Northern Technologies International Corporation (NTIC) — FY2021 Form 10-K
Reporting period: Fiscal year ended August 31, 2021; this is an annual report, not a filing limited to calendar or fiscal Q4. NTIC develops corrosion-prevention products and services under ZERUST and bio-based, compostable plastics under Natur-Tec. Its financial statements consolidate subsidiaries but account for joint ventures using the equity method.
Financial performance and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total net sales | $56.49 million | $47.64 million |
| Gross profit / gross margin | $19.57 million / 34.6% | $16.03 million / 33.6% |
| Operating income | $8.32 million | $1.59 million |
| Net income (loss) attributable to NTIC | $6.28 million; diluted EPS $0.64 | $(1.34) million; diluted EPS $(0.15) |
| Operating cash flow | $2.89 million | $4.91 million |
| Cash and cash equivalents at year-end | $7.68 million | $6.40 million |
| Working capital | $25.23 million | $27.10 million |
- ZERUST sales were $45.55 million, up 32.1%, or 80.6% of company net sales. Natur-Tec sales were $10.94 million, down 16.9%.
- Joint-venture equity income rose 74.8% to $7.47 million; service fees from joint ventures rose 29.3% to $5.96 million. Joint ventures reported $120.95 million in sales, which are not included in NTIC’s consolidated net sales.
- Cost of goods sold was 65.4% of sales versus 66.4% in FY2020. The improved mix, including lower Natur-Tec contribution, offset some raw-material cost increases.
- Cash from operations declined despite the return to profitability, with higher receivables and other working-capital needs among the factors affecting cash generation. Investing cash flow was a $0.10 million use, including $5.53 million of capital expenditure offset by securities-sale proceeds. Financing cash flow was a $1.52 million use, primarily dividends.
- At year-end, NTIC had $74.37 million in assets, $8.52 million in current liabilities, and $65.75 million in total equity. It had no borrowings under its $5.0 million revolving credit facility; the facility matured February 22, 2022. Operating lease liabilities totaled $0.38 million.
Changes, outlook, risks and notable items
- Results rebounded as demand recovered from pandemic disruption: total net sales increased 18.6%, and NTIC returned to attributable net income from a prior-year loss. ZERUST growth and stronger joint-venture results were key contributors.
- Natur-Tec demand remained weak, particularly for finished products serving apparel, foodservice, campuses, and other venues affected by COVID-19. Management expected pandemic effects to continue into FY2022.
- Management expected supply-chain disruption to persist in FY2022, citing raw-material shortages and price increases, longer lead times, container shortages, shipping delays, and higher freight costs. The financial impact and duration were not reasonably estimable.
- Other risks include automotive production constraints from the microchip shortage, volatile oil-and-gas demand and long sales cycles, competition and margin pressure, reliance on suppliers and contract manufacturers, international and currency exposure, and dependence on joint-venture earnings and distributions. EXCOR, the German joint venture, contributed $4.40 million of FY2021 equity income.
- NTIC planned FY2022 R&D spending of $4.4–$4.8 million and capital expenditure of approximately $2.2–$2.5 million. It expected adequate resources for at least 12 months, while noting that further financing could be needed for growth opportunities.
- After year-end, NTIC acquired the remaining 50% of Harita-NTI in India for $6.25 million cash, effective September 1, 2021; it will be consolidated from that date. Management expected this payment to reduce working capital in FY2022.
- The quarterly dividend, suspended in 2020, was reinstated in January 2021. Three $0.065-per-share dividends were declared in FY2021; a $0.07 dividend was declared after year-end. Future dividends are not assured.
- Management reported no legal matter expected to materially affect results, financial position, or cash flows. The auditor issued an unqualified opinion and reported no critical audit matters. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal controls.
Important facts for investors to verify
- Whether FY2022 supply, freight, and raw-material cost pressures affect gross margin, product availability, and cash conversion.
- Whether Natur-Tec demand recovers and ZERUST growth—especially oil-and-gas sales—can continue despite long sales cycles and market volatility.
- How much joint-venture equity income and cash distributions remain sustainable, including NTIC’s dependence on EXCOR and the timing of partner-approved dividends.
- The cash and operating impact of consolidating Harita-NTI, including integration costs and the effect of the $6.25 million purchase payment.
- The status and terms of the revolving credit facility after its February 2022 maturity, and the funding of planned capital spending and dividends.
- Receivables increased, including trade receivables from unaffiliated customers; verify collection trends and the adequacy of the doubtful-account allowance.