sales of cat litter drove
the sales increase. Total cat litter net sales were
approximately 14% higher compared to the first
nine
months of the
prior fiscal year, with increased sales of both private label and
branded litters. Contributing to higher cat litter sales in the
first nine months of fiscal year 2020 was higher consumer demand in
the last three months as consumers purchased more cat litter and
related products in anticipation of potential future shortages and
store closures due to COVID-19. 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 scoopable litter, coarse litter and
litter box liners sales were also higher for the nine months of
fiscal year 2020 compared to the nine months of the prior fiscal
year. 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 lower sales of our industrial and
sports products compared to the first nine months of fiscal year
2019. Sales of our industrial and
sports products decreased 10% or $2,603,000 compared to the first
nine months of fiscal year 2019, primarily driven by the impact of
businesses and sports fields shutting down due to
COVID-19.
SG&A expenses
for the Retail and Wholesale Products Group were slightly higher in
the first nine months of fiscal year
2020
compared to the
first nine months of fiscal year
2019
but are
consistent as a percentage of sales.
The Retail and
Wholesale Products Group's operating income for the first
nine
months of fiscal
year 2020 was $15,380,000,
an
increase of $8,557,000
from operating
income of $6,823,000
for the
first nine months of fiscal year
2019. The improved
operating
income was driven
by the higher sales described above, and by lower freight and
natural gas costs discussed in “Consolidated Results”.
FOREIGN
OPERATIONS
Foreign
operations include our subsidiaries in Canada and the United
Kingdom, which are reported in the Retail and Wholesale Products
Group, and our subsidiaries in China, Mexico and Indonesia, which
are reported in the Business to Business Products Group. Net sales
by our foreign subsidiaries during the first nine months of fiscal year
2020
were
$10,986,000,
an increase of $978,000, or 10%, compared to net sales
of $10,008,000
during the
first nine months of fiscal year
2019. Cat litter sales for our
Canada subsidiary increased in the first nine months of fiscal year
2020. One of the drivers of this increase was higher consumer
demand in the last three months as customers purchased more cat
litter and related products in anticipation of potential future
shortages and store closures due to the coronavirus. 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. Net sales by our foreign subsidiaries
represented 5% of our consolidated net sales
during the first nine months of both fiscal
years 2020 and 2019.
Our foreign
subsidiaries reported a net loss
of
$200,000
for the
first nine months of fiscal year
2020, compared to
net income
of
$343,000
for the
first nine months of fiscal year
2019. While our subsidiaries in
Canada and Mexico experienced an increase in sales for the third
quarter of fiscal year 2020, the lower sales described above for
our subsidiary in China, increased SG&A expenses to support
increased sales for our subsidiary in Mexico and additional costs
to establish operations in Indonesia drove the net loss.
In addition,
higher materials costs as well as unfavorable exchange rates for
our subsidiaries in Canada and the United Kingdom were also drivers
for the net loss.
Identifiable
assets of our foreign subsidiaries as of April 30, 2020
were
$11,286,000,
compared to $9,566,000
as of
April 30,
2019. The
increase
was attributed
primarily to the addition of our subsidiary in Indonesia, assets
related to the expansion of business and increase in sales from our
subsidiaries in Canada and Mexico, and new right-of-use lease
assets recorded upon the implementation of ASC 842,
Leases.
THREE MONTHS ENDED
APRIL 30, 2020
COMPARED TO
THREE MONTHS ENDED
APRIL 30, 2019
CONSOLIDATED
RESULTS
Consolidated net
sales for the three months ended
April 30, 2020 were
$76,256,000, an 8% increase compared to
net sales of
$70,885,000 for the three months
ended
April 30, 2019. Net sales increased for
both our Retail and Wholesale Products Group and Business to
Business Products Group. Segment results are discussed further
below.
Consolidated
gross profit for the three months ended April 30, 2020
was
$21,385,000,
or
28% of net
sales, compared to $16,834,000,
or 24% of net sales, for the
third quarter of fiscal year
2019. Lower freight and
natural gas costs drove the increase in gross profit. Freight costs
per manufactured ton declined approximately 20% for the third
quarter of fiscal year 2020 as the result of lower transportation
rates from improved truck availability. Our overall freight costs
also vary between periods depending on the mix of products sold and
the geographic distribution of our customers. The cost of natural
gas used to operate kilns that dry our clay was approximately 32%
lower per manufactured ton for the
third quarter of fiscal year
2020
compared to the
same period of fiscal year 2019. Non-fuel manufacturing
costs per ton produced were slightly higher compared to the
third
quarter in the
prior fiscal year. While we incurred additional employee
compensation costs to meet increased customer demand as well as
cleaning and sanitation costs in the third quarter of fiscal 2020
due to COVID-19, these costs did not have a significant impact on
our consolidated gross profit. Further, our suppliers have either
remained open or we have found new suppliers to meet our increased
customer demand without any price increases. In addition, packaging
costs per manufactured ton were lower compared to the
third
quarter of the
prior fiscal year, driven primarily by the mix of products
produced. Many of our contracts for packaging purchases are subject
to periodic price adjustments, which trail changes in underlying
commodity prices.
Total SG&A
expenses were $15,685,000
for the
third quarter of fiscal year
2020, an 8% increase compared to
$14,507,000
for the
third quarter of fiscal year
2019. The discussion below
describes the SG&A expenses allocated to the operating
segments. The remaining unallocated corporate expenses included a
higher estimated annual incentive bonus accrual and other
compensation
and benefit
costs. The increased bonus expense was partially offset
by lower SG&A expenses for legal proceedings
resolved in the third quarter of the prior fiscal
year.
Other income of
$4,377,000 for the third quarter of fiscal year 2019 included net
proceeds upon resolution of legal proceedings. The amounts received
under a confidential agreement resolving such legal proceedings was
material to our financial results for the period.
Consolidated net
income before taxes for the third quarter of fiscal year
2020
was
$5,597,000, compared to net income
before taxes of $6,704,000
for the
third
quarter of fiscal
year 2019. Results for the
third
quarter of fiscal
year 2020 were driven by the factors
described above, including higher sales and lower freight and
natural gas costs, which more than offset the increase in SG&A
expenses.
Tax expense
was $947,000 for the third quarter of fiscal year
2020, compared to
$1,143,000
for the
third
quarter of fiscal
year 2019, which resulted in an
effective tax rate of 17% for the third quarters of both fiscal
years. We used an estimated annual effective tax rate in
determining our quarterly provision for income taxes, which is
based on expected annual taxable income and the assessment of
various tax deductions, including depletion.
BUSINESS TO
BUSINESS PRODUCTS GROUP
Net sales of the
Business to Business Products Group for the
third quarter of fiscal year
2020
were
$26,683,000,
an
increase of $642,000, or 2%, from net sales of
$26,041,000
for the
third quarter of fiscal year
2019. Net sales of our
agricultural and horticultural chemical carrier products
increased
11%, due primarily to sales to
an existing customer for our traditional granules. The increase in
sales to this existing customer has been partially offset by lower
demand from our customers in the agricultural, home and garden
industries due to the impact of COVID-19 as well as the loss of one
of our largest customers. Net sales of our animal health and
nutrition products increased 25% in the third quarter of fiscal
2020. Sales increased in almost all of our markets for our animal
feed additives, particularly in Latin America, Mexico, Africa, the
Middle East and Asia, excluding China. See “Foreign Operations”
below for a discussion of sales in China, which was impacted by the
spread of the African swine fever in the prior year and the recent
outbreak of COVID-19 at the end of 2019 and in 2020. Net sales of
our co-packaged coarse cat litter for the
third quarter were
approximately 10% higher compared to the
third quarter of the prior year as
consumers purchased more cat litter and related products in
anticipation of potential future shortages and store
closures. Net sales of our fluids
purification products decreased approximately
8%
for the third
quarter of fiscal year 2020. The lower sales are attributable to a
variety of reasons, including a plant closure of a biodiesel
processing customer and local pricing competition in foreign
markets due to unfavorable exchange rates. The closures of
restaurants and schools due to the outbreak of COVID-19 caused
sales to edible oil producers to decrease. In addition, our
inability due to COVID-19 to participate in our customer's plant
tests of our products has also impeded our sales in the third
quarter of fiscal 2020.
SG&A expenses
for the Business to Business Products Group were approximately 17%
higher compared to the third quarter of fiscal year
2019, but are relatively
consistent as a percentage of sales. The increase in SG&A
expenses relate to higher compensation-related expenses and costs
to support the business.
The Business to
Business Products Group’s operating income for the
third
quarter of fiscal
year 2020 was $8,198,000, an increase
of
$744,000, or 10%, from operating income
of $7,454,000
in the
third
quarter of fiscal
year 2019. The improved operating
income was driven by the lower freight and natural gas costs
discussed in “Consolidated Results” above.
RETAIL AND
WHOLESALE PRODUCTS GROUP
Net sales of the
Retail and Wholesale Products Group for the third quarter of fiscal year
2020
were
$49,573,000,
an
increase of $4,729,000, or 11%, from net sales of
$44,844,000
for the
third
quarter of fiscal
year 2019. Total cat litter net sales
increased 20%, or $6,889,000, compared to
the third quarter of fiscal year
2019, driven by increased sales
of both private label and branded litters. Contributing to the
increase in cat litter sales in the third quarter of fiscal year
2020 was higher consumer demand as customers purchased more cat
litter and related products in anticipation of potential future
shortages and store closures due to COVID-19. In addition, in the
third quarter of fiscal year 2020 cat litter sales via e-commerce
increased as more consumers purchased their goods on-line due to
limitations on their activity as a result of the shelter-in-place
orders during the COVID-19 outbreak. 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 second half of the prior fiscal year. Branded scoopable litter,
coarse litter and litter box liners sales were also higher compared
to the third quarter of the prior year.
Cat litter sales by our subsidiary in Canada also contributed to
the sales increase,
as discussed in
“Foreign Operations” below. Also included in the Retail and
Wholesale Products Group's results were lower sales of our
industrial and sports products compared to the third quarter of fiscal year
2019. Sales of our industrial and
sports products decreased 22%, or $2,186,000, compared to the third
quarter of fiscal year 2019, primarily driven by the impact of
businesses and sports fields shutting down due to
COVID-19.
SG&A expenses
for the Retail and Wholesale Products Group were higher in the
third quarter of fiscal year 2020 by 41%, or $1,207,000, primarily
due to employee compensation costs, advertising and other costs to
support the increased sales compared to the third quarter of fiscal year
2019.
For the
third
quarter of fiscal
year 2020, the Retail and Wholesale
Products Group reported operating income of $6,412,000, an increase
of
$2,251,000, compared to operating
income of $4,161,000
for the
third
quarter of fiscal
year 2019. The improved operating
income was driven by the higher sales described above, and by lower
freight and natural gas costs discussed above in “Consolidated
Results”.
FOREIGN
OPERATIONS
Foreign
operations include our subsidiaries in Canada and the United
Kingdom, which are reported in the Retail and Wholesale Products
Group, and our subsidiaries in China, Mexico and Indonesia, which
are reported in the Business to Business Products Group. Net sales
by our foreign subsidiaries during the
third quarter of fiscal year
2020 were
$3,832,000, a
9%
increase compared to net sales
of
$3,526,000 in the
third quarter of fiscal year
2019. Cat
litter sales for our Canada subsidiary increased in the third
quarter of fiscal year 2020. A driver of this increase was higher
consumer demand as customers purchased more cat litter and related
products in anticipation of potential future shortages and store
closures due to the coronavirus. Sales of our animal health
products by our foreign operations grew to a lesser extent, as
higher sales for our Mexico and Indonesia subsidiaries were mostly
offset by lower sales for our subsidiary in China. Sales of these
products to pork producers in China have not fully recovered since
the spread of African swine fever in fiscal year 2019. In addition,
business operations of our Chinese subsidiary have been impacted in
the third quarter 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. Our foreign subsidiaries'
net sales represented approximately 5% of consolidated net sales
during the
third quarters of both fiscal
years 2020 and 2019.
Our foreign
subsidiaries reported a net loss
of
$31,000
for the
third
quarter of fiscal
year 2020 compared to
net income
of
$28,000
for the
third
quarter of fiscal
year