OIL-DRI CORPORATION OF AMERICA 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 endedJuly 31, 2021 . 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 our Annual Report on Form 10-K for the fiscal year endedJuly 31, 2021 .
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 customerswho resell our products as originally produced to the end consumer and thosewho 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 toBusiness Products Group , as described in Note 10 of the Notes to the unaudited Condensed Consolidated Financial Statements.
RESULTS OF OPERATIONS
OVERVIEW
In late 2019 and early 2020, COVID-19 was first reported and then declared a pandemic by theWorld Health Organization , and continues to have a worldwide impact. While we saw changes to consumer purchasing patterns for certain products in response to the pandemic and certain increases in our costs arising out of the pandemic, its continued spread and accompanying effects, there has not, to date, been a significant impact to our business as a whole. All of our facilities, with the exception of our subsidiary inChina (which experienced certain disruptions in the first half of our fiscal year 2020 but subsequently resumed operations), have continued to operate as essential businesses during the course of the pandemic as permitted under exceptions in the applicable shelter-in-place mandates due to our inclusion in the Critical Manufacturing Sector as defined by theU.S. Department of Homeland Security and other functions defined as essential by government authorities. Our top priority has been, and continues to be, the safety and health of our employees, contractors, and customers. We have adhered, and continue to adhere, to guidance from theU.S. Centers for Disease Control and Prevention ("CDC") and local health and governmental authorities with respect to social distancing, physical separation, and 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 consolidated net sales increased during the first three months of fiscal year 2022 compared to the first three months of fiscal year 2021. Net sales of our industrial and sports products as well as certain of our fluids purification products have returned to pre-pandemic levels as many businesses and sports have re-opened and air travel has started to increase. Despite the overall increase in net sales, we have not experienced any significant issues collecting amounts due from customers to date. However, parts of our business continue to be negatively impacted by the COVID-19 outbreak. Net sales for our industrial granules in theUnited Kingdom continue to be lower due to restrictions imposed by theUnited Kingdom government on business operations in response to later waves of outbreaks of COVID-19. In addition, net sales of our animal health and nutrition products are lower partially due to a resurgence of COVID-19 in certain geographic areas. As discussed below in "Consolidated Results," gross profit has declined in the first three months of fiscal year 2022 compared to the same period in fiscal year 2021 related to rising costs and supply chain disruptions. We have faced longer lead times for some of our materials purchases but have been able to avoid significant out of stock issues. Where possible, we have found other suppliers to meet the increase in customer demand for our products. We are closely monitoring the continuation, resurgence in certain areas, and effects of the outbreak of COVID-19 on all aspects of our business, including how it has and may impact our suppliers and customers as well as the effects of the pandemic on economic conditions and the financial markets. In general, we have seen an increase in costs particularly as it relates to commodities as the economy continues to react to, and recover from, the pandemic and demand surpasses supply. However, we have not experienced any significant interruptions, and we will continue to closely monitor our inventory levels to mitigate the risk of any potential supply interruptions or changes in customer demand. It is possible that significant disruptions could occur if the pandemic and other factors such as labor shortages and other strains on the supply chain continue to put pressure on transportation and shipping as a result of an imbalance of supply and demand or if there are continued increases in costs that we are unable to recover. The 21 -------------------------------------------------------------------------------- impacts of COVID-19 and related economic conditions on our future results are uncertain at this time. The scope, duration and magnitude of the direct and indirect effects of COVID-19 continue to evolve (and in many cases, rapidly) in ways that are difficult or impossible to anticipate. In addition, although COVID-19 did not materially impact our financial results to date and because it remains uncertain whether and how consumers will modify their purchasing habits in response to COVID-19 or during the period of "re-opening" as the pandemic abates in certain areas and continued or reduced government restrictions, these results may not be indicative of the impact that COVID-19 may have on our results for the remainder of fiscal year 2022. The impacts of COVID-19 to our specific operating segments are discussed below. THREE MONTHS ENDEDOCTOBER 31, 2021 COMPARED TO THREE MONTHS ENDEDOCTOBER 31, 2020
CONSOLIDATED RESULTS
Consolidated net sales for the three months endedOctober 31, 2021 were$82,460,000 , an 8% increase compared to net sales of$76,097,000 for the three months endedOctober 31, 2020 . Net sales increased for both ourRetail and Wholesale Products Group and Business toBusiness Products Group . In addition, we experienced a surge in demand for our products during the first three months of fiscal year 2022, which has led to an increase in our backlog of orders. While the vast majority of this backlog is due to late customer pick-ups due to transportation issues as well as longer lead times for materials needed to fulfill the surge in orders, a portion of it relates to our own capacity constraints. We have expanded our production shifts and increased production equipment to resolve these constraints in the coming months. Segment results are discussed further below. Consolidated gross profit for the first three months of fiscal year 2022 was$13,818,000 , or 17% of net sales, compared to$18,780,000 , or 25% of net sales, for the first three months of fiscal year 2021. Higher freight, packaging, natural gas, and non-fuel costs per manufactured ton drove the decrease in gross profit. Freight costs per manufactured ton, excluding the freight we no longer charge to a significant customerwho now picks up its own purchases, increased approximately 37% in the first three months of fiscal year 2022 compared to the same period of fiscal year 2021. The increase relates to higher transportation rates due to a national driver shortage and tight trucking capacity in part caused by the continued return of non-essential businesses. Our overall freight costs also vary between periods depending on the mix of products sold and the geographic distribution of our customers. Packaging costs per manufactured ton for the first three months of fiscal year 2022 were approximately 44% higher compared to the first three months of fiscal year 2021 due to higher commodity costs, particularly as it relates to resin. Many of our contracts for packaging purchases are subject to periodic price adjustments, which trail changes in underlying commodity prices. The cost of natural gas per manufactured ton used to operate kilns that dry our clay was 97% higher in the first three months of fiscal year 2022 compared to the first three months of fiscal year 2021 due to higher natural gas prices which are being driven by demand surpassing available supply. Non-fuel costs per manufactured ton also increased during the first three months of fiscal year 2022 compared to fiscal year 2021 by 15%. The increase in non-fuel manufacturing costs relate to higher repairs, labor costs, and costs of purchased materials such as our additives and other ingredients. While we have experienced an increase in costs due to the reasons mentioned above, we anticipate being able to recover some of these rising costs through price increases to our customers. Total selling, general and administrative ("SG&A") expenses of$13,373,000 for the first three months of fiscal year 2022 were lower by$230,000 or 2% compared to$13,603,000 for the first three months of fiscal year 2021. SG&A expenses for the operating segments were lower for the first three months of fiscal year 2022 compared to the same period in the prior fiscal year partially offset by higher unallocated corporate expenses. 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 include a variety of other costs, including slightly higher professional fees. Other income of$265,000 for the first three months of fiscal year 2022 included less periodic benefit costs related to our pension plan and less unfavorable exchange rate losses compared to the same period in fiscal year 2021. Consolidated net income before taxes for the first three months of fiscal year 2022 was$710,000 , a 85% decrease from net income before taxes of$4,755,000 for the first three months of fiscal year 2021. Results for the first three months of fiscal year 2022 were driven by the factors discussed above. Tax expense for the first three months of fiscal year 2022 was$115,000 (an effective tax rate of 16%) compared to$806,000 (an effective tax rate of 17%) for the first three months of fiscal year 2021. 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. 22 --------------------------------------------------------------------------------
BUSINESS TO BUSINESS PRODUCTS GROUP
Net sales of the Business toBusiness Products Group for the first three months of fiscal year 2022 increased compared to the first three months of fiscal year 2021. Net sales were$28,929,000 , an increase of$1,407,000 , or 5%, from net sales of$27,522,000 for the first three months of fiscal year 2021. Net sales of our fluids purification products increased approximately$1,864,000 or 15% compared to the first three months of the prior fiscal year. We experienced sales improvement primarily toLatin America ,North America andAsia . The increases in net sales to these countries were partially offset by lower net sales toEurope . The increase in net sales occurred for a variety of reasons, including customer wins, increased sales to existing customers, increase in air travel, price increases that were instituted to offset rising costs and in some cases, timing of net sales. Net sales of our Ultra-Clear products rebounded to pre-pandemic levels as global air travel increased over the same period last year. Net sales of bleaching clay toEurope decreased primarily as a function of timing and ocean freight shipping delays. Similar to ourRetail and Wholesale Products Group cat litter business, our co-packaged coarse cat litter business experienced a significant increase of 20% in net sales during the first three months of fiscal year 2022 compared to fiscal year 2021 primarily due to price increases and to some extent, an increase in volume. The increase in net sales of our fluids purification and cat litter products were partly offset by a decrease in net sales of our agricultural and horticultural products and animal health products. Net sales of our agricultural and horticultural chemical carrier products decreased approximately$779,000 or 11% for the first three months of fiscal year 2022 compared to the same period in fiscal year 2021. The decrease in net sales relates primarily to timing. Several of our customers that use our products in their end products experienced supply chain issues, which resulted in cancelled or delayed orders. In addition, one of our largest customers shifted its purchases in the prior fiscal year 2020 to the first three months of fiscal year 2021. Such a shift did not occur in the first three months of fiscal year 2022. Net sales of our animal health and nutrition products decreased$438,000 or 11% during the first three months of fiscal year 2022 compared to the first three months of the prior year. The decrease relates to timing of net sales, as ocean freight delays are negatively impacting our business. COVID-19 also continues to challenge sales of our products as new waves of the coronavirus occur. Additionally, the African Swine Fever is still affecting the swine market and ultimately, the net sales of our feed additives. The swine population has been reduced, and demand and consumption are down, thereby causing a decrease in our net sales. See "Foreign Operations" below for a discussion of net sales for our foreign operations that sell our animal health and nutrition products. SG&A expenses for the Business toBusiness Products Group increased approximately 20% or$512,000 for the first three months of fiscal year 2022 compared to the same period of the prior fiscal year. The increase in SG&A expenses relates primarily to personnel costs as we focus on investing in our animal health business through hiring sales personnel and leadership. The Business toBusiness Products Group's operating income for the first three months of fiscal year 2022 was$6,746,000 , a decrease of$854,000 or 11%, from operating income of$7,600,000 for the first three months of fiscal year 2021. The decrease in operating income was driven by higher freight, packaging, materials, natural gas and non-fuel costs per manufactured ton as discussed in "Consolidated Results" above as well as higher SG&A expenses. To some extent, product mix for our subsidiary inChina also resulted in lower operating income during the first three months of fiscal year 2022.
RETAIL AND WHOLESALE PRODUCTS GROUP
Net sales of theRetail and Wholesale Products Group for the first three months of fiscal year 2022 were$53,531,000 , an increase of$4,956,000 , or 10%, from net sales of$48,575,000 for the first three months of fiscal year 2021 driven by sales of both our cat litter and industrial and sports products. Total cat litter net sales were approximately$3,101,000 or 8% higher compared to the first three months of the prior fiscal year primarily due to increased sales volume and somewhat due to price increases in an effort to keep pace with rising costs. Net sales of branded scoopable litter, private label lightweight and heavyweight litter and accessories (liners) increased in the first three months of fiscal year 2022 as we gained business from new customers and sold new items to existing customers. E-commerce sales continue to be very strong and the impact of COVID-19 on increased pet adoption continues to boost sales as well as the overall macro trend of increased spending on pets. In addition, cat litter net sales increased despite revising our shipping terms with one of our significant customers in the fourth quarter of fiscal year 2021 to provide that freight charges are the responsibility of such customer and no longer included in the prices charged. Also included in theRetail and Wholesale Products Group's results were increased sales of our industrial and sports products compared to the first three months of fiscal year 2021. Net sales of our industrial and sports products increased approximately$1,858,000 or 26% compared to the first three months of fiscal year 2021, due to both an increase in volume due to the re-opening of businesses and sports fields as well as an increase in selling price per ton as we continue to try to keep pace with rising costs. Cat litter sales by our subsidiary inCanada further contributed to the net sales increase, as discussed in "Foreign Operations" below. SG&A expenses for theRetail and Wholesale Products Group were lower by approximately$1,033,000 or 20% during the first three months of fiscal year 2022 compared to the first three months of fiscal year 2021 primarily due to lower advertising costs. We anticipate total advertising expense in fiscal year 2022 will be essentially flat compared to fiscal year 2021. 23 --------------------------------------------------------------------------------The Retail and Wholesale Products Group's operating income for the first three months of fiscal year 2022 was$74,000 , a decrease of$3,476,000 , or 97.9%, from operating income of$3,550,000 for the first three months of fiscal year 2021. The decrease in operating income was driven by higher freight, packaging, materials, natural gas and non-fuel costs as discussed in "Consolidated Results" above which outpaced the increase in net sales.
FOREIGN OPERATIONS
Foreign operations include our subsidiaries inCanada and theUnited Kingdom , which are reported in theRetail and Wholesale Products Group , and our subsidiaries inChina ,Mexico andIndonesia , which are reported in the Business toBusiness Products Group . Net sales by our foreign subsidiaries during the first three months of fiscal year 2022 were$4,342,000 , an increase of$206,000 , or 5%, compared to net sales of$4,136,000 during the first three months of fiscal year 2021. The net sales of our subsidiary inCanada increased by approximately$660,000 or 31% in the first three months of fiscal year 2022 compared to the same period of fiscal year 2021. Cat litter sales for our subsidiary inCanada increased by approximately$730,000 or 48% in the first three months of fiscal year 2022 compared to the same period of fiscal year 2021 driven primarily by price increases instituted in an effort to keep pace with rising costs as well as an increase in volume by introducing new products and increased sales to existing customers. Net sales of our industrial absorbent granules declined by approximately 11% or$69,000 in the first three months of fiscal year 2022 compared to the same period in the prior fiscal year. Customers of our granule products struggled to source co-loaded items which, in turn, have caused a reduction in demand for our granule products. The increase in net sales for our subsidiary inCanada was partially offset by decreases in net sales by our subsidiaries inChina ,Mexico andIndonesia . Net sales of our subsidiary inChina decreased in the first three months of fiscal year 2022 for a a variety of reasons, including African Swine Fever, the resurgence of COVID-19, timing as some customers made purchases in the prior fiscal year ahead of effective price increases and ocean freight delays. Net sales of our subsidiary inMexico declined slightly as the first three months of fiscal year 2021 included net sales of products that are no longer a part of our business strategy. Net sales by our foreign subsidiaries represented 5% of our consolidated net sales during the first quarter of each of fiscal year 2022 and 2021. Our foreign subsidiaries reported a net loss of$334,000 for the first three months of fiscal year 2022, compared to a net loss of$212,000 for the first three months of fiscal year 2021. The net loss was primarily driven by higher SG&A expenses as well as unfavorable product mix by our subsidiary inChina . Rising shipping costs and the effect of COVID-19 lockdowns and restrictions have also negatively impacted our foreign operations.
Identifiable assets of our foreign subsidiaries as of
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements include: funding working capital needs;
purchasing and upgrading equipment, facilities, information systems, and real
estate; supporting new product development; investing in infrastructure;
repurchasing stock; paying dividends; making pension contributions; and, from
time to time, business acquisitions. During the first three months of fiscal
year 2022, we principally funded these requirements using cash from current
operations as well as cash generated in the fourth quarter of fiscal year 2020
from borrowings and a one-time receipt of cash related to licensing of certain
of our patents.
To date, COVID-19 has not had a significant impact on our operations as a whole,
and we anticipate cash flows from operations and our available sources of
liquidity will be sufficient to meet our cash requirements. In addition, we are
actively monitoring the timing and collection of our accounts receivable. Given
the dynamic nature of COVID-19 and its effects, we will continue to assess our
liquidity needs and to actively manage our spending.
The following table sets forth certain elements of our unaudited Condensed
Consolidated Statements of Cash Flows (in thousands):
For the Three Months Ended October
31,
2021 2020
Net cash used in operating activities $ (596) $ (3,435)
Net cash used in investing activities (6,736) (3,565)
Net cash used in financing activities (4,156) (2,781)
Effect of exchange rate changes on cash and cash equivalents (48) 182
Net decrease in cash and cash equivalents $ (11,536) $ (9,599)
24--------------------------------------------------------------------------------
Net cash provided by operating activities
In addition to net income, as adjusted for depreciation and amortization and other non-cash operating activities, the primary sources and uses of operating cash flows for the first three months of fiscal years 2022 and 2021 were as follows: Accounts receivable, less allowance for doubtful accounts, increased$2,161,000 in the first three months of fiscal year 2022 compared to an increase of$4,256,000 in the first three months of fiscal year 2021. The change in accounts receivable was higher in fiscal year 2021 than fiscal year 2022 because net sales increased significantly between the fourth quarter of fiscal year 2020 and the first quarter of fiscal year 2021, thereby driving the accounts receivable balance up. The difference in net sales between the fourth quarter of fiscal year 2021 and the first quarter of fiscal year 2022 was not as significant. In addition, the variation in accounts receivable balances reflect differences in the level and timing of collections as well as the payment terms provided to various customers. Inventory increased$5,084,000 in the first three months of fiscal year 2022 compared to a decrease of$462,000 in the first three months of fiscal year 2021. Inventory increased in the first three months of fiscal year 2022 due to a combination of rising costs and building inventory levels for anticipated demand. Inventory decreased in the first three months of fiscal year 2021 due to decreases in other inventory and finished goods. Other inventory includes a variety of items including clay, additives, fragrances and other supplies. Other inventory decreased due to increased demand during the first three months of fiscal year 2021. Finished goods decreased during the first three months of fiscal year 2021 due to higher sales. Other assets decreased$186,000 in the first three months of fiscal year 2022 compared to an increase of$985,000 in the first three months of fiscal year 2021. The decrease in other assets in the first three months of fiscal year 2022 relates to capitalized pre-production costs being transferred to property, plant and equipment as the mines are now in production. The increase in other assets in the first three months of fiscal year 2021 relates to an increase in capitalized pre-production mining costs. Accounts payable increased$1,251,000 in the first three months of fiscal year 2022 compared to a decrease of$1,435,000 in the first three months of fiscal year 2021. Trade and freight payables vary in both periods due to the timing of payments, fluctuations in the cost of goods and services we purchased, production volume levels and vendor payment terms. Accrued expenses increased$689,000 in the first three months of fiscal year 2022 compared to a decrease of$8,106,000 in the first three months of fiscal year 2021. The payout of the prior fiscal year's discretionary incentive bonus reduced accrued salaries in both fiscal years, but to a greater extent in fiscal year 2021 as the accrual was higher in the prior fiscal year. The decrease in accrued bonus in the first three months of fiscal year 2022 was offset by an increase in accrued advertising, real estate taxes, professional fees and accrued utilities. These accruals can vary based on timing. In addition, accrued plant expenses can also fluctuate due to timing of payments, changes in the cost of goods and services we purchase, production volume levels and vendor payment terms. Accrued expenses also decreased in the first three months of fiscal year 2021 due to a decrease in accrued advertising partially offset by an increase in accrued freight. Other liabilities decreased$490,000 in the first three months of fiscal year 2022 compared to an increase of$1,135,000 in the first three months of fiscal year 2021. The decrease in fiscal year 2022 relates primarily to a reduction in our operating lease liability. The increase in other liabilities in fiscal year 2021 relates to the deferral of employer taxes under the CARES Act as further described in Note 1 of the Notes to unaudited Condensed Financial Statements.
Net cash used in investing activities
Cash used in investing activities of$6,736,000 in the first three months of fiscal year 2022 were higher compared to cash used in investing activities of$3,565,000 in the first three months of fiscal year 2021 driven by capital expenditures. During the first three months of fiscal year 2022 we expanded our plant equipment and improved our facilities to support increased demand for our products as well as made improvements to our IT network. 25 --------------------------------------------------------------------------------
Net cash used in financing activities
Cash used in financing activities of$4,156,000 in the first three months of fiscal year 2022 was higher than cash used in financing activities of$2,781,000 in the first three months of fiscal year 2021. The first three months of fiscal year 2022 included more repurchases of stock than in the first three months of fiscal year 2021. Other
Total cash and investment balances held by our foreign subsidiaries of
OnJanuary 31, 2019 , we signed a fifth amendment to our credit agreement withBMO Harris Bank N.A . ("BMO Harris"), which expires onJanuary 31, 2024 . The agreement provides for a$45,000,000 unsecured revolving credit agreement and a maximum of$10,000,000 for letters of credit. The agreement terms also state that we may select a variable interest rate based on either the BMO Harris prime rate or a LIBOR-based rate, plus a margin that varies depending on our debt to earnings ratio, or a fixed rate as agreed between us and BMO Harris. As ofOctober 31, 2021 , the variable rates would have been 3.50% for the BMO Harris prime-based rate or 1.38% for the three-month LIBOR-based rate. The credit agreement contains restrictive covenants that, among other things and under various conditions, limit our ability to incur additional indebtedness or to dispose of assets. The agreement also requires us to maintain a minimum fixed coverage ratio and a minimum consolidated net worth. As ofOctober 31, 2021 and 2020, we were in compliance with the covenants. There were no borrowings during the first three months of either fiscal year 2021 or 2022. OnMay 15, 2020 , we entered into a new debt instrument pursuant to which, among other things, we issued$10,000,000 in aggregate principal amount of our 3.95% Series B Senior Notes dueMay 15, 2030 and entered into an amended note agreement that provides the Company with the ability to request, from time to time untilMay 15, 2023 (or such earlier date as provided for in the agreement), additional senior unsecured notes of the Company in an aggregate principal amount of up to$75,000,000 minus the aggregate principal amount of the notes then outstanding and the additional notes that have been accepted for purchase. The issuance of such additional notes is at the discretion of the noteholders and purchasers and on an uncommitted basis. As ofOctober 31, 2021 outstanding notes payable were$8,884,000 , net of$116,000 of unamortized debt issuance costs. As ofOctober 31, 2021 , we had remaining authority to repurchase 750,345 shares of Common Stock under a repurchase plan approved by our Board of Directors (the "Board"). Repurchases may be made on the open market (pursuant to Rule 10b5-1 plans or otherwise) or in negotiated transactions. The timing, number and manner of share repurchases will be determined by our management pursuant to the repurchase plan approved by our Board. We believe that cash flow from operations, availability under our revolving credit facility, current cash and investment balances and our ability to obtain other financing, if necessary, will provide adequate cash funds for foreseeable working capital needs, capital expenditures at existing facilities, deferred compensation payouts, dividend payments and debt service obligations for at least the next 12 months. We expect capital expenditures in fiscal year 2022 to be greater than in fiscal year 2021. We do not believe that these increased capital expenditures will dramatically impact our cash position; however our cash requirements are subject to change as business conditions warrant and opportunities arise. Our anticipated advertising expense for fiscal year 2022 is expected to be essentially flat compared to fiscal year 2021. Adjustments to advertising spending for the remainder of the fiscal year may occur due to any upcoming volatility in the economic environment. We continually evaluate our liquidity position and anticipated cash needs, as well as the financing options available to obtain additional cash reserves. Our ability to fund operations, to make planned capital expenditures, to make scheduled debt payments, to contribute to our pension plan and to remain in compliance with all financial covenants under debt agreements, including, but not limited to, the current credit agreement, depends on our future operating performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors. The timing and size of any new business ventures or acquisitions that we complete may also impact our cash requirements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This discussion and analysis of financial condition and results of operations is based on our unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance withU.S. GAAP for interim financial information and in compliance with instructions to Form 10-Q and Article 10 of Regulation S-X. The preparation of these financial statements requires the use of estimates and assumptions related to the reporting of assets, liabilities, revenues, expenses and related disclosures. In preparing these financial statements, we have made our best estimates and judgments of certain amounts 26 --------------------------------------------------------------------------------
included in the financial statements. Estimates and assumptions are revised
periodically. Actual results could differ from these estimates. See the
information concerning our critical accounting policies included under
"Management's Discussion of Financial Condition and Results of Operations" in
our Annual Report on Form 10-K for the fiscal year ended
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