Item 1. Financial Statements
ITEM 1. Financial Statements
OIL-DRI CORPORATION OF AMERICA
Condensed Consolidated Balance Sheet
(in thousands, except share and per share amounts)
(unaudited)
ASSETS April 30,
2022 July 31,
2021
Current Assets
Cash and cash equivalents $ 22,825 $ 24,591
Accounts receivable, less allowance of
$ 1,149 and $ 1,174 at April 30, 2022 and July 31, 2021, respectively
43,287 40,923
Inventories 34,951 23,598
Prepaid repairs 6,150 6,088
Prepaid expenses and other assets 6,489 6,742
Total Current Assets 113,702 101,942
Property, Plant and Equipment
Cost 276,396 274,825
Less accumulated depreciation and amortization ( 174,166 ) ( 178,885 )
Total Property, Plant and Equipment, Net 102,230 95,940
Other Assets
Goodwill 3,618 9,262
Other intangibles, net of accumulated amortization
of $ 497 and $ 385 at April 30, 2022 and July 31, 2021, respectively
1,473 1,743
Customer list, net of accumulated amortization
of $ 7,536 and $ 7,321 at April 30, 2022 and July 31, 2021, respectively
249 464
Deferred income taxes 3,410 2,096
Operating lease right-of-use assets 9,934 8,619
Other 6,836 7,500
Total Other Assets 25,520 29,684
Total Assets $ 241,452 $ 227,566
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
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OIL-DRI CORPORATION OF AMERICA
Condensed Consolidated Balance Sheet (continued)
(in thousands, except share and per share amounts)
(unaudited)
LIABILITIES & STOCKHOLDERS’ EQUITY April 30,
2022 July 31,
2021
Current Liabilities
Current maturities of notes payable $ 1,000 $ 1,000
Accounts payable 10,099 9,206
Dividends payable 1,845 1,865
Operating lease liabilities 1,766 2,036
Accrued expenses 26,697 24,883
Total Current Liabilities 41,407 38,990
Noncurrent Liabilities
Notes payable, net of unamortized debt issuance costs
of $ 212 and $ 122 at April 30, 2022 and July 31, 2021, respectively
32,788 7,878
Deferred compensation 4,926 4,370
Pension and postretirement benefits 3,919 4,922
Long-term operating lease liabilities 9,552 8,022
Other 3,105 4,152
Total Noncurrent Liabilities 54,290 29,344
Total Liabilities 95,697 68,334
Stockholders’ Equity
Common Stock, par value $ .10 per share, issued 8,682,968 shares at April 30, 2022
and 8,561,311 shares at July 31, 2021
868 856
Class B Stock, par value $ .10 per share, issued 2,397,056 shares at April 30, 2022
and 2,397,056 shares at July 31, 2021
240 240
Additional paid-in capital 51,117 48,271
Retained earnings 175,368 180,443
Noncontrolling interest ( 362 ) ( 307 )
Accumulated Other Comprehensive Loss:
Pension and postretirement benefits ( 4,349 ) ( 4,428 )
Cumulative translation adjustment 124 311
Total Accumulated Other Comprehensive Loss ( 4,225 ) ( 4,117 )
Less Treasury Stock, at cost ( 3,535,568 Common and 351,641 Class B shares at
April 30, 2022 and 3,192,702 Common and 346,491 Class B shares at July 31, 2021)
( 77,251 ) ( 66,154 )
Total Stockholders’ Equity 145,755 159,232
Total Liabilities & Stockholders’ Equity $ 241,452 $ 227,566
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
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OIL-DRI CORPORATION OF AMERICA
Condensed Consolidated Statements of Operations
(in thousands, except for per share amounts)
(unaudited)
For the Nine Months Ended April 30,
2022 2021
Net Sales $ 255,431 $ 226,852
Cost of Sales (1) ( 210,397 ) ( 176,417 )
Gross Profit 45,034 50,435
Selling, General and Administrative Expenses (1) ( 41,054 ) ( 39,083 )
Loss on Impairment of Goodwill ( 5,644 ) —
(Loss) Income from Operations ( 1,664 ) 11,352
Other (Expense) Income
Interest expense ( 868 ) ( 542 )
Interest income 26 54
Other, net 1,734 1,210
Total Other Income, Net 892 722
(Loss) Income Before Income Taxes ( 772 ) 12,074
Income Tax Benefit (Expense) 1,195 ( 1,651 )
Net Income 423 10,423
Net Loss Attributable to Noncontrolling Interest ( 55 ) ( 87 )
Net Income Attributable to Oil-Dri $ 478 $ 10,510
Net Income Per Share
Basic Common $ 0.06 $ 1.52
Basic Class B Common $ 0.05 $ 1.14
Diluted Common $ 0.06 $ 1.49
Diluted Class B Common $ 0.05 $ 1.11
Average Shares Outstanding
Basic Common 5,042 5,144
Basic Class B Common 1,933 1,928
Diluted Common 5,153 5,256
Diluted Class B Common 1,963 1,969
Dividends Declared Per Share
Basic Common $ 0.8100 $ 0.7800
Basic Class B Common $ 0.6075 $ 0.5850
(1) See Note 1 of the Notes to the unaudited Condensed Consolidated Financial Statements for further information about amounts included in this line item.
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
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OIL-DRI CORPORATION OF AMERICA
Condensed Consolidated Statements of Comprehensive Income
(in thousands of dollars)
(unaudited)
For the Nine Months Ended April 30,
2022 2021
Net Income Attributable to Oil-Dri $ 478 $ 10,510
Other Comprehensive (Loss) Income:
Pension and postretirement benefits (net of tax) 79 494
Cumulative translation adjustment ( 187 ) 520
Other Comprehensive (Loss) Income ( 108 ) 1,014
Total Comprehensive Income $ 370 $ 11,524
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
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OIL-DRI CORPORATION OF AMERICA
Condensed Consolidated Statements of Operations
(in thousands, except for per share amounts)
(unaudited)
For the Three Months Ended April 30,
2022 2021
Net Sales $ 85,761 $ 76,255
Cost of Sales (1) ( 70,131 ) ( 61,289 )
Gross Profit 15,630 14,966
Selling, General and Administrative Expenses (1) ( 14,013 ) ( 13,035 )
Loss on Impairment of Goodwill ( 5,644 ) —
(Loss) Income from Operations ( 4,027 ) 1,931
Other (Expense) Income
Interest expense ( 378 ) ( 186 )
Interest income 9 14
Other, net 544 403
Total Other Income, Net 175 231
(Loss) Income Before Income Taxes ( 3,852 ) 2,162
Income Tax Benefit 1,719 24
Net (Loss) Income ( 2,133 ) 2,186
Net Loss Attributable to Noncontrolling Interest ( 24 ) ( 41 )
Net (Loss) Income Attributable to Oil-Dri $ ( 2,109 ) $ 2,227
Net (Loss) Income Per Share
Basic Common $ ( 0.32 ) $ 0.32
Basic Class B Common $ ( 0.24 ) $ 0.24
Diluted Common $ ( 0.32 ) $ 0.32
Diluted Class B Common $ ( 0.24 ) $ 0.24
Average Shares Outstanding (2)
Basic Common 4,932 5,133
Basic Class B Common 1,939 1,925
Diluted Common 4,932 5,242
Diluted Class B Common 1,939 1,965
Dividends Declared Per Share
Basic Common $ 0.2700 $ 0.2600
Basic Class B Common $ 0.2025 $ 0.1950
(1) See Note 1 of the Notes to the unaudited Condensed Consolidated Financial Statements for further information about amounts included in this line item.
(2) The effect of Basic Common and Basic Class B Common potential common stock equivalents related to non-vested restricted stock of 101 and 19 , respectively, were excluded from the computation of average diluted shares outstanding for the three months ended April 30, 2022 as inclusion would have been anti-dilutive.
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
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OIL-DRI CORPORATION OF AMERICA
Condensed Consolidated Statements of Comprehensive (Loss) Income
(in thousands of dollars)
(unaudited)
For the Three Months Ended April 30,
2022 2021
Net (Loss) Income Attributable to Oil-Dri $ ( 2,109 ) $ 2,227
Other Comprehensive (Loss) Income:
Pension and postretirement benefits (net of tax) 26 165
Cumulative translation adjustment ( 93 ) 112
Other Comprehensive (Loss) Income ( 67 ) 277
Total Comprehensive (Loss) Income $ ( 2,176 ) $ 2,504
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
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OIL-DRI CORPORATION OF AMERICA
Consolidated Statements of Stockholders' Equity
(in thousands, except share amounts)
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, 2021 10,937,617 ( 3,507,783 ) $ 1,094 $ 46,890 $ 181,265 $ ( 65,071 ) $ ( 11,517 ) $ ( 220 ) $ 152,441
Net Income (Loss) — — — — 2,227 — — ( 41 ) 2,186
Other Comprehensive Income — — — — — — 277 — 277
Dividends Declared — — — — ( 1,789 ) — — — ( 1,789 )
Purchases of Treasury Stock — ( 21,159 ) — — — ( 736 ) — — ( 736 )
Net issuance of stock under long-term incentive plans 5,000 ( 4,350 ) — 142 — ( 141 ) — — 1
Amortization of Restricted Stock — — — 559 — — — — 559
Balance, April 30, 2021 10,942,617 ( 3,533,292 ) $ 1,094 $ 47,591 $ 181,703 $ ( 65,948 ) $ ( 11,240 ) $ ( 261 ) $ 152,939
Balance, January 31, 2022 11,065,024 ( 3,732,596 ) $ 1,107 $ 50,220 $ 179,322 $ ( 72,862 ) $ ( 4,158 ) $ ( 338 ) $ 153,291
Net Loss — — — — ( 2,109 ) — — ( 24 ) ( 2,133 )
Other Comprehensive Loss — — — — — — ( 67 ) — ( 67 )
Dividends Declared — — — — ( 1,845 ) — — — ( 1,845 )
Purchases of Treasury Stock — ( 151,913 ) — — — ( 4,305 ) — — ( 4,305 )
Net issuance of stock under long-term incentive plans 15,000 ( 2,700 ) 1 83 — ( 84 ) — — —
Amortization of Restricted Stock — — — 814 — — — — 814
Balance, April 30, 2022 11,080,024 ( 3,887,209 ) $ 1,108 $ 51,117 $ 175,368 $ ( 77,251 ) $ ( 4,225 ) $ ( 362 ) $ 145,755
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, 2020 10,886,405 ( 3,426,046 ) $ 1,089 $ 44,993 $ 176,579 $ ( 62,269 ) $ ( 12,254 ) $ ( 174 ) $ 147,964
Net Income (Loss) — — — — 10,510 — — ( 87 ) 10,423
Other Comprehensive Income — — — — — — 1,014 — 1,014
Dividends Declared — — — — ( 5,386 ) — — — ( 5,386 )
Purchases of Treasury Stock — ( 81,746 ) — — — ( 2,925 ) — — ( 2,925 )
Net issuance of stock under long-term incentive plans 56,212 ( 25,500 ) 5 749 — ( 754 ) — — —
Amortization of Restricted Stock — — — 1,849 — — — — 1,849
Balance, April 30, 2021 10,942,617 ( 3,533,292 ) $ 1,094 $ 47,591 $ 181,703 $ ( 65,948 ) $ ( 11,240 ) $ ( 261 ) $ 152,939
Balance, July 31, 2021 10,958,367 ( 3,539,193 ) $ 1,096 $ 48,271 $ 180,443 $ ( 66,154 ) $ ( 4,117 ) $ ( 307 ) $ 159,232
Net Income (Loss) — — — — 478 — — ( 55 ) 423
Other Comprehensive Loss — — — — — — ( 108 ) — ( 108 )
Dividends Declared — — — — ( 5,553 ) — — — ( 5,553 )
Purchases of Treasury Stock — ( 330,916 ) — — — ( 10,506 ) — — ( 10,506 )
Net issuance of stock under long-term incentive plans 121,657 ( 17,100 ) 12 579 — ( 591 ) — — —
Amortization of Restricted Stock — — — 2,267 — — — — 2,267
Balance, April 30, 2022 11,080,024 ( 3,887,209 ) $ 1,108 $ 51,117 $ 175,368 $ ( 77,251 ) $ ( 4,225 ) $ ( 362 ) $ 145,755
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
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OIL-DRI CORPORATION OF AMERICA
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
For the Nine Months Ended April 30,
CASH FLOWS FROM OPERATING ACTIVITIES 2022 2021
Net Income $ 423 $ 10,423
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 10,034 10,653
Non-cash stock-based compensation 2,267 1,849
Deferred income taxes ( 1,311 ) 716
Provision for bad debts and cash discounts ( 1 ) ( 107 )
Loss on impairment of goodwill 5,644 —
Loss on impairment of patent applications 323 —
Loss on the disposals of property, plant and equipment 346 10
(Increase) Decrease in assets:
Accounts receivable ( 2,453 ) ( 3,864 )
Inventories ( 11,456 ) 524
Prepaid expenses 181 ( 2,117 )
Other assets 971 ( 1,066 )
Increase (Decrease) in liabilities:
Accounts payable 1,333 ( 4,227 )
Accrued expenses 1,120 ( 4,070 )
Deferred compensation 556 602
Pension and postretirement benefits ( 924 ) ( 656 )
Other liabilities ( 1,593 ) ( 330 )
Total Adjustments 5,037 ( 2,083 )
Net Cash Provided by Operating Activities 5,460 8,340
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ( 16,012 ) ( 10,757 )
Proceeds from sale of property, plant and equipment — 4
Net Cash Used in Investing Activities ( 16,012 ) ( 10,753 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable 25,000 —
Payment of debt issuance costs ( 114 ) —
Dividends paid ( 5,573 ) ( 5,399 )
Purchases of treasury stock ( 10,506 ) ( 2,925 )
Net Cash Provided by (Used in) Financing Activities 8,807 ( 8,324 )
Effect of exchange rate changes on Cash and Cash Equivalents ( 21 ) 165
Net Decrease in Cash and Cash Equivalents ( 1,766 ) ( 10,572 )
Cash and Cash Equivalents, Beginning of Period 24,591 40,890
Cash and Cash Equivalents, End of Period $ 22,825 $ 30,318
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OIL-DRI CORPORATION OF AMERICA
Condensed Consolidated Statements of Cash Flows - Continued
(in thousands)
(unaudited)
For the Nine Months Ended April 30,
2022 2021
Supplemental disclosures:
Interest payments, net of amounts capitalized $ 178 $ 198
Income tax payments $ 219 $ 1,482
Non-cash investing and financing activities:
Capital expenditures accrued, but not paid $ 1,071 $ 751
Cash dividends declared and accrued, but not paid $ 1,845 $ 1,795
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
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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, 2021 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. Operating results for the three and nine months ended April 30, 2022 are not necessarily an indication of the results that may be expected for the fiscal year ending July 31, 2022.
Immaterial Correction of an Error in Previously Issued Financial Statements
Subsequent to the issuance of our Annual Report on Form 10-K for the fiscal year ended July 31, 2020, we identified an error in our historical financial statements related to the classification of certain costs as selling, general and administrative (“SG&A”) expenses relating to the production of our inventory that should be classified as cost of sales. These costs generally relate to our annual discretionary bonus and 401(k) employer match for our manufacturing employees, employee salaries for individuals in our support functions that spend a portion of their time related to our manufacturing operations such as IT, and other costs mostly related to consultants and outside services.
In accordance with FASB Accounting Standards Codification 250, Accounting Changes and Error Corrections , we evaluated the materiality of the error from both a quantitative and qualitative perspective, and concluded that the error was immaterial to our prior period interim and annual financial statements. Since the error was not material to any prior period interim or annual financial statements, no amendments to previously filed interim or annual periodic reports are required. Consequently, we have adjusted for these errors by revising our historical condensed consolidated financial statements presented herein. The revision to our historical condensed consolidated financial statements did not result in any impact to our consolidated net income.
The effects of the corrections to each of the individual affected line items in our unaudited Condensed Consolidated Statements of Operations were as follows (in thousands):
For the Three Months Ended April 30, 2021
As Previously Reported Corrections As Corrected
Cost of Sales $ ( 59,732 ) $ ( 1,557 ) $ ( 61,289 )
Selling, General and Administrative Expenses $ ( 14,592 ) $ 1,557 $ ( 13,035 )
For the Nine Months Ended April 30, 2021
As Previously Reported Corrections As Corrected
Cost of Sales $ ( 171,853 ) $ ( 4,564 ) $ ( 176,417 )
Selling, General and Administrative Expenses $ ( 43,647 ) $ 4,564 $ ( 39,083 )
The related impacts to Inventory in our unaudited Condensed Consolidated Balance Sheet were not considered material and hence, were not adjusted.
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The effects of the corrections to our Notes to the unaudited Condensed Consolidated Financial Statements for Operating Segments were as follows (in thousands):
For the Three Months Ended April 30, 2021
Income
As Previously Reported Reclassifications Corrections As Corrected
Business to Business Products $ 7,146 $ ( 161 ) $ ( 564 ) $ 6,421
Retail and Wholesale Products $ 2,898 $ ( 50 ) $ ( 993 ) $ 1,855
Corporate Expenses $ ( 8,113 ) $ 211 $ 1,557 $ ( 6,345 )
For the Nine Months Ended April 30, 2021
Income
As Previously Reported Reclassifications Corrections As Corrected
Business to Business Products $ 23,005 $ ( 479 ) $ ( 1,710 ) $ 20,816
Retail and Wholesale Products $ 11,487 $ ( 150 ) $ ( 2,854 ) $ 8,483
Corporate Expenses $ ( 23,140 ) $ 629 $ 4,564 $ ( 17,947 )
Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements. These reclassifications related to the transition of personnel, were not corrections of an error, and had no effect on the previously reported net income.
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. Estimates and assumptions about future events cannot be made with certainty, including the potential impacts and duration of the novel coronavirus pandemic (“the coronavirus” or “COVID-19” or “the pandemic”) and its aftermath. 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, 2021, have not materially changed. The following is a description of certain of our significant accounting policies.
Trade Receivables. We recognize trade receivables when control of finished products are transferred to our customers. We record an allowance for doubtful accounts based on our historical experience and a periodic review of our accounts receivable, including a review of the overall aging of accounts, consideration of customer credit risk and analysis of facts and circumstances about specific 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.
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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, Leases , 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. Taxes collected from customers and remitted to governmental authorities are excluded from net sales. Sales returns are not material nor are warranties and any related obligations.
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 $ 531,000 and $ 256,000 as of April 30, 2022 and July 31, 2021, respectively. This liability is reported in Other within Accrued Expenses on the unaudited Condensed Consolidated Balance Sheet. Revenue recognized during the nine months ended April 30, 2022 that was included in the liability for advance payments at the beginning of the period was $ 187,000 .
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
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and amortization related to assets outside the manufacturing and distribution process and all other non-manufacturing and non-distribution expenses.
Other Current and 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. law. The CARES Act provides for, among other things, deferral of the employer portion of social security taxes incurred through the end of calendar year (December) 2020. As permitted by the CARES Act, we deferred approximately $ 2,300,000 in payroll taxes in calendar year (December) 2020. $ 1,150,000 of the $ 2,300,000 was paid in the fourth quarter of calendar year (December) 2021 and $ 1,150,000 will be paid in the fourth quarter of calendar year (December) 2022. The remaining $ 1,150,000 accrual for these payroll taxes is included in Other within Accrued Expenses on the unaudited Condensed Consolidated Balance Sheet.
2. NEW ACCOUNTING PRONOUNCEMENTS AND REGULATIONS
Recently Adopted Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment (ASC 350). The standard eliminates the requirement to measure the implied fair value of goodwill by assigning the fair value of a reporting unit to all assets and liabilities within that unit (the Step 2 test) from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited by the amount of goodwill in that reporting unit. The guidance is effective for us beginning with the first quarter of fiscal year 2023. Early adoption is permitted. We adopted this standard during the third quarter of fiscal year 2022 in conjunction with testing for our goodwill impairment. See Note 5 for additional information regarding the results of the impairment test performed.
Recently Issued Accounting 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 have debt agreements that reference LIBOR and to the extent that those agreements are modified to replace LIBOR with another interest rate index, ASC 848 will allow us to account for the modification as a continuation of the existing contract without additional analysis. We are currently evaluating the potential effects of the adoption of this guidance on our Consolidated Financial Statements.
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,
2022 July 31,
2021
Finished goods $ 18,084 $ 14,179
Packaging 9,043 5,084
Other 7,824 4,335
Total Inventories $ 34,951 $ 23,598
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. The inventory obsolescence reserve values at April 30, 2022 and
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July 31, 2021 were $ 610,000 and $ 641,000 , respectively. Inventories, in all categories, have increased due to a combination of rising costs and building inventory levels for anticipated demand.
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 no cash equivalents as of April 30, 2022 and July 31, 2021.
Balances of accounts receivable and accounts payable approximated their fair values at April 30, 2022 and July 31, 2021 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 $ 35,051,000 and $ 10,231,000 as of April 30, 2022 and July 31, 2021, 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 the 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 $ 116,000 and $ 146,000 in the third quarter of fiscal years 2022 and 2021, respectively. Intangible amortization expense was $ 369,000 and $ 451,000 in the first nine months of fiscal years 2022 and 2021, respectively. Estimated intangible amortization for the remainder of fiscal year 2022 is $ 116,000 . Estimated intangible amortization for the next five fiscal years is as follows (in thousands):
2023 $ 261
2024 $ 125
2025 $ 101
2026 $ 98
2027 $ 95
We have one acquired trademark recorded at a cost of $ 376,000 that was determined to have an indefinite life and is not amortized.
Much of our goodwill cannot be specifically assigned to one of our operating segments because of the shared nature of our production facilities; however, for purposes of our impairment analysis we estimated the goodwill allocation and assigned $ 5,644,000 to the Retail and Wholesale Products Group and $ 3,618,000 to the Business to Business Products Group.
Our goodwill impairment test is based on cash flow considerations and other approaches that require significant judgment with respect to volume, revenue, expenses and allocations. We determined that, as a result of lower share prices and the continued adverse impacts of rising costs and additional expenses to prevent supply chain disruptions, that we had a triggering event during the third quarter of fiscal 2022 that necessitated a goodwill impairment test. We performed a goodwill impairment test on our Retail and Wholesale Products Group and Business to Business Products Group reporting units and determined that the carrying value of our Retail and Wholesale Products Group reporting unit was higher than its fair value. As a result, we recorded goodwill impairment of $ 5,644,000 which left no remaining goodwill in the Retail and Wholesale Products Group reporting unit. We also performed a quantitative impairment analysis on the Business to Business Products Group reporting unit and concluded there was excess fair value over carrying value, therefore no impairment was recorded on this reporting unit.
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We will continue to consider the need to re-perform impairment testing throughout the year when circumstances such as the ultimate effects of COVID-19, unexpected adverse economic factors, inflation, unanticipated technological changes, competitive activities and acts by governments and courts indicate that goodwill may become impaired.
6. ACCRUED EXPENSES
Accrued expenses is as follows (in thousands):
April 30,
2022 July 31,
2021
Salaries, Wages, Commissions and Employee Benefits $ 11,185 $ 10,806
Trade promotions and advertising 1,335 1,653
Freight 3,795 2,845
Real Estate Tax 631 1,002
Other 9,751 8,577
$ 26,697 $ 24,883
The increase in freight cost is primarily due to increase in fuel prices, tight truck capacity, ongoing driver shortages, and supply chain issues. The accrual for other is higher at April 30, 2022 than July 31, 2021 due to an increase in accrual for rising natural gas costs and timing of certain plant purchases and expenses.
7. 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 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 therefore recorded that estimate in Other within Accrued expenses. There have been no changes during fiscal 2021 or the nine months ended April 30, 2022 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.
8. DEBT
Effective December 16, 2021 (the “Effective Date”), we entered into Amendment No. 1 (the “Amendment”) to the Amended and Restated Note Purchase and Private Shelf Agreement (the “Note Agreement”) with PGIM, Inc. (“Prudential”) and certain existing noteholders affiliated with Prudential named therein.
The Amendment provides that, among other things, an excess leverage fee will be applied to the interest rate applicable to the outstanding daily average principal amount of Notes issued on or after December 15, 2021 as follows: (i) an additional 0.25% in the event the Net Leverage Ratio (as defined in the Amendment) is 2.00:1.00 or greater as of the last day of any fiscal quarter, or (ii) an additional 1.00% in the event that the Net Leverage Ratio is greater than 2.50:1.00 as of the last day of any fiscal quarter.
Concurrent with entering into the Amendment, we issued $ 25,000,000 in aggregate principal amount of Series C Senior Notes (the “Series C Notes”). The Series C Notes bear interest at an annual rate of 3.25 % (subject to the application of the excess leverage fee in the event the Net Leverage Ratio exceeds certain thresholds as described above) and will mature on December 16, 2031 . Annual principal payments of $ 5,000,000 are due December 16 of each fiscal year beginning in 2027 and ending in 2031. Interest is payable semi-annually beginning June 16, 2022.
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9. 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. 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 the unaudited Condensed Consolidated Financial Statements.
We have no material finance leases, and variable costs for operating leases are immaterial for the three and nine months ended April 30, 2022. 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, For the Nine Months Ended April 30,
2022 2021 2022 2021
Operating Lease Cost
Operating lease cost $ 707 $ 592 $ 2,059 $ 1,944
Short-term operating lease cost 123 173 431 535
Supplemental cash flow information related to leases was as follows (in thousands):
For the Three Months Ended April 30, For the Nine Months Ended April 30,
2022 2021 2022 2021
Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 633 $ 579 $ 1,830 $ 1,748
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:
April 30, 2022 July 31, 2021
Weighted-average remaining lease term - operating leases 8.8 years 9.1 years
Weighted-average discount rate - operating leases 3.90 % 3.88 %
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):
2022 $ 568
2023 2,039
2024 1,881
2025 1,749
2026 1,467
Thereafter 5,661
Total 13,365
Less: imputed interest ( 2,047 )
Net lease obligation $ 11,318
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10. 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 no longer earn additional benefits on or after March 1, 2020. On May 4, 2021, we purchased a pension annuity which settled $ 8.5 million of projected benefit obligations and recognized a settlement loss of approximately $ 0.6 million due to the annuity purchase.
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,
2022 2021 2022 2021
Interest cost $ 267 $ 292 $ 801 $ 875
Expected return on plan assets ( 646 ) ( 722 ) ( 1,939 ) ( 2,166 )
Amortization of:
Other actuarial loss 36 218 108 653
Net periodic benefit cost $ ( 343 ) $ ( 212 ) $ ( 1,030 ) $ ( 638 )
Postretirement Health Benefits
(in thousands)
For the Three Months Ended April 30, For the Nine Months Ended April 30,
2022 2021 2022 2021
Service cost $ 31 $ 35 $ 92 $ 104
Interest cost 15 13 44 38
Amortization of:
Other actuarial loss — 1 — 3
Prior service costs ( 2 ) ( 2 ) ( 5 ) ( 5 )
Net periodic benefit cost $ 44 $ 47 $ 131 $ 140
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, and did no t voluntarily make, a contribution to the Pension Plan during the first nine months of fiscal year 2022. We have no minimum funding requirements for the remainder of fiscal year 2022.
The postretirement health plan is an unfunded plan. We pay insurance premiums and claims from our assets.
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Assumptions used in the previous calculations were as follows:
Pension Benefits Postretirement Health Benefits
For the Three and Nine Months Ended April 30,
2022 2021 2022 2021
Discount rate for net periodic benefit cost 2.57 % 2.14 % 2.10 % 1.63 %
Rate of increase in compensation levels — % — % — % — %
Long-term expected rate of return on assets 6.50 % 6.50 % — % — %
The medical cost trend assumption for postretirement health benefits was 7.05 %. 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”) provided 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 was actuarially determined at the end of each fiscal year using assumptions similar to those used for the Pension Plan.
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 was closed to new participants and current participants no longer earned additional benefits on or after March 1, 2020. The SERP was terminated effective June 30, 2020 and all participants were paid in the form of one lump sum in July 2021.
11. 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; e-commerce retailers; 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, 2021.
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 2022 2021 2022 2021
Cat Litter $ 13,353 $ 10,826 $ 132,400 $ 121,820
Industrial and Sports — — 28,528 $ 23,477
Agricultural and Horticultural 21,469 18,665 — —
Bleaching Clay and Fluids Purification 43,685 37,577 1,575 $ 1,457
Animal Health and Nutrition 14,421 13,030 — —
Net Sales $ 92,928 $ 80,098 162,503 $ 146,754
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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 Three Months Ended April 30,
Product 2022 2021 2022 2021
Cat Litter $ 4,026 $ 3,214 $ 43,259 $ 39,941
Industrial and Sports — — 10,588 9,505
Agricultural and Horticultural 7,950 6,632 — —
Bleaching Clay and Fluids Purification 14,145 12,171 539 516
Animal Health and Nutrition 5,254 4,276 — —
Net Sales $ 31,375 $ 26,293 $ 54,386 $ 49,962
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. 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, 2022 July 31, 2021
(in thousands)
Business to Business Products Group $ 73,832 $ 69,023
Retail and Wholesale Products Group 109,024 103,268
Unallocated Assets 58,596 55,275
Total Assets $ 241,452 $ 227,566
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 for employees dedicated to corporate operations. In addition, Income from our Business to Business and Retail and Wholesale Products as well as Corporate Expenses for the three and six months ended April 30, 2021 were adjusted for an immaterial correction of an error. See Note 1 of the Notes to the unaudited Condensed Consolidated Financial Statements.
For the Nine Months Ended April 30,
Net Sales Income
2022 2021 2022 2021
(in thousands)
Business to Business Products Group $ 92,928 $ 80,098 $ 20,052 $ 20,816
Retail and Wholesale Products Group $ 162,503 146,754 $ ( 2,113 ) 8,483
Net Sales $ 255,431 $ 226,852
Corporate Expenses ( 19,603 ) ( 17,947 )
(Loss) Income from Operations ( 1,664 ) 11,352
Total Other Income, Net 892 722
(Loss) Income before Income Taxes ( 772 ) 12,074
Income Tax Benefit (Expense) 1,195 ( 1,651 )
Net Income 423 10,423
Net Loss Attributable to Noncontrolling Interest ( 55 ) ( 87 )
Net Income Attributable to Oil-Dri $ 478 $ 10,510
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For the Three Months Ended April 30,
Net Sales Income
2022 2021 2022 2021
(in thousands)
Business to Business Products Group $ 31,375 $ 26,293 $ 5,716 $ 6,421
Retail and Wholesale Products Group 54,386 49,962 ( 3,113 ) 1,855
Net Sales $ 85,761 $ 76,255
Corporate Expenses ( 6,630 ) ( 6,345 )
(Loss) Income from Operations ( 4,027 ) 1,931
Total Other Income, Net 175 231
(Loss) Income before Income Taxes ( 3,852 ) 2,162
Income Tax Benefit 1,719 24
Net (Loss) Income ( 2,133 ) 2,186
Net Loss Attributable to Noncontrolling Interest ( 24 ) ( 41 )
Net (Loss) Income Attributable to Oil-Dri $ ( 2,109 ) $ 2,227
12. 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 . As of April 30, 2022, there were 249,969 shares available for future grants under this plan.
Restricted Stock
All of our non-vested restricted stock as of April 30, 2022 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 15,000 and 5,000 restricted shares of Common Stock granted during the third quarter of fiscal years 2022 and 2021, respectively. Stock-based compensation expense was $ 814,000 and $ 559,000 for the third quarter of fiscal years 2022 and 2021, respectively. Stock-based compensation expense was $ 2,267,000 and $ 1,849,000 for the first nine months of fiscal years 2022 and 2021, 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, 2021 370 $ 33.96
Granted 122 $ 33.66
Vested ( 68 ) $ 34.62
Forfeitures ( 17 ) $ 34.56
Non-vested restricted stock outstanding at April 30, 2022 407 $ 33.73
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13. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
The following table summarizes the changes in accumulated other comprehensive (loss) income by component as of April 30, 2022 (in thousands):
Pension and Postretirement Health Benefits Cumulative Translation Adjustment Total Accumulated Other Comprehensive (Loss) Income
Balance as of July 31, 2021 $ ( 4,428 ) $ 311 $ ( 4,117 )
Other comprehensive loss before reclassifications, net of tax — ( 187 ) ( 187 )
Amounts reclassified from accumulated other comprehensive income, net of tax 79 (a) — 79
Net current-period other comprehensive income (loss), net of tax 79 ( 187 ) ( 108 )
Balance as of April 30, 2022 $ ( 4,349 ) $ 124 $ ( 4,225 )
(a) Amount is net of tax expense of $ 24,930 . Amount is included in the components of net periodic benefit cost for the pension and postretirement health plans. See Note 10 of the Notes to the unaudited Condensed Consolidated Financial Statements for further information.
14. RELATED PARTY TRANSACTIONS
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 $ 112,000 and $ 72,000 for the third quarter of fiscal years 2022 and 2021, respectively and were $ 268,000 and $ 253,000 for the first nine months of fiscal years 2022 and 2021, respectively. Outstanding accounts receivable from that customer, and its subsidiaries, were $ 5,000 as of April 30, 2022 and $ 4,000 as of July 31, 2021.
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 $ 64,000 and $ 72,000 for the third quarter of fiscal years 2022 and 2021, respectively and were $ 629,000 and $ 273,000 for the first nine months of fiscal years 2022 and 2021, respectively. There were no outstanding accounts payable to that vendor as of April 30, 2022 or July 31, 2021.
15. SUBSEQUENT EVENTS
Effective June 3, 2022, we entered into Amendment No. 2 (the “Amendment”) to the Amended and Restated Note Purchase and Private Shelf Agreement (the “Note Agreement”) with PGIM, Inc. (“Prudential”) and certain existing noteholders affiliated with Prudential named therein. The Amendment, among other things, revises the definition of Consolidated EBITDA (Earnings Before Interest, Depreciation, and Amortization) within the Note Agreement.
Effective June 6, 2022, we entered into a modification (the “Modification”) to the credit agreement (the “Credit Agreement”) with BMO Harris N.A. The Modification, among other things, revises the definition of Consolidated EBITDA and Consolidated EBITR (Earnings Before Interest, Taxes, and Rent) within the Credit Agreement.
The revised definitions of Consolidated EBITDA and consolidated EBITR are relevant to our quarterly covenant calculations based on the amended definitions noted above. The goodwill impairment recorded in the three months ended April 30, 2022, described in Note 5 of the Notes to the unaudited Condensed Consolidated Financial Statements was excluded from the quarterly covenant calculations based on the amended definitions summarized above.
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