What changed in this filing

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Item 1. Financial Statements

2020-12-07 compared with 2020-06-08 · 154 added, 213 removed, 367 unchanged (50% of the section changed)

3 unchanged sentences

(in thousands, except share and per share amounts)

ASSETS October 31,

2020 July 31,

Current Assets

1 unchanged sentence

Accounts receivable, less allowance of

$1,324 and $644 at April 30, 2020 and July 31, 2019, respectively

$1,036 and $1,078 at October 31, 2020 and July 31, 2020, respectively 39,212 34,911

Inventories 23,493 23,893

Prepaid repairs expense 6,106 5,662

2 unchanged sentences

Property, Plant and Equipment

Cost 262,325 261,988

Less accumulated depreciation and amortization ( 171,287 ) ( 169,040 )

Total Property, Plant and Equipment, Net 91,038 92,948

Goodwill 9,262 9,262

Other intangibles, net of accumulated amortization

of $415 and $299 at April 30, 2020 and July 31, 2019, respectively

of $483 and $457 at October 31, 2020 and July 31, 2020, respectively 1,625 1,566

Customer list, net of accumulated amortization

of $6,739 and $6,297 at April 30, 2020 and July 31, 2019, respectively

of $6,995 and $6,887 at October 31, 2020 and July 31, 2020, respectively 790 898

Deferred income taxes 6,587 7,302

Operating lease right-of-use assets 9,227 9,816

Other 6,557 5,670

Total Other Assets 34,048 34,514

Total Assets $ 227,371 $ 235,882

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

2 unchanged sentences

(in thousands, except share and per share amounts)

LIABILITIES & STOCKHOLDERS’ EQUITY

LIABILITIES & STOCKHOLDERS’ EQUITY October 31,

2020 July 31,

Current Liabilities

Current maturities of notes payable, net of unamortized debt issuance costs

of $10 at April 30, 2020

Current maturities of notes payable $ 1,000 $ 1,000

Accounts payable 9,745 12,529

2 unchanged sentences

Accrued expenses 19,852 28,700

Salaries, wages and commissions

Trade promotions and advertising

Total Current Liabilities 34,470 46,207

1 unchanged sentence

Notes payable, net of unamortized debt issuance costs

of $31 at July 31, 2019

of $143 and $150 at October 31, 2020 and July 31, 2020, respectively 8,857 8,848

Deferred compensation 5,310 5,140

1 unchanged sentence

Long-term operating lease liabilities 8,636 9,135

Other 4,598 3,448

Total Noncurrent Liabilities 42,585 41,711

1 unchanged sentence

Stockholders’ Equity

Common Stock, par value $.10 per share, issued 8,371,197 shares at April 30, 2020

Common Stock, par value $.10 per share, issued 8,506,476 shares at October 31, 2020

and 8,449,003 shares at July 31, 2020 851 845

Class B Stock, par value $.10 per share, issued 2,511,958 shares at April 30, 2020

Class B Stock, par value $.10 per share, issued 2,413,141 shares at October 31, 2020

and 2,437,402 shares at July 31, 2020 241 244

7 unchanged sentences

Less Treasury Stock, at cost (3,106,748 Common and 346,491 Class B shares at

April 30, 2020 and 2,926,547 Common and 324,741 Class B shares at July 31, 2019)

October 31, 2020 and 3,090,230 Common and 335,816 Class B shares at July 31, 2020) ( 63,253 ) ( 62,269 )

Total Stockholders’ Equity 150,316 147,964

4 unchanged sentences

(in thousands, except for per share amounts)

For the Nine Months Ended April 30,

For the Three Months Ended October 31,

Net Sales $ 76,097 $ 71,122

Cost of Sales ( 55,793 ) ( 51,187 )

Gross Profit 20,304 19,935

Selling, General and Administrative Expenses ( 15,127 ) ( 15,814 )

4 unchanged sentences

Other, net ( 255 ) ( 39 )

Total Other (Expense) Income, Net

Total Other Expense, Net ( 422 ) ( 44 )

Income Before Income Taxes 4,755 4,077

Income Tax Expense ( 806 ) ( 617 )

Net Income 3,949 3,460

Net Loss Attributable to Noncontrolling Interest ( 35 ) ( 76 )

1 unchanged sentence

Net Income Per Share (1)

Basic Common $ 0.57 $ 0.51

Basic Class B Common $ 0.43 $ 0.38

Diluted Common $ 0.56 $ 0.50

Diluted Class B Common $ 0.42 $ 0.37

Average Shares Outstanding

Basic Common 5,149 5,149

Basic Class B Common 1,926 2,050

Diluted Common 5,276 5,229

Diluted Class B Common 1,978 2,077

Dividends Declared Per Share

Basic Common $ 0.2600 $ 0.2500

Basic Class B Common $ 0.1950 $ 0.1875

(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)

For the Nine Months Ended April 30,

Net Income Attributable to Oil-Dri

Other Comprehensive Income:

Pension and postretirement benefits (net of tax)

Cumulative translation adjustment

Other Comprehensive Income

Total Comprehensive Income

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)

For the Three Months Ended April 30,

Cost of Sales

Selling, General and Administrative Expenses

Income from Operations

Other (Expense) Income

Interest expense

Interest income

Other, net (1)

Total Other (Expense) Income, Net

Income Before Income Taxes

Income Tax Expense

Net Income (Loss) Attributable to Noncontrolling Interest

Net Income Attributable to Oil-Dri

Net Income Per Share

Basic Class B

Diluted Common

Average Shares Outstanding

Basic Class B

Diluted Common

Dividends Declared Per Share

Basic Class B

(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.

(1) Our Form 10-Q for three months ended October 31, 2020 and 2019 reflects a change in presentation for net income per share.

We have historically disclosed net income per share for our diluted Common and Class B Common shares in total.

As we have two classes of common shares, we have elected to change our net income per share presentation to reflect net income per share for both of our classes of common shares - our diluted Common shares and our diluted Class B Common shares.

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

2 unchanged sentences

(in thousands of dollars)

For the Three Months Ended April 30,

For the Three Months Ended October 31,

Net Income Attributable to Oil-Dri $ 3,984 $ 3,536

8 unchanged sentences

(in thousands, except share amounts)

For the Nine Months Ended April 30

For the Three Months Ended October 31

Number of Shares

Stock Treasury

Stock Additional

Capital Retained

Earnings Treasury

Stock Accumulated

Comprehensive

Non-Controlling Interest

Loss Non-Controlling Interest Total

Stockholders’

6 unchanged sentences

Amortization of Restricted Stock — — — 969 — — — — 969

Balance, April 30, 2019

Balance, October 31, 2019 10,879,655 ( 3,268,057 ) $ 1,088 $ 42,327 $ 166,526 $ ( 57,103 ) $ ( 14,812 ) $ ( 90 ) $ 137,936

Balance, July 31, 2020 10,886,405 ( 3,426,046 ) $ 1,089 $ 44,993 $ 176,579 $ ( 62,269 ) $ ( 12,254 ) $ ( 174 ) $ 147,964

5 unchanged sentences

Amortization of Restricted Stock — — — 784 — — — — 784

Contributions from noncontrolling interests

Balance, April 30, 2020

For the Three Months Ended April 30

Number of Shares

Comprehensive

Non-Controlling Interest

Stockholders’

Balance, January 31, 2019

Net Income (Loss)

Other Comprehensive Income

Dividends Declared

Purchases of Treasury Stock

Net issuance of stock under long-term incentive plans

Amortization of Restricted Stock

Balance, April 30, 2019

Balance, January 31, 2020

Net Income (Loss)

Other Comprehensive Income

Dividends Declared

Purchases of Treasury Stock

Net issuance of stock under long-term incentive plans

Amortization of Restricted Stock

Contributions from noncontrolling interests (1)

Balance, April 30, 2020

(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 % .

Balance, October 31, 2020 10,919,617 ( 3,453,239 ) $ 1,092 $ 45,779 $ 178,761 $ ( 63,253 ) $ ( 11,854 ) $ ( 209 ) $ 150,316

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

OIL-DRI CORPORATION OF AMERICA

Condensed Consolidated Statements of Cash Flows

(in thousands)

For the Nine Months Ended April 30,

For the Three Months Ended October 31,

CASH FLOWS FROM OPERATING ACTIVITIES 2020 2019

Adjustments to reconcile net income to net cash provided by operating activities:

Net Income $ 3,949 $ 3,460

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Depreciation and amortization 3,504 3,469

Amortization of investment net discount

Stock-based compensation 784 969

1 unchanged sentence

Provision for bad debts and cash discounts ( 60 ) 189

Loss on the sale of fixed assets

Curtailment gain on SERP Plan

(Gain) Loss on the sale of fixed assets ( 1 ) 40

(Increase) Decrease in assets:

Accounts receivable ( 4,196 ) ( 980 )

Inventories 462 371

Prepaid expenses 458 1,578

Other assets ( 985 ) 316

Increase (Decrease) in liabilities:

5 unchanged sentences

Total Adjustments ( 7,384 ) 3,232

Net Cash Provided by Operating Activities

Net Cash (Used in) Provided by Operating Activities ( 3,435 ) 6,692

CASH FLOWS FROM INVESTING ACTIVITIES

1 unchanged sentence

Proceeds from sale of property, plant and equipment 3 —

Purchases of short-term investments

Dispositions of short-term investments

Net Cash Used in Investing Activities ( 3,565 ) ( 3,900 )

3 unchanged sentences

Purchase of treasury stock ( 978 ) ( 500 )

Contributions from noncontrolling interests

Net Cash Used in Financing Activities ( 2,781 ) ( 5,344 )

Effect of exchange rate changes on Cash and Cash Equivalents 182 ( 50 )

Net (Decrease) Increase in Cash and Cash Equivalents

Net Decrease in Cash and Cash Equivalents ( 9,599 ) ( 2,602 )

Cash and Cash Equivalents, Beginning of Period 40,890 21,862

3 unchanged sentences

(in thousands)

For the Nine Months Ended April 30,

For the Three Months Ended October 31,

Supplemental disclosure of non-cash investing and financing activities:

16 unchanged sentences

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 .

Operating results for the three months ended October 31, 2020 are not necessarily an indication of the results that may be expected for the fiscal year ending July 31, 2021.

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.

Despite its continued spread and the adverse effects of COVID-19 on the overall economy and certain of the industries we serve, we have not experienced a significant decline in customer orders and sales in the first quarter of fiscal year 2021.

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 2021.

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements.

These immaterial reclassifications had no effect on the previously reported net income.

Management Use of Estimates

4 unchanged sentences

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.

Our significant accounting policies, which are detailed in our Annual Report on Form 10-K for the fiscal year ended July 31, 2020 have not materially changed.

The following is a description of certain of our significant accounting policies.

Trade Receivables.

4 unchanged sentences

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.

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.

30 unchanged sentences

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.

We recorded a liability for these advance payments of $ 317,000 and $ 247,000 as of October 31, 2020 and July 31, 2020, 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 .

Revenue recognized during the three months ended October 31, 2020 that was included in the liability for advance payments at the beginning of the period was $ 185,000 .

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.

1 unchanged sentence

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.

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.

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.

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.

Other Noncurrent Liabilities

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.

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.

As permitted by the CARES Act, we deferred approximately $ 1,800,000 in payroll taxes as of October 31, 2020 and expect to defer the payment of payroll taxes for the remainder of 2020 to be paid equally in the fourth quarters of calendar years 2021 and 2022 representing approximately $ 2,500,000 in payroll taxes.

The accrual for these payroll taxes is included in Other within Noncurrent Liabilities on the unaudited Condensed Consolidated Balance Sheet.

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

14 unchanged sentences

The composition of inventories is as follows (in thousands):

2020 July 31,

Finished goods $ 14,384 $ 14,500

Packaging 4,936 4,587

Other 4,173 4,806

Total Inventories $ 23,493 $ 23,893

4 unchanged sentences

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.

The inventory obsolescence reserve values at October 31, 2020 and July 31, 2020 were $ 970,000 and $ 926,000 , respectively.

Other Inventories includes a variety of items including clay, additives, fragrances and other supplies.

Other inventory decreased due to increased production.

FAIR VALUE MEASUREMENTS

6 unchanged sentences

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.

We had $ 6,000 of cash equivalents as of October 31, 2020 and July 31, 2020, 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 October 31, 2020 and July 31, 2020 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 estimated fair value of notes payable, including current maturities, was $ 11,690,000 and $ 11,631,000 as of October 31, 2020 and July 31, 2020, respectively, and are classified as Level 2.

The fair value was estimated using the exit price notion of fair value.

4 unchanged sentences

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.

Intangible amortization expense was $ 155,000 and $ 167,000 in the first three months of fiscal years 2021 and 2020.

Estimated intangible amortization for the remainder of fiscal year 2021 is $ 432,000 .

3 unchanged sentences

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.

Although we have not identified any triggering events relating to goodwill or our intangibles, the ultimate effects of COVID-19 could change this assessment in the future.

OTHER CONTINGENCIES

We are party to various legal actions from time to time that are ordinary in nature and incidental to the operation of our business, including ongoing litigation.

While it is not possible at this time to determine with certainty the ultimate outcome of these or other lawsuits, we believe that none of the pending proceedings will have a material adverse effect on our business, financial condition, results of operations or cash flows.

In June 2020, the Company received notice from a former service provider alleging a breach of contract regarding the payment of a contingency fee.

Such party subsequently, in July 2020, filed a lawsuit seeking to require the Company to participate in binding mediation regarding this matter.

Although we believe this claim to be without merit, as of July 31, 2020, we have determined a reasonable estimate of this liability within a range, with no amount within that range being a better estimate than any other amount, and have therefore recorded that estimate within Other accrued expenses.

There have been no changes during the three months ended October 31, 2020 that would have changed this estimate.

We believe that any loss related to this matter is unlikely to be material.

However, the outcome of this legal matter is subject to significant uncertainties.

The ability to predict the ultimate outcome of this legal matter involves judgments, estimates and inherent uncertainties.

The actual outcome could differ materially from management’s estimates.

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.

To determine the present value of the lease liability, we use an incremental borrowing rate, which is defined as the rate of interest that the Company 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.

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 .

We have no material finance leases, and variable costs for operating leases are immaterial for the first quarter of fiscal year 2021.

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

For the Three Months Ended

Operating Lease Cost

2 unchanged sentences

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

For the Three Months Ended

Other Information

3 unchanged sentences

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

October 31, 2020 July 31, 2020

Weighted-average remaining lease term - operating leases 9.4 years 9.4 years

Weighted-average discount rate - operating leases 3.98 % 3.87 %

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):

Thereafter 5,935

imputed interest ( 2,309 )

Net lease obligation $ 10,702

ACCRUED EXPENSES

Accrued expenses is as follows (in thousands):

2020 July 31,

Salaries, Wages, Commissions and Employee Benefits $ 5,810 $ 14,798

Trade promotions and advertising 1,572 2,349

Freight 2,094 1,313

Real Estate Tax 1,488 1,658

Other 8,888 8,582

$ 19,852 $ 28,700

The decrease in salaries, wages, commissions and employee benefits relates primarily to the payment of annual discretionary bonuses during the three months ended October 31, 2020.

The accrual for trade promotions and advertising is lower for the three months ended October 31, 2020 than the prior fiscal year due to a shift in timing of advertising programs and expense.

Freight rates increased during the three months ended October 31, 2020 resulting in a higher accrual.

PENSION AND OTHER POSTRETIREMENT BENEFITS

4 unchanged sentences

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:

1 unchanged sentence

(in thousands)

For the Three Months Ended April 30,

For the Nine Months Ended April 30,

For the Three Months Ended October 31,

Service cost $ — $ 488

Interest cost — 509

1 unchanged sentence

Amortization of:

Prior service costs

Other actuarial loss 170 357

2 unchanged sentences

(in thousands)

For the Three Months Ended April 30,

For the Nine Months Ended April 30,

For the Three Months Ended October 31,

Service cost $ 35 $ 30

Interest cost 13 21

4 unchanged sentences

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.

We were not required to make, and did not make, a voluntary contribution to the Pension Plan during the first quarter of fiscal year 2021.

We have no minimum funding requirements for the remainder of fiscal year 2021.

The postretirement health plan is an unfunded plan.

1 unchanged sentence

Assumptions used in the previous calculations were as follows:

Pension Benefits

Postretirement Health Benefits

For the Three and Nine Months Ended April 30,

Pension Benefits Postretirement Health Benefits

For the Three Months Ended October 31,

2020 2019 2020 2019

Discount rate for net periodic benefit cost 2.14 % 3.35 % 1.63 % 2.93 %

10 unchanged sentences

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.

The SERP was terminated effective June 30, 2020.

Any payment of benefits that would otherwise have been payable pursuant to the SERP plan on or after June 30, 2021 will instead be paid to each participant in the form of one lump sum, with such lump sum payment payable no earlier than June 30, 2021 and no later than June 8, 2022.

OPERATING SEGMENTS

9 unchanged sentences

retail grocery stores;

e-commerce retailers;

distributors of industrial cleanup and automotive products;

9 unchanged sentences

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,

Industrial and Sports

Agricultural and Horticultural

Bleaching Clay and Fluids Purification

Animal Health and Nutrition

Business to Business Products Group

Retail and Wholesale Products Group

For the Three Months Ended April 30,

Business to Business Products Group Retail and Wholesale Products Group

For the Three Months Ended October 31,

Product 2020 2019 2020 2019

Cat Litter $ 3,876 $ 3,697 $ 40,794 $ 36,379

Industrial and Sports — — 7,262 7,600

2 unchanged sentences

Animal Health and Nutrition 4,018 4,839 — —

Net Sales $ 27,522 $ 26,478 $ 48,575 $ 44,644

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;

1 unchanged sentence

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.

April 30, 2020

July 31, 2019

October 31, 2020 July 31, 2020

(in thousands)

2 unchanged sentences

Unallocated Assets 53,514 67,057

Total Assets $ 227,371 $ 235,882

Net sales and operating income for each segment are provided below.

1 unchanged sentence

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,

(in thousands)

Business to Business Products Group

Retail and Wholesale Products Group

Corporate Expenses

Income from Operations

Total Other (Expense) Income, Net

Income before Income Taxes

Income Tax Expense

Net Loss Income Attributable to Noncontrolling Interest

Net Income Attributable to Oil-Dri

For the Three Months Ended April 30,

For the Three Months Ended October 31,

Net Sales Income

2020 2019 2020 2019

(in thousands)

1 unchanged sentence

Retail and Wholesale Products Group 48,575 44,644 4,478 3,360

Net Sales $ 76,097 $ 71,122

Corporate Expenses ( 7,497 ) ( 7,535 )

Income from Operations 5,177 4,121

Total Other (Expense) Income, Net

Total Other Expense, Net ( 422 ) ( 44 )

Income before Income Taxes 4,755 4,077

Income Tax Expense ( 806 ) ( 617 )

Net Income (Loss) Attributable to Noncontrolling Interest

Net Income 3,949 3,460

Net Loss Attributable to Noncontrolling Interest ( 35 ) ( 76 )

Net Income Attributable to Oil-Dri $ 3,984 $ 3,536

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The total number of shares of stock subject to grants under the 2006 Plan may not exceed 1,219,500 .

As of October 31, 2020, there were 354,146 shares available for future grants under this plan.

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 .

All of our non-vested restricted stock as of October 31, 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.

There were 33,000 and 19,000 restricted shares of Common Stock granted during the first quarter of fiscal years 2021 and 2020, respectively.

Stock-based compensation expense was $ 784,000 and $ 969,000 for the first quarter of fiscal years 2021 and 2020, respectively.

A summary of restricted stock transactions is shown below:

Restricted Shares

(in thousands)

Weighted Average Grant Date Fair Value

(in thousands) Weighted Average Grant Date Fair Value

Non-vested restricted stock outstanding at July 31, 2020 390 $ 33.19

Non-vested restricted stock outstanding at April 30, 2020

Granted 33 $ 36.08

Vested ( 48 ) $ 33.57

Non-vested restricted stock outstanding at October 31, 2020 375 $ 33.40

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

The following table summarizes the changes in accumulated other comprehensive (loss) income by component as of October 31, 2020 (in thousands):

Pension and Postretirement Health Benefits Cumulative Translation Adjustment Total Accumulated Other Comprehensive (Loss) Income

Balance as of July 31, 2020 $ ( 11,994 ) $ ( 260 ) $ ( 12,254 )

Other comprehensive loss before reclassifications, net of tax — 272 272

Amounts reclassified from accumulated other comprehensive income, net of tax

Curtailment on Pension Plan

Net current-period other comprehensive income (loss), net of tax

Balance as of April 30, 2020

Amounts reclassified from accumulated other comprehensive income, net of tax 128 (a) — 128

Net current-period other comprehensive income, net of tax 128 272 400

Balance as of October 31, 2020 $ ( 11,866 ) $ 12 $ ( 11,854 )

(a) Amount is net of tax expense of $ 40,530 .

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See Note 9 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.

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 .

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.

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 .

One member of our Board of Directors (the “Board”) retired from the role of President and Chief Executive Officer of a customer of ours in September 2019 and is currently party to a post-employment agreement with the customer.

Total net sales to that customer, including sales to subsidiaries of that customer, were $ 110,000 and $ 111,000 for the first quarter of fiscal years 2021 and 2020, respectively.

Outstanding accounts receivable from that customer, and its subsidiaries, were $ 5,000 and $ 0 at October 31, 2020 and July 31, 2020, respectively.

One member of our Board is currently the President and Chief Executive Officer of a vendor of ours.

Total payments to this vendor for fees and cost reimbursements were $ 92,000 and $ 38,000 for the first quarter of fiscal years 2021 and 2020, respectively.

There were no outstanding accounts payable to that vendor as of October 31, 2020 or July 31, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements